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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") empower people to take
action to improve health outcomes. The Company uses its extensive database of clinical lab results to derive diagnostic insights
that reveal new avenues to identify and treat disease, inspire healthy behaviors and improve healthcare management. The
Company's diagnostic information services business ("DIS") provides insights through clinical testing and related services to
patients, physicians, hospitals, accountable care organizations ("ACOs"), integrated delivery networks ("IDNs"), health plans,
employers and others. The Company offers the broadest access in the United States to diagnostic information services through
its nationwide network of laboratories, Company-owned patient service centers and phlebotomists in physician offices. The
Company is the world's leading provider of diagnostic information services, which includes providing clinical testing services
such as routine (including drugs-of-abuse) testing, gene-based and esoteric testing, and anatomic pathology services, as well as
related services and insights. The Company provides interpretive consultation with one of the largest medical and scientific
staffs in the industry and hundreds of M.D.s and Ph.D.s, 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 as well as a leading provider of
central laboratory testing for clinical trials (see Note 6 regarding the contribution of the clinical trials testing business to a
newly formed joint venture effective July 1, 2015). The Company's diagnostics products business manufactures and markets
diagnostic products. In addition, the Company offers healthcare organizations, clinicians and patients robust information
technology solutions.
During 2015, Quest Diagnostics processed approximately 157 million test requisitions through its extensive laboratory
network.
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 did not have any VIEs at both December 31, 2015 and 2014.
All significant intercompany accounts and transactions are eliminated in consolidation.
Equity Method Investments
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. These investments are classified as investment in equity method investees in the consolidated balance sheets. The
Company records its pro rata share of the earnings, adjusted for accretion of basis difference, of these investments in equity in
earnings of equity method investees, net of taxes in the consolidated statements of operations. The Company reviews its
investments in equity method investees for impairment whenever events or changes in circumstances indicate that the carrying
amounts may not be recoverable.
Basis of Presentation
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. During the third quarter of 2006, the Company
completed the wind-down of NID, a test kit manufacturing subsidiary. The accompanying consolidated statements of
operations and related disclosures report the results of HemoCue and NID as discontinued operations for all periods presented.
See Note 18 for a further discussion of discontinued operations.
QUEST DIAGNOSTICS 2015 ANNUAL REPORT ON FORM 10-K