Quest Diagnostics 2006 Annual Report Download - page 119

Company’s clinical trials testing business provides clinical laboratory testing performed in connection with
clinical research trials on new drugs. MedPlus is a developer and integrator of clinical connectivity and data
management solutions for healthcare organizations, physicians and clinicians. The Company’s diagnostics products
business manufactures and markets diagnostic test kits and systems. On April 19, 2006, the Company decided to
discontinue NID’s operations and results of operations for NID have been classified as discontinued operations
for all years presented (see Note 15). During the third quarter of 2006, the Company acquired Focus Diagnostics
and Enterix, (see Note 3), both of which develop and market diagnostic products.
At December 31, 2006, substantially all of the Company’s services are provided within the United States,
and substantially all of the Company’s assets are located within the United States.
The following table is a summary of segment information for the three years ended December 31, 2006,
2005 and 2004. Segment asset information is not presented since it is not reported to or used by the chief
operating decision maker at the operating segment level. Operating earnings (loss) of each segment represents net
revenues less directly identifiable expenses to arrive at operating income for the segment. General management
and administrative corporate expenses, including amortization of intangible assets, are included in general
corporate expenses below. The accounting policies of the segments are the same as those of the Company as set
forth in Note 2.
2006 2005 2004
Net revenues:
Clinical laboratory testing business . ............................... $5,785,311 $5,247,465 $4,910,753
All other operating segments ..................................... 483,348 209,261 156,233
Total net revenues ............................................... $6,268,659 $5,456,726 $5,066,986
Operating earnings (loss):
Clinical laboratory testing business . ............................... $1,236,446 (a)(b) $1,083,395 (e) $ 971,395
All other operating segments ..................................... 12,693 (c) 8,594 8,642
General corporate expenses ....................................... (121,062)(d) (84,441) (99,183)(f)
Total operating income . . . ........................................ 1,128,077 1,007,548 880,854
Non-operating expenses, net ...................................... (94,804) (57,540) (55,968)
Income from continuing operations before income taxes ......... 1,033,273 950,008 824,886
Income tax expense ............................................. 407,581 376,812 332,471
Income from continuing operations.............................. 625,692 573,196 492,415
(Loss) income from discontinued operations, net of taxes ........ (39,271)(g) (26,919)(g) 6,780 (g)
Net income...................................................... $ 586,421 $ 546,277 $ 499,195
(a) Operating income for the year ended 2006 includes $33.7 million of stock-based compensation expense.
(b) Operating income for the year ended 2006 includes $27 million of special charges, primarily associated with
integration activities (see Note 4).
(c) Operating income for the year ended 2006 includes $3.8 million of stock-based compensation expense.
(d) Operating income for the year ended 2006 includes $17.9 million of stock-based compensation expense.
(e) During 2005, the Company recorded a $6.2 million charge primarily related to forgiving amounts owed by
patients and physicians, and related property damage as a result of the hurricanes in the Gulf Coast.
(f) During 2004, the Company recorded a $10.3 million charge associated with the acceleration of certain
pension obligations in connection with the succession of the Company’s prior CEO.
(g) See Note 15.
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QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(dollars in thousands unless otherwise indicated)