Quest Diagnostics 2000 Annual Report Download - page 58

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38
While certain cost estimates, relative to integration activities, were revised during 2000, the revisions did not
impact our estimate of approximately $150 million of related annual synergies over the next several years. We estimate
that the Company achieved approximately $50 million of such synergies in 2000. For the full year 2001, management
expects that the Company will realize approximately $50 - $70 million of additional synergies driven by cost reductions.
During the third and fourth quarters of 1999, we recorded provisions for restructuring and other special charges
totaling $30.3 million and $43.1 million, respectively, principally incurred in connection with the acquisition and planned
integration of SBCL.
Of the total special charge recorded in the third quarter of 1999, $19.8 million represented stock-based employee
compensation of which $17.8 million related to special one-time grants of our common stock to certain individuals of the
combined company, and $2.0 million related to the accelerated vesting, due to the completion of the SBCL acquisition, of
restricted stock grants made in previous years. In addition, during the third quarter of 1999, we incurred $9.2 million of
professional and consulting fees related to integration planning activities. The remainder of the third quarter charge
related to costs incurred in conjunction with our planned offering of new senior subordinated notes, the proceeds of
which were expected to be used to repay our existing 10 ¾% senior subordinated notes due 2006, or the Notes. During
the third quarter of 1999, we decided not to proceed with the offering due to unsatisfactory market conditions.
Of the total special charge recorded in the fourth quarter of 1999, $36.4 million represented costs related to
planned integration activities affecting Quest Diagnostics' operations and employees. Of these costs, $23.4 million related
to employee severance costs, $9.7 million related primarily to lease obligations for facilities and equipment and $6.7
million was associated with the write-off of assets that we plan to dispose of in conjunction with the integration of SBCL.
Offsetting these charges was the reversal of $3.4 million of reserves associated with our consolidation plan announced in
the fourth quarter of 1997. Upon finalizing the initial integration plans for SBCL in the fourth quarter of 1999, we
determined that $3.4 million of the remaining reserves associated with the December 1997 consolidation plan was no
longer necessary due to changes in the plan as a result of the SBCL integration. In addition to the net charge of $36.4
million, we recorded $3.5 million of special recognition awards granted in the fourth quarter of 1999 to certain
employees involved in the transaction and integration planning processes of the SBCL acquisition. The remainder of the
fourth quarter special charge was primarily attributable to professional and consulting fees incurred in connection with
integration related planning activities.
Minority Share of Income
Minority share of income for the year ended December 31, 2000 increased from the prior year period, primarily
due to improved performance at our joint ventures.
Other, Net
Other, net for the year ended December 31, 2000 decreased from the prior year period, primarily due to an
increase in equity earnings from unconsolidated joint ventures, and to a lesser extent, the amortization of deferred gains
associated with certain investments.
Income Taxes
Our effective tax rate is significantly impacted by goodwill amortization, the majority of which is not deductible
for tax purposes, and has the effect of increasing the overall tax rate. The reduction in the effective tax rate for 2000 was
primarily due to pretax earnings increasing at a faster rate than goodwill amortization and other non-deductible items.
Extraordinary Loss
Extraordinary losses were recorded in 2000 and 1999 representing the write-off of deferred financing costs
associated with debt which was prepaid during the periods.
During the fourth quarter of 2000, we prepaid $155 million of term loans under our Credit Agreement. The
extraordinary loss recorded in the fourth quarter of 2000 in connection with this prepayment was $4.8 million ($2.9
million, net of tax).