Quest Diagnostics 2005 Annual Report Download - page 94

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QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(dollars in thousands unless otherwise indicated)
the collection and testing of specimens, as well as administrative and other support functions. Of the $9 million
in costs, $7.9 million was recorded in the fourth quarter of 2003 and related to actions that impact the
employees and operations of Unilab, was accounted for as a cost of the Unilab acquisition and included in
goodwill. Of the $7.9 million, $6.8 million related to employee severance benefits for approximately 150
employees, with the remainder primarily related to contractual obligations. In addition, $1.1 million of
integration costs, related to actions that impact Quest Diagnostics’ employees and operations and comprised
principally of employee severance benefits for approximately 30 employees, were accounted for as a charge to
earnings in the third quarter of 2003 and included in “other operating expense (income), net’’ within the
consolidated statements of operations. As of December 31, 2004, accruals related to the Unilab integration plan
totaled $3.0 million. The actions associated with the Unilab integration plan, including those related to severed
employees, were completed in 2005. The remaining accruals associated with the Unilab integration were not
material at December 31, 2005.
5. TAXES ON INCOME
The Company’s pretax income consisted of $904 million, $826 million and $736 million from U.S.
operations and approximately $6.0 million, $9.1 million and $1.4 million from foreign operations for the years
ended December 31, 2005, 2004 and 2003, respectively.
The components of income tax expense (benefit) for 2005, 2004 and 2003 were as follows:
2005 2004 2003
Current:
Federal ............................................................ $298,991 $233,635 $214,729
State and local ..................................................... 62,232 50,527 51,771
Foreign ............................................................ 2,293 (682) 728
Deferred:
Federal ............................................................ (2,320) 41,316 29,271
State and local ..................................................... 2,981 11,135 4,582
Total ............................................................ $364,177 $335,931 $301,081
A reconciliation of the federal statutory rate to the Company’s effective tax rate for 2005, 2004 and 2003
was as follows:
2005 2004 2003
Tax provision at statutory rate ......................................... 35.0% 35.0% 35.0%
State and local income taxes, net of federal benefit ..................... 4.6 4.6 5.0
Impact of foreign operations .......................................... 0.1 0.1 0.2
Non-deductible meals and entertainment expense ....................... 0.2 0.2 0.3
Other, net ............................................................ 0.1 0.3 0.3
Effective tax rate ................................................... 40.0% 40.2% 40.8%
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