Quest Diagnostics 2012 Annual Report Download - page 81

F- 8
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. Adjustments to the allowances, based on
actual receipts from the third-party payers, are recorded upon settlement. Billings to the Medicare and Medicaid programs were
approximately 19% of the Company's consolidated net revenues in each of the years ended December 31, 2012 and 2011 and
approximately 18% of the Company's consolidated net revenues for the year ended December 31, 2010. Under capitated
arrangements with healthcare insurers, the Company recognizes revenue based on a predetermined monthly reimbursement rate
for each member of an insurer's health plan regardless of the number or cost of services provided by the Company. In 2012,
2011 and 2010, approximately 3%, 3%, and 4%, respectively, of the Company's consolidated net revenues were generated
under capitated arrangements.
Revenues from the Company's risk assessment services, clinical trials testing and diagnostics products businesses are
recognized when persuasive evidence of a final agreement exists; delivery has occurred or services have been rendered; the
price of the product or service is fixed or determinable; and collectibility from the customer is reasonably assured. The
Company's healthcare information technology business primarily uses the percentage-of-completion method of contract
accounting and recognizes revenue as performance takes place over an extended period of time.
Taxes on Income
Current and deferred income taxes are measured based on the tax laws that are enacted as of the balance sheet date of
the relevant reporting period. Deferred tax assets and liabilities are recognized for the expected future tax consequences of
differences between the carrying amounts of assets and liabilities and their respective tax bases using tax rates in effect for the
year in which the differences are expected to reverse. A valuation allowance is provided when it is more likely than not that
some portion or all of the deferred tax assets will not be realized. The effect on deferred tax assets and liabilities of a change in
tax rates is recognized in income in the period when the change is enacted.
Earnings Per Share
The Company's unvested restricted common stock and unvested restricted stock units that contain non-forfeitable
rights to dividends are participating securities and, therefore, are included in the earnings allocation in computing earnings per
share using the two-class method. Basic earnings per common share is calculated by dividing net income, adjusted for earnings
allocated to participating securities, by the weighted average number of common shares outstanding. Diluted earnings per
common share is calculated by dividing net income, adjusted for earnings allocated to participating securities, by the weighted
average number of common shares outstanding after giving effect to all potentially dilutive common shares outstanding during
the period. Potentially dilutive common shares include the dilutive effect of outstanding stock options and performance share
units granted under the Company's Amended and Restated Employee Long-Term Incentive Plan (“ELTIP”) and its Amended
and Restated Non-Employee Director Long-Term Incentive Plan (“DLTIP”). Earnings allocable to participating securities
include the portion of dividends declared as well as the portion of undistributed earnings during the period allocable to
participating securities.
QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
(dollars in thousands unless otherwise indicated)