Quest Diagnostics 2003 Annual Report Download - page 87

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QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(dollars in thousands unless otherwise indicated)
Quest Diagnostics’ employees and operations and comprised principally of employee severance benefits for
approximately 100 employees, were accounted for as a charge to earnings in the third quarter of 2002 and
included in “other operating (income) expense, net’’ within the consolidated statements of operations. As of
December 31, 2003 and 2002, accruals related to the AML integration plan totaled $4.1 million and $8.3
million, respectively. The actions associated with the AML integration plan, including those related to severed
employees, were completed in 2003. The remaining accruals at December 31, 2003, substantially all of which
represented severance and facility exit costs, are expected to be paid in 2004.
Integration of Clinical Diagnostic Services, Inc.
During the fourth quarter of 2002, the Company finalized its plan related to the integration of CDS into
Quest Diagnostics’ laboratory network in the New York metropolitan area. Of the $13.3 million of costs
recorded in the fourth quarter of 2002 in connection with the execution of the CDS integration plan, all of
which were associated with actions impacting the employees and operations of CDS, $3 million related to
employee severance benefits for approximately 150 employees with the remainder primarily associated with
remaining contractual obligations under facility and equipment leases. The costs outlined above were recorded as
a cost of the acquisition and included in goodwill. As of December 31, 2003 and 2002, accruals related to the
CDS integration plan totaled $5.3 million and $10.3 million, respectively. The actions associated with the CDS
integration plan, including those related to severed employees, were completed in 2003. The remaining accruals
at December 31, 2003, substantially all of which represented remaining contractual obligations under facility
leases, have terms extending beyond 2004.
Integration of SmithKline Beecham Clinical Laboratory Testing Business
On August 16, 1999, the Company completed the acquisition of SmithKline Beecham Clinical Laboratories,
Inc. (“SBCL’’), which operated the clinical laboratory business of SmithKline Beecham plc (“SmithKline
Beecham’’). During the fourth quarter of 1999, Quest Diagnostics finalized its plan to integrate SBCL into
Quest Diagnostics’ laboratory network and recorded the estimated costs associated with executing the integration
plan. The majority of these integration costs related to employee severance, contractual obligations associated
with leased facilities and equipment, and the write-off of fixed assets which management believed would have
no future economic benefit upon combining the operations. The plan focused principally on laboratory
consolidations in geographic markets served by more than one of the Company’s laboratories, and the
redirection of testing volume within the Company’s national network to provide more local testing and improve
customer service. The actions associated with the SBCL integration plan, including those related to severed
employees, were completed as of June 30, 2001. During 2001, the Company utilized $27 million of the
remaining accruals established in connection with the SBCL integration, principally related to the payment of
severance benefits to terminated employees. The remaining accruals associated with the SBCL integration plan,
principally comprised of remaining contractual obligations under facility leases, were not material at
December 31, 2002.
5. TAXES ON INCOME
In conjunction with the Spin-Off Distribution, the Company entered into a tax sharing agreement with its
former parent and a former subsidiary, that provide the parties with certain rights of indemnification against
each other. As part of the SBCL acquisition agreements, the Company entered into a tax indemnification
arrangement with SmithKline Beecham that provides the parties with certain rights of indemnification against
each other.
The Company’s pretax income (loss) consisted of $736 million, $547 million and $290 million from U.S.
operations and approximately $1.4 million, $(4.5) million and $6.6 million from foreign operations for the years
ended December 31, 2003, 2002 and 2001, respectively.
F-18