Quest Diagnostics 2006 Annual Report Download - page 118

professional liability litigation could also have an adverse impact on the Company’s client base and reputation.
The Company maintains various liability insurance coverage for claims that could result from providing or failing
to provide clinical laboratory testing services, including inaccurate testing results and other exposures. The
Company’s insurance coverage limits its maximum exposure on individual claims; however, the Company is
essentially self-insured for a significant portion of these claims. The basis for claims reserves considers actuarially
determined losses based upon the Company’s historical and projected loss experience. Management believes that
present insurance coverage and reserves are sufficient to cover currently estimated exposures. Although
management cannot predict the outcome of any claims made against the Company, management does not
anticipate that the ultimate outcome of any such proceedings or claims will have a material adverse effect on the
Company’s financial condition but may be material to the Company’s results of operations or cash flows in the
period in which the impact of such claims is determined or paid.
15. DISCONTINUED OPERATIONS
During the fourth quarter of 2005, NID instituted its second voluntary product hold within a six-month
period, due to quality issues, which adversely impacted the operating performance of NID. As a result, the
Company evaluated a number of strategic options for NID. On April 19, 2006, the Company decided to
discontinue NID’s operations. During the third quarter of 2006, the Company completed its wind down of NID
and classified the operations of NID as discontinued operations. The accompanying consolidated statements of
operations and related disclosures have been restated to report the results of NID as discontinued operations for
all periods presented. In connection with the Company’s wind-down of NID’s operations, for the year ended
December 31, 2006, the Company recorded pretax charges of $32 million comprised of: $7 million related to the
write-off of inventories; asset impairment charges of $6 million; employee severance costs of $6 million; contract
termination costs of $6 million; $2 million related to facility closure charges; and $5 million of costs to support
activities to wind-down the business, principally comprised of employee costs and professional fees.
The ongoing government investigation and regulatory review of NID continue (see Note 14). While
management does not believe that these matters will have a material adverse impact on the Company’s overall
financial condition, their final resolution could be material to the Company’s results of operations or cash flows
in the period in which the impact of such matters is determined or paid.
Summarized financial information for the discontinued operations of NID is set forth below (amounts in
thousands):
2006 2005 2004
Net revenues ........................................................ $ 3,610 $ 46,985 $59,615
(Loss) income from discontinued operations before income taxes. . ..... (59,169) (39,554) 10,240
Income tax (benefit) expense......................................... (19,898) (12,635) 3,460
(Loss) income from discontinued operations, net of taxes .............. $(39,271) $(26,919) $ 6,780
Balance sheet information related to NID was not material at December 31, 2006 or 2005.
16. BUSINESS SEGMENT INFORMATION
Clinical laboratory testing is an essential element in the delivery of healthcare services. Physicians use
laboratory tests to assist in the detection, diagnosis, evaluation, monitoring and treatment of diseases and other
medical conditions. Clinical laboratory testing is generally categorized as clinical testing and anatomic pathology
testing. Clinical testing is performed on body fluids, such as blood and urine. Anatomic pathology testing is
performed on tissues, including biopsies, and other samples, such as human cells. Customers of the clinical
laboratory testing business include patients, physicians, hospitals, employers, governmental institutions and other
commercial clinical laboratories.
All other operating segments include the Company’s non-clinical laboratory testing businesses and consist of
its risk assessment services business, its clinical trials testing business, its healthcare information technology
business, MedPlus and its diagnostics products businesses. The Company’s risk assessment business, acquired as
part of the LabOne acquisition in 2005 (see Note 3), provides underwriting support services to the life insurance
industry including teleunderwriting, paramedical examinations, laboratory testing and medical record retrieval. The
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QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(dollars in thousands unless otherwise indicated)