Quest Diagnostics 2008 Annual Report Download - page 105

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Minimum rental commitments under noncancelable operating leases, primarily real estate, in effect at
December 31, 2008 are as follows:
Year ending December 31,
2009................................................................................... $174,025
2010................................................................................... 142,509
2011................................................................................... 103,174
2012................................................................................... 66,562
2013................................................................................... 42,183
2014 and thereafter..................................................................... 106,126
Minimum lease payments . . . ............................................................ 634,579
Noncancelable sub-lease income ........................................................ (7,086)
Net minimum lease payments ........................................................... $627,493
Operating lease rental expense for 2008, 2007 and 2006 aggregated $190 million, $171 million and $153
million, respectively. Rent expense associated with operating leases that include scheduled rent increases and
tenant incentives, such as rent holidays, is recorded on a straight-line basis over the term of the lease.
The Company has certain noncancelable commitments to purchase products or services from various
suppliers, mainly for telecommunications and standing orders to purchase reagents and other laboratory supplies.
At December 31, 2008, the approximate total future purchase commitments are $82 million, of which $43 million
are expected to be incurred in 2009, $33 million are expected to be incurred in 2010 through 2011 and the
balance thereafter.
Contingent Lease Obligations
The Company remains subject to contingent obligations under certain real estate leases that were entered into
by certain predecessor companies of a subsidiary prior to the Company’s acquisition of the subsidiary. While the
title to the properties and interest to the subject leases have been transferred to third parties on several occasions
over the course of many years, the lessors have not released the subsidiary predecessor companies from their
original obligations under the leases and therefore remain contingently liable in the event of default. The
remaining terms of the lease obligations and the Company’s corresponding indemnifications range from 15 to 39
years. The lease payments under certain leases are subject to market value adjustments and therefore, the total
contingent obligations under the leases cannot be precisely determined but are likely to total several hundred
million dollars. A claim against the Company would be made only upon the current lessee’s default and after a
series of claims and corresponding defaults by third parties that precede the Company in the order of
indemnification. The Company also has certain indemnification rights from other parties to recover losses in the
event of default on the lease obligations. The Company believes that the likelihood of its performance under
these contingent obligations is remote and no liability has been recorded for any potential payments under the
contingent lease obligations.
Legal Matters
The Company is involved in various legal proceedings. Some of the proceedings against the Company
involve claims that are substantial in amount.
NID Investigation
NID and the Company each received a subpoena from the United States Attorney’s Office for the Eastern
District of New York during the fourth quarter of 2004. The subpoenas requested a wide range of business
records, including documents regarding parathyroid hormone (“PTH”) test kits manufactured by NID and PTH
testing performed by the Company. The Company has voluntarily and actively cooperated with the investigation,
providing information, witnesses and business records of NID and the Company, including documents related to
PTH tests and test kits, as well as other tests and test kits. In the second and third quarters of 2005, the FDA
conducted an inspection of NID and issued a Form 483 listing the observations made by the FDA during the
course of the inspection. NID responded to the Form 483.
F-33
QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(dollars in thousands unless otherwise indicated)