Quest Diagnostics 2010 Annual Report Download - page 100

16. DISCONTINUED OPERATIONS
During the third quarter of 2006, the Company completed its wind down of NID, a test kit manufacturing
subsidiary, and classified the operations of NID as discontinued operations. Results of operations for NID have
been reported as discontinued operations in the accompanying consolidated statements of operations and related
disclosures for all periods presented.
During the third quarter of 2007, the government and the Company began settlement discussions with
respect to the government’s investigation involving NID and the Company. Based on the status of settlement
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:
2010 2009 2008
Net revenues........................................................ $ — $ — $ —
Loss from discontinued operations before income taxes . . ............. (22) (2,361) (79,582)
Income tax (expense) benefit ........................................ (1,765) 1,125 28,888
Loss from discontinued operations, net of taxes. ...................... $(1,787) $(1,236) $(50,694)
The remaining balance sheet information related to NID was not material at December 31, 2010 and 2009.
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 generally 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 2010, 2009 and 2008.
All other operating segments include the Company’s non-clinical testing businesses and consist of its risk
assessment services, clinical trials testing, healthcare information technology, and diagnostics products businesses.
The Company’s risk assessment services business provides underwriting support services to the life insurance
industry including teleunderwriting, specimen collection and paramedical examinations, laboratory testing, medical
record retrieval, case management, motor vehicle reports, telephone inspections, prescription histories and credit
checks. The Company’s clinical trials testing business provides clinical testing performed in connection with
clinical research trials on new drugs, vaccines and certain medical devices. 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 that can help improve patient care and medical
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QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(dollars in thousands unless otherwise indicated)