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F- 7
QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in millions 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 ("DIS") 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 DIS through its nationwide network of laboratories and Company-owned patient service
centers and the Company is the leading provider of DIS, including routine testing, esoteric or gene-based testing and anatomic
pathology testing. 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, many of whom are recognized leaders in
their fields. The Company's Diagnostic Solutions ("DS") businesses offer a variety of solutions for life insurers, healthcare
providers and others. The Company is the leading provider of risk assessment services for the life insurance industry. In
addition, the Company is a leading provider of testing for clinical trials. The Company's diagnostics products business
manufactures and markets diagnostic products. In addition, the Company offers healthcare organizations and clinicians robust
information technology solutions.
During 2013, 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 ("VIEs") 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 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 VIEs 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 VIEs were not material at both
December 31, 2013 and 2012. 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, 2013 and 2012, the Company's investments in affiliates accounted for under the equity
method of accounting totaled $45 million and $46 million, respectively. The Company's share of equity earnings from
investments in affiliates, accounted for under the equity method, totaled $24 million, $26 million and $29 million, respectively,
for 2013, 2012 and 2011. All significant intercompany accounts and transactions are eliminated in consolidation.
Basis of Presentation
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 April 2013, the Company completed the sale of HemoCue. The accompanying consolidated statements of
operations and related disclosures have been recast to report the results of OralDNA and HemoCue as discontinued operations
for all periods presented. Discontinued operations also includes the operations of NID, a test kit manufacturing subsidiary,
which was reported as a discontinued operation in 2006. See Note 19 for a further discussion of discontinued operations.
The Company completed the sale of its Enterix colorectal cancer screening test business (“Enterix”) in September
2013. The Enterix business has not been reclassified to discontinued operations due to the level of continuing involvement in
the Enterix business subsequent to its sale. See Note 6 for a further discussion of the sale of Enterix.