Quest Diagnostics 2000 Annual Report Download - page 23

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pharmaceutical and health product companies to support the development and implementation of their
business strategies. We intend to maintain the trust of patients and providers by ensuring the security and
confidentiality of individual patient results.
•Compete Through Providing the Highest Quality Services: We intend to become recognized as the quality
leader in the healthcare services industry. We are implementing a Six Sigma initiative throughout our
organization. Six Sigma is an approach to managing that requires a thorough understanding of customer needs
and requirements, rigorous tracking and measuring of services, and training of employees in methodologies so
that they can be held accountable for improving results. During 2000, we provided training to our employees
in the Six Sigma methodology and introduced high-impact quality improvement projects throughout our
organization. Two of our laboratories and our diagnostics kits facility have achieved ISO-9001 certification
and three of our laboratories have achieved ISO-9002 certification, international standards for quality
management systems. Our Nichols Institute was the first clinical laboratory in North America to achieve ISO-
9001 certification. Several additional regional laboratories are currently pursuing ISO-9002 certification.
•Continue to Lead Innovation: We intend to remain a leading innovator in the clinical laboratory industry by
continuing to introduce new tests, technology and services. As the industry leader with the largest and
broadest network, we believe we are the best channel for developers of new equipment and tests to introduce
their products to the marketplace. Through our relationship with the academic community and pharmaceutical
and biotechnology firms, we believe that we are one of the leaders in transferring technical innovation to the
market. For example, we recently developed and introduced a HIV-genotyping test which predicts the drug
resistance of HIV-infected patients and will help commercialize HIV-phenotyping tests developed by third
parties, which tests help select the most appropriate combination therapy for HIV-infected patients. We intend
to continue to collaborate with and invest in emerging medical technology companies that develop and
commercialize novel diagnostics, pharmaceutical and device technologies, such as our recent investment in
and collaboration with GMP Companies, Inc. We also intend to continue to introduce new tests that we
develop at Nichols Institute, one of the leading esoteric testing laboratories in the world and the largest
provider of molecular diagnostics testing in the United States. We believe that, with the unveiling of the
human genome, new genes and the association of these genes with disease will continue to be discovered at an
accelerating pace, leading to research that will result in ever more complex and thorough diagnostic testing.
We believe that we are well positioned to capture this growth.
•Pursue Strategic Growth Opportunities: We intend to continue to leverage our network in order to capitalize
on targeted strategic growth opportunities both inside and outside our core laboratory testing business. These
opportunities are more fully described under "Strategic Growth Opportunities" and include continuing to
make selective regional acquisitions, capturing the growth in the areas of genomics and specialty testing,
expanding into the direct-to-consumer market by providing testing and medical information services directly
to consumers, leveraging our leading anatomic pathology business into higher margin areas and expanding our
clinical trials testing and other services to the pharmaceutical and biotechnology industries.
•Leverage Our Satisfaction Model: Our business philosophy is that satisfied employees lead to satisfied
customers, which in turn benefits our stockholders. We regularly survey our employees and customers and
follow up on their concerns. We emphasize skills training for all employees and leadership training for our
supervisory employees. Most importantly, we are committed to treating each employee with dignity and
respect and trust them to treat our customers the same way. We believe that our treatment of employees,
together with our competitive pay and benefits, helps increase employee satisfaction and performance, thereby
enabling us to provide the best services to our customers.
Acquisition and Integration of SBCL
On August 16, 1999, we completed the acquisition of SBCL, which operated the clinical laboratory business of
SmithKline Beecham plc, or SmithKline Beecham. The original purchase price consisted of $1.025 billion in cash and
approximately 12.6 million shares of our common stock, which represented approximately 29% of our then outstanding
common stock. However, the SBCL acquisition agreements included a provision for a reduction in the purchase price
paid by us in the event that the combined balance sheet of SBCL indicated that the net assets acquired, as of the
acquisition date, were below a prescribed level. On October 11, 2000, the purchase price adjustment was finalized with
the result that SmithKline Beecham owed us $98.6 million. This amount was offset by $3.6 million separately owed by
us to SmithKline Beecham, resulting in a net payment to us by SmithKline Beecham of $95.0 million. The purchase price
adjustment was recorded in the fourth quarter of 2000 as a reduction in the amount of goodwill recorded in conjunction
with the SBCL acquisition. The remaining components of the purchase price allocation relating to the SBCL acquisition