Quest Diagnostics 2000 Annual Report Download - page 61

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fourth quarter special charge was primarily attributable to professional and consulting fees incurred in connection with
integration related planning activities.
Integration costs, including write-offs of fixed assets, totaling $55.5 million which are related to planned
integration activities affecting SBCL assets, liabilities and employees, were recorded in the fourth quarter of 1999 as a
cost of the SBCL acquisition. Of these costs, $33.8 million related to employee severance costs and $13.4 million related
to contractual obligations including those related to facilities and equipment leases. The remaining portion of the costs
were associated with the write-off of assets that we plan to dispose of in conjunction with the integration of SBCL.
Minority Share of Income
Minority share of income for 1999 increased from the prior year level, primarily due to the contribution of our
Pittsburgh, Pennsylvania and St. Louis, Missouri businesses to two joint ventures formed in the fourth quarter of 1998.
During both 1999 and 1998, we maintained a 51% controlling ownership interest in both of these affiliated companies.
Other, Net
Other, net for 1999 decreased from the prior year level, primarily due to a gain of $3.0 million associated with
the sale of an investment in the fourth quarter of 1999 and a reduction in equity losses of $4.5 million, primarily
associated with our joint venture in Arizona in which we hold a 49% interest.
Income Taxes
Our effective tax rate was significantly impacted by goodwill amortization, the majority of which is not
deductible for tax purposes, and had the effect of increasing the overall tax rate. The goodwill associated with the SBCL
acquisition further increased the effective tax rate for 1999 compared to 1998.
Extraordinary Loss
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 of $3.6 million ($2.1 million, net of taxes)
represented the write-off of deferred financing costs associated with the credit agreement.
Adjusted EBITDA
Adjusted EBITDA represents income (loss) before extraordinary loss, income taxes, net interest expense,
depreciation, amortization and special items. Special items included the provisions for restructuring and other special
charges for 1999 reflected on the face of the statements of operations, a $3.0 million gain related to the sale of an
investment in the fourth quarter of 1999 and a charge of $2.5 million recorded in selling, general and administrative
expenses in 1998 related to the consolidation of our laboratory network announced in the fourth quarter of 1997.
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 1999 improved to $237.0 million, or 11.2% of net revenues, excluding the impact of
testing performed by third parties under our laboratory network management arrangements, from $158.6 million, or
10.9% of net revenues, 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
Company’s operating performance prior to the acquisition of SBCL.