Quest Diagnostics 2005 Annual Report Download - page 93

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QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(dollars in thousands unless otherwise indicated)
combined financial information for the year ended December 31, 2003 assumes that the Unilab acquisition and
the Divestiture were completed on January 1, 2003 (in thousands, except per share data):
2005 2004 2003
Net revenues .................................................... $5,936,600 $5,610,919 $4,803,875
Net income ..................................................... 547,643 497,758 444,944
Basic earnings per common share:
Net income ..................................................... $ 2.71 $ 2.44 $ 2.13
Weighted average common shares outstanding – basic ............. 201,833 203,920 209,104
Diluted earnings per common share:
Net income ..................................................... $ 2.66 $ 2.34 $ 2.04
Weighted average common shares outstanding – diluted ............ 205,530 214,145 219,872
The unaudited pro forma combined financial information presented above reflects certain reclassifications to
the historical financial statements of LabOne and Unilab to conform the acquired companies’ accounting policies
and classification of certain costs and expenses to that of Quest Diagnostics. These adjustments had no impact
on pro forma net income. Pro forma results for the year ended December 31, 2005 exclude $14.3 million of
transaction related costs, which were incurred and expensed by LabOne in conjunction with its acquisition by
Quest Diagnostics. Pro forma results for the year ended December 31, 2003 exclude $14.5 million of
transaction related costs, which were incurred and expensed by Unilab in conjunction with its acquisition by
Quest Diagnostics.
4. INTEGRATION OF ACQUIRED BUSINESSES
In July 2002, the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal
Activities’’ (“SFAS 146’’). SFAS 146, which the Company adopted effective January 1, 2003, requires that a
liability for a cost associated with an exit activity, including those related to employee termination benefits and
contractual obligations, be recognized when the liability is incurred, and not necessarily the date of an entity’s
commitment to an exit plan, as under previous accounting guidance. The provisions of SFAS 146 apply to
integration costs associated with actions that impact the employees and operations of Quest Diagnostics. Costs
associated with actions that impact the employees and operations of an acquired company, such as LabOne or
Unilab, are accounted for as a cost of the acquisition and included in goodwill in accordance with EITF
No. 95-3, “Recognition of Liabilities in Connection with a Purchase Business Combination’’.
Integration of LabOne, Inc.
The plan and related costs associated with the integration of LabOne’s operations into the Company’s
laboratory network have not been finalized, as such, management has not yet finalized its estimate of integration
costs. Mangement expects a significant portion of these costs will require cash outlays and will primarily relate
to severance and other integration-related costs, including the elimination of excess capacity and workforce
reductions.
Integration of Unilab Corporation
During the fourth quarter of 2003, the Company finalized its plan related to the integration of Unilab into
Quest Diagnostics’ laboratory network. As part of the plan, following the sale of certain assets to LabCorp as
part of the Divestiture, the Company closed its previously owned clinical laboratory in the San Francisco Bay
area and completed the integration of remaining customers in the northern California area into its laboratories in
San Jose and Sacramento. As of December 31, 2005, the Company operated two laboratories in the Los
Angeles metropolitan area. As part of the integration plan, the Company plans to open a new regional
laboratory in the Los Angeles metropolitan area into which it will integrate all of its business in the area. The
Company expects to integrate its business into this new facility during the first quarter of 2006.
During 2003, the Company recorded $9 million of costs associated with executing the Unilab integration
plan. The majority of these integration costs related to employee severance and contractual obligations associated
with leased facilities and equipment. Employee groups affected as a result of this plan include those involved in
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