(a)

For further details impacting the year-over-year comparisons related to operating income, operating income as a percentage of net revenues, income from continuing operations attributable to Quest Diagnostics, and diluted EPS, see note 2 of the financial tables attached below.

(b)

The sum of reported and adjusted diluted EPS for the first three quarters of 2020 did not equal the totals for the nine months ended September 30, 2020 due to quarterly fluctuations in the company's earnings and weighted average common shares outstanding throughout the period as a result of the impact of COVID-19 and the temporary cessation of repurchases under the company's share repurchase program.

2) The following tables reconcile reported GAAP results to non-GAAP adjusted results:

Three Months Ended September 30, 2020

(dollars in millions, except per share data)

Operating income

Operating income as a percentage of net revenues

Income tax expense (e)

Equity in earnings of equity method investees, net of taxes

Income from continuing operations attributable to Quest Diagnostics

Diluted EPS

As reported

$

718

25.8

%

$

(177)

$

15

$

568

$

4.14

Restructuring and integration charges (a)

18

0.6

(4)

—

14

0.10

COVID-19 impact (b)

68

2.5

(18)

1

52

0.39

Gain on remeasurement of equity interest (c)

—

—

7

—

(63)

(0.46)

Amortization expense

27

0.9

(7)

3

23

0.16

ETB

—

—

(3)

—

(3)

(0.02)

As adjusted

$

831

29.8

%

$

(202)

$

19

$

591

$

4.31

Nine Months Ended September 30, 2020

(dollars in millions, except per share data)

Operating income

Operating income as a percentage of net revenues

Income tax expense (e)

Equity in earnings of equity method investees, net of taxes

Income from continuing operations attributable to Quest Diagnostics

Diluted EPS

As reported

$

1,176

18.3

%

$

(269)

$

33

$

852

$

6.25

Restructuring and integration charges (a)

43

0.7

(9)

—

34

0.25

COVID-19 impact (b)

54

0.8

(11)

(2)

39

0.29

Gain on remeasurement of equity interest (c)

—

—

7

—

(63)

(0.46)

Amortization expense

77

1.2

(21)

9

65

0.47

ETB

—

—

(15)

—

(15)

(0.11)

As adjusted

$

1,350

21.0

%

$

(318)

$

40

$

912

$

6.69

Three Months Ended September 30, 2019

(dollars in millions, except per share data)

Operating income

Operating income as a percentage of net revenues

Income tax expense (e)

Equity in earnings of equity method investees, net of taxes

Income from continuing operations attributable to Quest Diagnostics

Diluted EPS

As reported

$

313

16.0

%

$

(62)

$

18

$

215

$

1.56

Restructuring and integration charges (a)

16

0.8

(4)

—

12

0.09

Other (d)

(3)

(0.1)

1

—

(2)

(0.01)

Amortization expense

23

1.2

(6)

2

19

0.14

ETB

—

—

(3)

—

(3)

(0.02)

As adjusted

$

349

17.9

%

$

(74)

$

20

$

241

$

1.76

Nine Months Ended September 30, 2019

(dollars in millions, except per share data)

Operating income

Operating income as a percentage of net revenues

Income tax expense (e)

Equity in earnings of equity method investees, net of taxes

Income from continuing operations attributable to Quest Diagnostics

Diluted EPS

As reported

$

868

15.0

%

$

(175)

$

48

$

585

$

4.27

Restructuring and integration charges (a)

64

1.1

(17)

—

47

0.35

Other (d)

(17)

(0.3)

—

—

(17)

(0.11)

Amortization expense

72

1.2

(20)

12

64

0.46

ETB

—

—

(11)

—

(11)

(0.08)

As adjusted

$

987

17.0

%

$

(223)

$

60

$

668

$

4.89

(a)

For both the three and nine months ended September 30, 2020 and 2019, represents costs primarily associated with systems conversions and integration incurred in connection with further restructuring and integrating our business. The following table summarizes the pre-tax impact of restructuring and integration charges on the company's consolidated statements of operations:

(b)

For both the three and nine months ended September 30, 2020, represents the impact of certain items resulting from the COVID-19 pandemic. For the three months ended September 30, 2020, principally includes the reversal of $65 million of income previously recognized during the second quarter of 2020 attributable to the receipt of funds from the government that were appropriated to healthcare providers under the CARES Act and, to a lesser extent, incremental costs incurred primarily to protect the health and safety of the company's employees and customers. For the nine months ended September 30, 2020, principally includes expense associated with a one-time payment to eligible employees to help offset expenses they incurred as a result of COVID-19, certain asset impairment charges, and incremental costs incurred primarily to protect the health and safety of the company's employees and customers.

The following table summarizes the pre-tax impact of these COVID-19 items on the company's consolidated statements of operations:

(c)

For the three and nine months ended September 30, 2020, the pre-tax impact represents a gain of $70 million recognized in other income, net based on the difference between the fair value and the carrying value of an equity interest. On August 1, 2020, the company completed its acquisition of the remaining 56% interest in Mid America Clinical Laboratories, LLC ("MACL") from its joint venture partners. As a result of the transaction, the company remeasured its previously held minority interest in MACL to fair value and recognized a gain.

(d)

For the three months ended September 30, 2019, the pre-tax impact primarily represents a gain associated with the decrease in the fair value of the contingent consideration accrual associated with a previous acquisition, partially offset by costs incurred related to a data security incident. For the nine months ended September 30, 2019, the pre-tax impact primarily represents a gain associated with an insurance claim for hurricane related losses, and a gain associated with the decrease in the fair value of the contingent consideration accruals associated with previous acquisitions, partially offset by non-cash asset impairment charges, and costs incurred related to a data security incident.

The following table summarizes the pre-tax impact of these other items on the company's consolidated statements of operations:

(e)

For restructuring and integration charges, COVID-19 impacts, other items and amortization expense, income tax impacts, where recorded, were primarily calculated using combined statutory income tax rates of 25.5% for both 2020 and 2019. For the gain on remeasurement of equity interest, income tax expense was calculated based on an effective income tax rate on the transaction of 11.8%, which is lower than the statutory income tax rate due to a permanent difference in the financial reporting and tax basis of goodwill. For the gain associated with an insurance claim for hurricane related losses in 2019, there was no net income tax expense as the company was able to utilize net operating loss carryforwards for which a valuation allowance had previously been established. For the gain in 2019 associated with the decrease in the fair value of the contingent consideration accruals associated with previous acquisitions, there was no net income tax expense related to acquisitions in which the gain is non-taxable.

3)

Discontinued operations, net of taxes, for the nine months ended September 30, 2019 includes discrete tax benefits of $20 million associated with the favorable resolution of certain tax contingencies related to Nichols Institute Diagnostics, a test kit manufacturing subsidiary whose operations were discontinued in 2006.

4)

For the three months ended September 30, 2020, the company did not repurchase any shares of its common stock. For the nine months ended September 30, 2020, the company repurchased 0.7 million shares of its common stock for $75 million. As of September 30, 2020, $1.2 billion remained available under the company's share repurchase authorizations; however the company has temporarily suspended additional share repurchases under the existing authorization.

5)

For the nine months ended September 30, 2020, net cash provided by operating activities includes $138 million that the company received from the funds that were appropriated to healthcare providers under the CARES Act, which is included in accounts payable and accrued expenses. The company has determined that it will return the CARES Act funds.

6)

The outlook for adjusted diluted EPS represents management's estimates for the full year 2020 before the impact of special items. Further impacts to earnings related to special items may occur throughout 2020. Additionally, the amount of ETB is dependent upon employee stock option exercises and the company's stock price, which are difficult to predict. The outlook for diluted EPS and adjusted diluted EPS is subject to the risks and uncertainties described under "Forward Looking Statements". The following table reconciles our 2020 outlook for adjusted diluted EPS to the corresponding amounts determined under GAAP:

(a)

Represents estimated full year pre-tax charges of $71 million primarily associated with systems conversions and integration costs incurred in connection with further restructuring and integrating our business. Income tax benefits were calculated using a combined statutory income tax rate of 25.5%.

(b)

Represents the estimated impact of amortization expense for 2020 on the calculation of adjusted diluted EPS. Amortization expense used in the calculation is as follows (dollars in millions):

(c)

Represents estimated full year pre-tax charges of $10 million associated with the company's recently announced initiative with the Quest Diagnostics Foundation to reduce health disparities in underserved communities including through a combination of donated testing services, education programs, partnerships, and financial support. Income tax benefits were calculated using a combined statutory income tax rate of 25.5%.