Quest Diagnostics 2000 Annual Report Download - page 59

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In conjunction with the acquisition of SBCL, we repaid the entire amount outstanding under our then existing
credit agreement. The extraordinary loss recorded in the third quarter of 1999 in connection with this prepayment was
$3.6 million ($2.1 million, net of tax).
Adjusted EBITDA
Adjusted EBITDA represents income (loss) before extraordinary loss, income taxes, net interest expense,
depreciation, amortization and special items. Special items for 2000 and 1999 included the provisions for restructuring
and other special charges reflected on the face of the statements of operations, $8.9 million of costs related to the
integration of SBCL which were included in operating costs and expensed as incurred in 2000, and a $3.0 million gain
related to the sale of an investment in the fourth quarter of 1999. Adjusted EBITDA is presented and discussed because
management believes that Adjusted EBITDA is a useful adjunct to net income and other measurements under accounting
principles generally accepted in the United States since it is a meaningful measure of a company’s performance and
ability to meet its future debt service requirements, fund capital expenditures and meet working capital requirements.
Adjusted EBITDA is not a measure of financial performance under accounting principles generally accepted in the
United States and should not be considered as an alternative to (i) net income (or any other measure of performance
under accounting principles generally accepted in the United States) as a measure of performance or (ii) cash flows from
operating, investing or financing activities as an indicator of cash flows or as a measure of liquidity.
Adjusted EBITDA for 2000 improved to $459.4 million, or 13.4% of net revenues from $237.0 million, or
11.2% of net revenues, excluding the impact of testing performed by third parties under our laboratory network
management arrangements, in the prior year period. The dollar increase in Adjusted EBITDA was principally associated
with the SBCL acquisition. The percentage improvement in Adjusted EBITDA was primarily related to improvements in
the operating performance of the Company and synergies realized from the acquisition of SBCL.
Year Ended December 31, 1999 Compared with Year Ended December 31, 1998
Income before an extraordinary loss, and special items incurred in connection with the SBCL acquisition,
increased to $41.2 million in 1999 from $26.9 million in the prior year. Special items for 1999 consisted of the provisions
for restructuring and other special charges of $73.4 million and a $3.0 million gain related to the sale of an investment in
the fourth quarter of 1999. Special items for 1998 consisted of a $2.5 million charge recorded in selling, general and
administrative expenses that represented the final costs associated with our consolidation plan announced in December
1997. Including these items and an extraordinary loss, net of taxes, of $2.1 million incurred in connection with the
acquisition of SBCL, we reported a net loss for 1999 of $3.4 million, compared to net income of $26.9 million for 1998.
Results for the year ended December 31, 1999 included the effects of testing performed by third parties under
our laboratory network management arrangements. As laboratory network manager, we included in our consolidated
revenues and expenses the cost of testing performed by third parties. This impacts the comparability of revenues and
expenses from year to year and served to increase both reported revenues and cost of services by $91.6 million for the
year ended December 31, 1999. This treatment also serves to increase cost of services as a percentage of net revenues and
decrease selling, general and administrative expenses as a percentage of net revenues.
Net Revenues
Excluding the effect of the testing performed by third parties under our laboratory network management
arrangements, net revenues for the year ended December 31, 1999 increased $655.0 million over the prior year period.
This increase was primarily due to the acquisition of SBCL. Excluding the impact of the SBCL acquisition and the third
party testing performed under our laboratory network management arrangements, net revenues for the year ended
December 31, 1999 increased 1.2% from the prior year level, principally due to an increase in average revenue per
requisition partially offset by a volume decrease of 3.3%. Exclusive of the SBCL acquisition, year over year volume
comparisons improved throughout the year, and in the fourth quarter reflected volume gains over the prior year period.
Operating Costs and Expenses
Total operating costs for the year ended December 31, 1999, excluding the effect of testing performed by third
parties under our laboratory network management arrangements, increased from the prior year period. The increase was
due primarily to the acquisition of SBCL. Operating costs and expenses for 1998 included a first quarter charge of $2.5
million in selling, general and administrative expenses that represented the final costs associated with our consolidation
plan announced in the fourth quarter of 1997.