Quest Diagnostics 2012 Annual Report Download - page 80

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F- 7
QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands unless otherwise indicated)
1. DESCRIPTION OF BUSINESS
Background
Quest Diagnostics Incorporated and its subsidiaries ("Quest Diagnostics" or the "Company") is the world's leading
provider of diagnostic information services providing insights that empower and enable patients, physicians, hospitals,
integrated delivery networks, health plans, employers and others to make better healthcare decisions. The Company offers the
broadest access in the United States to diagnostic information services through its nationwide network of laboratories and
Company-owned patient service centers. Quest Diagnostics 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, many of whom are
recognized leaders in their fields. Quest Diagnostics is the leading provider of diagnostic information services, including
routine testing, esoteric or gene-based testing and anatomic pathology testing 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.
Quest Diagnostics empowers healthcare organizations and clinicians with robust information technology solutions.
During 2012, Quest Diagnostics processed approximately 147 million test requisitions through its extensive network
of laboratories 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, 2012 and 2011. 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 December 31, 2012 and 2011, the Company's investments in
affiliates accounted for under the equity method of accounting totaled $46 million and $45 million, respectively. The
Company's share of equity earnings from investments in affiliates, accounted for under the equity method, totaled $26 million,
$29 million and $30 million, respectively, for 2012, 2011 and 2010. All significant intercompany accounts and transactions are
eliminated in consolidation.
Basis of Presentation
As part of the Company's strategy to refocus on diagnostic information services, the Company completed the sale of its
OralDNA salivary-diagnostics business ("OralDNA") during the fourth quarter of 2012. In addition, in December 2012, the
Company committed to a plan to sell its HemoCue diagnostics products business ("HemoCue"). In February 2013, the
Company entered into an agreement to sell HemoCue. 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 recast to report the results of OralDNA,
HemoCue and NID as discontinued operations for all periods presented. See Note 18 for a further discussion of discontinued
operations.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United
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.