Quest Diagnostics 2003 Annual Report Download - page 100

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QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(dollars in thousands unless otherwise indicated)
As a general matter, providers of clinical laboratory testing services may be subject to lawsuits alleging
negligence or other similar legal claims. These suits could involve claims for substantial damages. Any
professional liability litigation could also have an adverse impact on the Company’s client base and reputation.
The Company maintains various liability insurance programs for claims that could result from providing or
failing to provide clinical laboratory testing services, including inaccurate testing results and other exposures.
The Company’s insurance coverage limits its maximum exposure on individual claims; however, the Company is
essentially self-insured for a significant portion of these claims. The basis for claims reserves incorporates
actuarially determined losses based upon the Company’s historical and projected loss experience. Management
believes that present insurance coverage and reserves are sufficient to cover currently estimated exposures.
Although management cannot predict the outcome of any claims made against the Company, management does
not anticipate that the ultimate outcome of any such proceedings or claims will have a material adverse effect
on the Company’s financial position but may be material to the Company’s results of operations and cash flows
in the period in which such claims are resolved.
16. SUMMARIZED FINANCIAL INFORMATION
As described in Note 11, the Senior Notes and the Debentures are guaranteed by the Subsidiary
Guarantors. With the exception of Quest Diagnostics Receivables Incorporated (see paragraph below), the
non-guarantor subsidiaries are primarily foreign and less than wholly owned subsidiaries.
In conjunction with the Company’s secured receivables credit facility described in Note 11, the Company
formed a new wholly owned non-guarantor subsidiary, Quest Diagnostics Receivables Incorporated (“QDRI’’).
The Company and the Subsidiary Guarantors, with the exception of AML and Unilab, transfer all private
domestic receivables (principally excluding receivables due from Medicare, Medicaid and other federal programs,
and receivables due from customers of its joint ventures) to QDRI. QDRI utilizes the transferred receivables to
collateralize the Company’s secured receivables credit facility. The Company and the Subsidiary Guarantors
provide collection services to QDRI. QDRI uses cash collections principally to purchase new receivables from
the Company and the Subsidiary Guarantors.
The following condensed consolidating financial data illustrates the composition of the combined guarantors.
Investments in subsidiaries are accounted for by the parent using the equity method for purposes of the
supplemental consolidating presentation. Earnings (losses) of subsidiaries are therefore reflected in the parent’s
investment accounts and earnings. The principal elimination entries relate to investments in subsidiaries and
intercompany balances and transactions. On April 1, 2002, Quest Diagnostics acquired AML (see Note 3),
which has been included in the accompanying condensed consolidating financial data, subsequent to the closing
of the acquisition, as a Subsidiary Guarantor. On February 28, 2003, Quest Diagnostics acquired Unilab (see
Note 3), which has been included in the accompanying condensed consolidating financial data, subsequent to the
closing of the acquisition, as a Subsidiary Guarantor.
F-31