BUSINESS ACQUISITION

9 Months Ended

Sep. 30, 2014

Business Combinations [Abstract]

BUSINESS ACQUISITION

BUSINESS ACQUISITIONS

Acquisition of Solstas Lab Partners Group

On March 7, 2014, the Company completed its acquisition of Solstas Lab Partners Group and its subsidiaries ("Solstas") in an all-cash transaction valued at $572 million, or $563 million net of cash acquired. The Company financed the acquisition with borrowings under its secured receivables credit facility and senior unsecured revolving credit facility. The final consideration paid is subject to post closing adjustments related to working capital. Through the acquisition, the Company acquired all of Solstas' operations. Solstas is a full-service commercial laboratory based in Greensboro, North Carolina and operates in nine states throughout the Southeastern United States, including the Carolinas, Virginia, Tennessee, Georgia and Alabama.

For the three and nine months ended September 30, 2014, Solstas contributed $90 million and $212 million, respectively, to the Company's consolidated net revenues and $98 million and $220 million, respectively, to operating expenses which includes approximately $11 million and $17 million of restructuring, integration and transaction related costs, respectively. Of the $11 million of restructuring, integration and transaction related costs recorded for the three months ended September 30, 2014, $3 million and $8 million were in cost of services and selling, general and administrative expenses, respectively. Of the $17 million of restructuring, integration and transaction related costs recorded for the nine months ended September 30, 2014, $3 million and $14 million were in cost of services and selling, general and administrative expenses, respectively.

Acquisition of Summit Health, Inc.

On April 18, 2014, the Company completed its acquisition of Summit Health, Inc. ("Summit Health") for $151 million, which consisted of cash consideration of $124 million (which includes $9 million of working capital adjustments), or $123 million net of cash acquired, estimated contingent consideration of $22 million, and $5 million associated with certain transaction related costs due to the sellers of Summit Health. The contingent consideration arrangement is dependent on the achievement of certain revenue targets in 2015 and the Company could pay up to $25 million in 2016 based on the achievement of such targets. The final consideration paid is subject to post closing adjustments related to working capital. Through the acquisition, the Company acquired all of Summit Health's operations. Summit is a provider of on-site prevention and wellness programs. For further details regarding the fair value of the estimated contingent consideration associated with the Summit Health acquisition, see Note 8.

Acquisition of Steward Health Care Systems, LLC

On April 16, 2014, the Company completed the acquisition of the outreach laboratory service operations of Steward Health Care Systems, LLC ("Steward") for $34 million, which consisted of cash consideration of $30 million and contingent consideration of $4 million. The assets acquired primarily represent goodwill and intangible assets, principally comprised of customer-related intangibles (see Note 9). The deferred consideration arrangement secures the seller's compliance with a non-compete agreement under which the Company will pay up to $5 million, ratably, over the next four years provided the non-compete agreement is not violated through 2018. For further details regarding the fair value of the estimated contingent consideration associated with the Steward acquisition, see Note 8.

These acquisitions were accounted for under the acquisition method of accounting. As such, the assets acquired and liabilities assumed are recorded based on their estimated fair values as of the closing date. The purchase price allocations related to the Solstas and Summit Health acquisitions are based upon the Company's preliminary estimates and assumptions that are subject to change within the measurement period. Management is currently in the process of verifying data and finalizing information related to this valuation and recording of identifiable intangible assets, certain other assets and liabilities and the corresponding effect on the amount of goodwill. All of the goodwill acquired in connection with the Solstas, Summit Health and Steward acquisitions has been allocated to the Company's DIS business.

The following tables summarizes the consideration paid and the preliminary amounts of assets acquired and liabilities assumed at the acquisition date for the Solstas and Summit Health acquisitions described above:

	Solstas			Summit Health
Cash	$	572		$	124
Estimated fair value of contingent consideration	—			22
Transaction related costs due to sellers	—			5
Total consideration	$	572		$	151
	Solstas			Summit Health
Allocation of purchase price:	Fair Value		Weighted Average Useful Life (in years)	Fair Value		Weighted Average Useful Life (in years)
Cash and cash equivalents	$	9		$	1
Accounts receivable, net	48			9
Current deferred income taxes	7			—
Other current assets	13			16
Property, plant and equipment, net	48			6
Goodwill	266			91
Intangible assets:
Customer relationships	203		20	33		15
Software	—			3		4
Trade name	7		2	2		1
Total intangible assets	210			38
Non-current deferred income taxes	42			—
Total assets acquired	643			161
Current liabilities	59			10
Non-current deferred income taxes	4			—
Other non-current liabilities	8			—
Total liabilities assumed	71			10
Net assets acquired	$	572		$	151

The goodwill recorded as part of the Solstas and Summit Health acquisitions includes the expected synergies resulting from combining the operations of the acquired business with those of the Company and the value associated with an assembled workforce that has a historical track record of identifying opportunities.

Pro Forma Combined Financial Information

The following unaudited pro forma combined financial information reflects the consolidated statement of operations of the Company as if the acquisitions of Solstas and Summit Health had occurred as of January 1, 2013. The pro forma information includes adjustments primarily related to the amortization of intangible assets acquired, interest expense associated with debt extinguished prior to the acquisitions, and transaction costs related to the Solstas and Summit Health acquisitions. The pro forma combined financial information does not include the estimated annual synergies expected to be realized upon completion of the integration of Solstas and Summit Health and is not indicative of the results of operations as they would have been had the transaction been effected on the assumed date. Financial information for Steward has not been included in the table below as this acquisition is not material to the Company’s interim unaudited consolidated financial statements.

	Three Months Ended September 30,		Nine Months Ended September 30,
	2013		2014		2013
Pro forma net revenues	$	1,911	$	5,637	$	5,740
Pro forma income from continuing operations	$	417	$	390	$	703
Earnings per share attributable to Quest Diagnostics’ common stockholders - basic:
Pro forma income from continuing operations	$	2.71	$	2.51	$	4.40
Earnings per share attributable to Quest Diagnostics’ common stockholders - diluted:
Pro forma income from continuing operations	$	2.70	$	2.50	$	4.36