Quest Diagnostics 2003 Annual Report Download - page 79

QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(dollars in thousands unless otherwise indicated)
maintenance and training, are expensed as incurred. The Company capitalizes interest on borrowings during the
active construction period of major capital projects. Capitalized interest is added to the cost of the underlying
assets and is amortized over the useful lives of the assets. Depreciation and amortization are provided on the
straight-line method over expected useful asset lives as follows: buildings and improvements, ranging from ten
to thirty years; laboratory equipment and furniture and fixtures, ranging from three to seven years; leasehold
improvements, the lesser of the useful life of the improvement or the remaining life of the building or lease, as
applicable; and computer software developed or obtained for internal use, ranging from three to five years.
Goodwill
Goodwill represents the cost of acquired businesses in excess of the fair value of assets acquired, including
separately recognized intangible assets, less the fair value of liabilities assumed in a business combination. In
June 2001, the FASB issued SFAS No. 142, “Goodwill and Other Intangible Assets’’ (“SFAS 142’’), which
broadens the criteria for recording intangible assets separate from goodwill and requires the use of a
nonamortization approach to account for purchased goodwill and certain intangibles. Under a nonamortization
approach, goodwill and certain intangibles are not amortized into results of operations, but instead are reviewed
for impairment. Prior to July 1, 2001, goodwill was amortized on the straight-line method over periods not
exceeding forty years. Pursuant to SFAS 142, goodwill recorded in connection with acquisitions consummated
prior to July 1, 2001 continued to be amortized through December 31, 2001 and has not been amortized
thereafter. In addition, goodwill recognized in connection with acquisitions consummated after June 30, 2001
has not been amortized.
The following table presents net income and basic and diluted earnings per common share, adjusted to
reflect results as if the nonamortization provisions of SFAS 142 had been in effect for the periods presented:
2003 2002 2001
Net income, as reported ................................. $436,717 $322,154 $162,303
Add back: Amortization of goodwill, net of taxes ......... - - 35,964
Adjusted net income .................................... $436,717 $322,154 $198,267
Basic earnings per common share:
Net income, as reported ................................. $ 4.22 $ 3.34 $ 1.74
Amortization of goodwill, net of taxes ................... - - 0.39
Adjusted net income .................................... $ 4.22 $ 3.34 $ 2.13
Diluted earnings per common share:
Net income, as reported ................................. $ 4.12 $ 3.23 $ 1.66
Amortization of goodwill, net of taxes ................... - - 0.37
Adjusted net income .................................... $ 4.12 $ 3.23 $ 2.03
Intangible Assets
Intangible assets are recognized as an asset apart from goodwill if the asset arises from contractual or
other legal rights, or if it is separable. Intangible assets, principally representing the cost of customer lists and
non-competition agreements acquired, are capitalized and amortized on the straight-line method over their
expected useful life, which generally ranges from five to fifteen years. The Company does not have any
intangible assets that have an indefinite useful life.
Recoverability and Impairment of Goodwill
The new criteria for recording intangible assets separate from goodwill did not require the Company to
reclassify any of its intangible assets. Under the nonamortization provisions of SFAS 142, goodwill and certain
intangibles are not amortized into results of operations, but instead are reviewed for impairment and an
impairment charge is recorded in the periods in which the recorded carrying value of goodwill and certain
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