Quest Diagnostics 2007 Annual Report Download - page 105

Summarized financial information for the discontinued operations of NID is set forth below:
2007 2006 2005
Net revenues ...................................................... $ - $ 3,610 $ 46,985
Loss from discontinued operations before income taxes .............. (250,278) (59,169) (39,554)
Income tax benefit. . ............................................... (36,389) (19,898) (12,635)
Loss from discontinued operations, net of taxes . . ................... $(213,889) $(39,271) $(26,919)
Results for 2007 reflect charges of $241 million to establish a reserve in connection with various
government claims (see Note 15). The Company estimates that this amount represents the minimum expected
probable loss with respect to this matter. The Company does not believe that a reasonable estimate for these
losses in excess of the established reserve can be made at this time. The Company has recorded a deferred tax
benefit associated with that portion of the reserve that it expects will be tax deductible. Eventual losses related to
these matters may substantially exceed the reserve, and the impact could be material to the Company’s results of
operations, cash flows and financial condition in the period that such matters are determined or paid.
Results for 2006 reflect losses from NID’s operations, due to its voluntary product hold instituted late in the
second quarter of 2005 in connection with a quality review of all its products. In addition, results for 2006 also
reflect pre-tax charges of $32 million, primarily related to the wind down of NID’s operations. These charges
included: inventory write-offs of $7 million; asset impairment charges of $6 million; employee severance costs of
$6 million; contract termination costs of $6 million; facility closure costs of $2 million; and costs to support
activities to wind-down the business comprised primarily of employee costs and professional fees of $5 million.
Results for 2005 reflect losses from NID’s operations, due to its voluntary product hold instituted late in the
second quarter of 2005 in connection with a quality review of all its products.
The $241 million reserve established in 2007 in connection with various government claims is included in
“accounts payable and accrued expenses” in the consolidated balance sheet at December 31, 2007. The deferred
tax asset recorded in connection with establishing the reserve is included in “deferred income taxes” in the
consolidated balance sheet at December 31, 2007. The remaining balance sheet information related to NID was
not material at December 31, 2007 and 2006.
17. BUSINESS SEGMENT INFORMATION
Clinical 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 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 testing business include
patients, physicians, hospitals, employers, governmental institutions and other commercial clinical laboratories.
The clinical testing business accounted for greater than 90% of net revenues from continuing operations in 2007,
2006 and 2005.
All other operating segments include the Company’s non-clinical 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 provides underwriting
support services to the life insurance industry including teleunderwriting, paramedical examinations, laboratory
testing and medical record retrieval. The Company’s clinical trials testing business provides clinical testing
performed in connection with clinical research trials on new drugs and vaccines. 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.
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 16).
During the third quarter of 2006, the Company acquired Focus Diagnostics and Enterix, in the first quarter
of 2007, it acquired Hemocue, and in the second quarter of 2007, it acquired AmeriPath (see Note 3). Enterix
and Hemocue are included in the Company’s other operating segments. The majority of Focus Diagnostics’
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QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(dollars in thousands unless otherwise indicated)