Quest Diagnostics 2011 Annual Report Download - page 78

QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands unless otherwise indicated)
1. DESCRIPTION OF BUSINESS
Quest Diagnostics Incorporated and its subsidiaries (“Quest Diagnostics” or the “Company”) is the world’s
leading provider of diagnostic testing, information and services, providing insights that enable patients and
physicians to make better healthcare decisions. Quest Diagnostics offers patients and physicians the broadest
access to diagnostic laboratory services through the Company’s nationwide network of laboratories and patient
service centers. The Company provides interpretive consultation through the largest medical and scientific staff in
the industry, with hundreds of M.D.s and Ph.D.s, primarily located in the United States. Quest Diagnostics is the
leading provider of clinical testing, including gene-based and esoteric testing, and anatomic pathology services,
and the leading provider of risk assessment services for the life insurance industry in North America. The
Company is also a leading provider of testing for clinical trials and testing for drugs-of-abuse. The Company’s
diagnostics products business manufactures and markets diagnostic test kits and specialized point-of-care testing.
Quest Diagnostics empowers healthcare organizations and clinicians with robust information technology solutions.
During 2011, Quest Diagnostics processed approximately 146 million test requisitions through its extensive
network of laboratories in major metropolitan areas and elsewhere throughout the United States.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of all entities controlled by the Company through
its direct or indirect ownership of a majority voting interest and the accounts of any variable interest entities
where the Company is subject to a majority of the risk of loss from the variable interest entity’s activities, or
entitled to receive a majority of the entity’s residual returns, or both. The Company assesses the requirements
related to the consolidation of variable interest entities (“VIEs”), including a qualitative assessment of power and
economics that considers which entity has the power to direct the activities that “most significantly impact” the
VIE’s economic performance and has the obligation to absorb losses of, or the right to receive benefits that could
be potentially significant to, the VIE. The Company’s relationships with variable interest entities were not
material at both December 31, 2011 and 2010. Investments in entities which the Company does not control, but
in which it has a substantial ownership interest (generally between 20% and 49%) and can exercise significant
influence, are accounted for using the equity method of accounting. At both December 31, 2011 and 2010, the
Company’s investments in affiliates accounted for under the equity method of accounting totaled $45 million.
The Company’s share of equity earnings from investments in affiliates, accounted for under the equity method,
totaled $29 million, $30 million and $33 million, respectively, for 2011, 2010 and 2009. All significant
intercompany accounts and transactions are eliminated in consolidation.
Basis of Presentation
During the third quarter of 2006, the Company completed its wind-down of NID, a test kit manufacturing
subsidiary, and classified the operations of NID as discontinued operations. The accompanying consolidated
statements of operations and related disclosures have been prepared to report the results of NID as discontinued
operations for all periods presented. See Note 17 for a further discussion of discontinued operations.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the
Unites States (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from
those estimates.
Revenue Recognition
The Company primarily recognizes revenue for services rendered upon completion of the testing process.
Billings for services reimbursed by third-party payers, including Medicare and Medicaid, are recorded as revenues
net of allowances for differences between amounts billed and the estimated receipts from such payers.
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