Quest Diagnostics 2009 Annual Report Download - page 106

discussions, during 2007 the Company established a reserve, in accordance with generally accepted accounting
principles, reflected in discontinued operations, of $241 million in connection with these claims.
During the third quarter of 2008, the Company and NID reached an agreement in principle with the United
States Attorney’s Office to settle the federal government investigation involving NID and the Company regarding
NID test kits and tests performed using those test kits. As a result of the agreement in principle in 2008, the
Company recorded charges of $75 million in discontinued operations to increase its reserve for the settlement and
related matters.
On April 15, 2009, the Company finalized the resolution of the federal government investigation related to
NID and entered into a final settlement agreement with the federal government. In the second quarter of 2009,
the Company paid $268 million to settle the civil allegations. The Company also entered into a five-year
corporate integrity agreement with the Office of Inspector General for the United States Department of Health
and Human Services. In addition, NID pled guilty to a single count of felony misbranding and paid a $40 million
fine. These second quarter payments totaling $308 million, which had been previously reserved, were funded out
of cash on-hand and available credit facilities. During the third quarter of 2009, the Company finalized separate
settlement agreements with certain states and paid approximately $6 million, which had been previously reserved
for.
Summarized financial information for the discontinued operations of NID is set forth below:
2009 2008 2007
Net revenues . .................................................... $ - $ - $ -
Loss from discontinued operations before income taxes ............. (2,361) (79,582) (250,278)
Income tax benefit ................................................ 1,125 28,888 36,389
Loss from discontinued operations, net of taxes .................... $(1,236) $(50,694) $(213,889)
At December 31, 2008, the settlement reserve totaling $316 million is included in “accounts payable and
accrued expenses” in the consolidated balance sheet which was paid in 2009. The deferred tax asset recorded in
connection with establishing the reserve of $58 million is included in “deferred income taxes” in the consolidated
balance sheet at December 31, 2008. The remaining balance sheet information related to NID was not material at
December 31, 2009 and 2008.
17. BUSINESS SEGMENT INFORMATION
Clinical testing is an essential element in the delivery of healthcare services. Physicians use clinical tests to
assist in the detection, diagnosis, evaluation, monitoring and treatment of diseases and other medical conditions.
Clinical testing is generally categorized as clinical laboratory testing and anatomic pathology services. Clinical
laboratory testing is performed on whole blood, serum, plasma and other body fluids, such as urine, and
specimens such as microbiology samples. Anatomic pathology services are principally for the detection of cancer
and are performed on tissues, such as 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 2009, 2008 and 2007.
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, 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. The Company’s healthcare information
technology business 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).
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QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(dollars in thousands unless otherwise indicated)