Quest Diagnostics 2011 Annual Report Download - page 59

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available tax credits, net operating loss carryforwards and capitalized tax research and development expenditures
to reduce our future tax payments by approximately $110 million. Celera is a healthcare business focused on the
integration of genetic testing into routine clinical care through a combination of products and services
incorporating proprietary discoveries. Celera offers a portfolio of clinical laboratory tests and disease management
services associated with cardiovascular disease. In addition, Celera develops, manufactures and oversees the
commercialization of molecular diagnostic products, and has licensed other relevant diagnostic technologies
developed to provide personalized disease management in cancer and liver diseases. Celera generated revenues of
$128 million in 2010. We completed the acquisition of Celera on May 17, 2011 (see Note 4 to the Consolidated
Financial Statements for further details).
Results of Operations
Our clinical testing business currently represents our one reportable business segment. The clinical testing
business for each of the three years in the period ended December 31, 2011 accounted for more than 90% of net
revenues from continuing operations. Our other operating segments consist of our risk assessment services,
clinical trials testing, healthcare information technology and diagnostic products businesses. On April 19, 2006,
we decided to discontinue the operations of a test kit manufacturing subsidiary, NID. During the third quarter of
2006, we completed the wind down of NID. Therefore, the operations of NID are classified as discontinued
operations for all periods presented. Our business segment information is disclosed in Note 18 to the
Consolidated Financial Statements.
Settlement Related to the California Lawsuit
On May 9, 2011, we announced an agreement in principle to resolve a previously disclosed civil lawsuit
brought by a California competitor in which the State of California intervened (the “California Lawsuit”). In the
lawsuit, the plaintiffs alleged, among other things, that we overcharged Medi-Cal for testing services and violated
the California False Claims Act. Specifically, the plaintiffs alleged, among other things, that we violated certain
regulations that govern billing to Medi-Cal (“Comparable Charge” regulations). While denying liability, in order
to avoid the uncertainty, expense and risks of litigation, we agreed to resolve these matters for $241 million. On
May 19, 2011, we finalized a settlement agreement and release with the California Department of Health Care
Services, the California Attorney General’s Office and the qui tam relator. We agreed to the settlement to resolve
claims pertaining to the Comparable Charge allegations; we received a full release of these and all other
allegations in the complaint. We also agreed to certain reporting obligations regarding our pricing for a limited
time period and, at our option in lieu of such obligations for a transitional period, to provide Medi-Cal with a
discount (the “Transitional Discount”) until the end of July 2012. The Transitional Discount, to the extent
provided, is not expected to have a material impact on our consolidated revenues or results of operations.
As a result of the agreement in principle, we recorded a pre-tax charge to earnings in the first quarter of
2011 of $236 million (the “Medi-Cal charge”), or $1.22 per diluted share, which represented the cost to resolve
the matters noted above and related claims, less amounts previously reserved for related matters.
We funded the $241 million payment in the second quarter of 2011 with cash on hand and borrowings
under our existing credit facilities. See Note 16 to the Consolidated Financial Statements for further details.
Year Ended December 31, 2011 Compared with Year Ended December 31, 2010
Continuing Operations
2011 2010
%
Change:
Increase
(Decrease)
(dollars in millions,
except per share data)
Net revenues................................................................ $7,510.5 $7,368.9 1.9%
Income from continuing operations........................................... 472.1 722.7 (34.7)%
Earnings per diluted share ................................................... $ 2.93 $ 4.06 (27.8)%
Results for the year ended December 31, 2011 were affected by a number of items which impacted earnings
per diluted share by $1.60. During the first quarter of 2011, we recorded the Medi-Cal charge of $236 million, or
$1.22 per diluted share, in other operating expense (income), net. In addition, results for the year ended
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