Quest Diagnostics 2000 Annual Report Download - page 68

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48
The special charge in the second quarter of 1999 of $15.8 million primarily related to a provision in the results
of SBCL to reflect a customer contract as a loss contract.
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 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 periods, primarily
due to the improved performance of our joint ventures.
Other, Net
Other, net for the year ended December 31, 2000 increased from the prior year period, primarily due to a $9.7
million gain recognized by SBCL on the sale of its physician office-based teleprinter assets and network in the first
quarter of 1999 and a gain of $3.0 million associated with the sale of an investment in the fourth quarter of 1999. These
gains in 1999 were partially offset by an increase in equity earnings from unconsolidated joint ventures, and to a lesser
extent, the amortization of deferred gains associated with certain investments in 2000.
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 in 2000 or decreasing the overall tax benefit in 1999.
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 taxes).
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 taxes).