Quest Diagnostics 2003 Annual Report Download - page 20

•Continue to Lead Innovation: We intend to build upon our reputation as 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 and the leading provider of esoteric testing, including gene-
based testing, we believe that we are the best partner for developers of new technology and tests to
introduce their products to the marketplace. Through our relationship with members of the academic
community, pharmaceutical and biotechnology firms, and emerging medical technology companies that
develop and commercialize novel diagnostics, pharmaceutical and device technologies, we believe that we
are one of the leaders in transferring technical innovation to the market (see “Our Services—New Test
Introductions’’).
We believe that, with the unveiling of the human genome, new genes and the linkages of genes with
disease will continue to be discovered at an accelerating pace, leading to research that will result in ever
more complex and thorough predictive, diagnostic and therapeutic testing. We believe that we are well
positioned to capture much of this growth.
We continue to invest in the development and improvement of our information technology products for
customers and providers by developing differentiated products that will provide friendlier, easier access to
ordering and resulting of laboratory tests and patient-centric information. In February 2003, we launched
our proprietary eMaxxt Internet portal to physicians nationwide, which enables doctors to order
diagnostic tests and review laboratory results online, as well as check patients’ insurance eligibility in
real time and view clinical information from many sources.
•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 clinical laboratory
testing business. These opportunities are more fully described under “Strategic Growth Opportunities’’ and
include expanding our gene-based and specialty testing capabilities, developing information technology
products for customers and providers, expanding our geographic presence across the United States, and
continuing to make selective acquisitions.
•Leverage Our Satisfaction Model: Our approach to conducting business states 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, which includes Six Sigma training to manage high-
impact quality improvement projects throughout our organization, and annual compliance training. We are
committed to engaging each of our employees with dignity and respect and expect them to treat our
customers the same way. We believe that our treatment and training of employees, together with our
competitive pay and benefits, helps increase employee satisfaction and performance, thereby enabling us
to provide better services to our customers.
Recent Acquisitions
On February 28, 2003, we completed the acquisition of Unilab Corporation, or Unilab, the leading
commercial clinical laboratory in California. In connection with the acquisition, we issued approximately 7.4
million shares of Quest Diagnostics common stock (including 0.3 million shares of Quest Diagnostics common
stock reserved for outstanding stock options of Unilab which were converted upon the completion of the
acquisition into options to acquire shares of Quest Diagnostics common stock), paid $297 million in cash and
repaid $220 million of debt, representing substantially all of Unilab’s then existing outstanding indebtedness.
In connection with the acquisition of Unilab, as part of a settlement agreement with the United States
Federal Trade Commission, we entered into an agreement to sell to Laboratory Corporation of America
Holdings, Inc., or LabCorp, certain assets in northern California for $4.5 million, including the assignment of
agreements with four independent physician associations, or IPA, and leases for 46 patient service centers (five
of which also serve as rapid response laboratories). Approximately $27 million in annual net revenues were
generated by capitated fees under the IPA contracts and associated fee-for-service testing for physicians whose
patients use these patient service centers, as well as from specimens received directly from the IPA physicians.
We completed the transfer of assets and assignment of the IPA agreements to LabCorp during the third quarter
of 2003.
As part of the Unilab acquisition, we acquired all of Unilab’s operations, including its primary testing
facilities in Los Angeles, San Jose and Sacramento, California, approximately 365 patient service centers, 35
rapid response laboratories and approximately 4,100 employees. Following the sale of certain assets to LabCorp,
we closed our previously owned clinical laboratory in the San Francisco Bay area and completed the integration
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