SELECTED HISTORICAL FINANCIAL DATA OF OUR COMPANY

 

The following table summarizes selected historical financial data of our Company and our subsidiaries at the dates and for each of the periods presented.  We derived the selected historical financial data for the years 1999 through 2003 from the audited consolidated financial statements of our Company.  As discussed in Note 2 to the Consolidated Financial Statements, all per share data has been restated to reflect our two-for-one stock split effected on May 31, 2001.  In April 2002, the Financial Accounting Standards Board, or FASB, issued Statement of Financial Accounting Standards, or SFAS, No. 145, “Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections”, or SFAS 145. Pursuant to SFAS 145, extraordinary losses associated with the extinguishment of debt in 1999, 2000 and 2001, previously presented net of applicable taxes, were reclassified to other non-operating expenses. The selected historical financial data is only a summary and should be read together with the audited consolidated financial statements and related notes of our Company and management’s discussion and analysis of financial condition and results of operations included elsewhere in this Annual Report on Form 10-K.

 

	Year Ended December 31,
	2003 (a)		2002 (b)		2001			2000			1999 (c)
	(in thousands, except per share data)
Operations Data:
Net revenues..............................................	$4,737,958		$ 4,108,051		$3,627,771		$3,421,162				$2,205,243
Amortization of goodwill (d)........................	-		-		38,392		37,862				23,530
Provisions for restructuring and other special charges..............................	-		-		-		2,100		(e)		73,385	(f)
Operating income.......................................	796,454		592,142		411,550		317,527		(e)		78,980	(f)
Loss on debt extinguishment.......................	-		-		42,012	(g)	4,826		(h)		3,566	(i)
Net income (loss).......................................	436,717		322,154		162,303	(g)	102,052		(e),(h)		(3,413)	(f),(i)
Basic net income (loss) per common share:
Net income (loss).......................................	$       4.22		$       3.34		$      1.74		$         1.14				$     (0.05)
Diluted net income (loss) per common share: (j)
Net income (loss).......................................	$       4.12		$       3.23		$      1.66		$         1.08				$     (0.05)
Dividends per common share......................	$       0.15		$           -		$           -		$              -				$             -
Balance Sheet Data (at end of year):
Accounts receivable, net.............................	$  609,187		$  522,131		$  508,340		$   485,573				$   539,256
Total assets................................................	4,301,418		3,324,197		2,930,555		2,864,536				2,878,481
Long-term debt...........................................	1,028,707		796,507		820,337		760,705				1,171,442
Preferred stock .........................................	-		-		-	(k)	1,000				1,000
Common stockholders’ equity......................	2,394,694		1,768,863		1,335,987		1,030,795				862,062
Other Data:
Net cash provided by operating activities................................................	$  662,799		$    596,371		$  465,803		$   369,455				$   249,535
Net cash used in investing activities................................................	(417,050)		(477,212)		(296,616)		(48,015)				(1,107,990)
Net cash (used in) provided by financing activities.................................	(187,568)		(144,714)		(218,332)		(177,247)				682,831
Provision for doubtful accounts...................	228,222		217,360		218,271		234,694				142,333
Rent expense.............................................	120,748		96,547		82,769		76,515				59,073
Capital expenditures...................................	174,641		155,196		148,986		116,450				76,029

 

(a)      On February 28, 2003, we completed the acquisition of Unilab Corporation, or Unilab.  Consolidated operating results for 2003 include the results of operations of Unilab subsequent to the closing of the acquisition. See Note 3 to the Consolidated Financial Statements.

(b)     On April 1, 2002, we completed the acquisition of American Medical Laboratories, Incorporated, or AML.  Consolidated operating results for 2002 include the results of operations of AML subsequent to the closing of the acquisition. See Note 3 to the Consolidated Financial Statements.

(c)       On August 16, 1999, we completed the acquisition of SmithKline Beecham Clinical Laboratories, Inc., or SBCL.  Consolidated operating results for 1999 include the results of operations of SBCL subsequent to the closing of the acquisition.

(d)      In July 2001, the FASB issued SFAS No. 142, “Goodwill and Other Intangibles”, or SFAS 142, which the Company adopted on January 1, 2002.  The following table presents net income and basic and diluted earnings per common share data adjusted to exclude the amortization of goodwill, assuming that SFAS 142 had been in effect for the periods presented:

 

	Year Ended December 31,
	2001		2000		1999
	(in thousands, except per share data)
Net income:
Reported net income (loss)......................................................	$ 162,303		$ 102,052		$   (3,413)
Add back: Amortization of goodwill, net of taxes ......................	35,964		36,023		22,013
Adjusted net income................................................................	$ 198,267		$ 138,075		$   18,600
Basic earnings per common share:
Reported net income (loss).......................................................	$       1.74		$       1.14		$     (0.05)
Amortization of goodwill, net of taxes........................................	0.39		0.40		0.31
Adjusted net income.................................................................	$       2.13		$       1.54		$       0.26
Diluted earnings per common share:
Reported net income (loss).......................................................	$       1.66		$       1.08		$     (0.05)
Amortization of goodwill, net of taxes........................................	0.37		0.38		0.31
Adjusted net income.................................................................	$        2.03		$       1.46		$       0.26

 

(e)    During the second quarter of 2000, we recorded a net special charge of $2.1 million. This net charge resulted from a $13.4 million charge related to the costs to cancel certain contracts that we believed were not economically viable as a result of the SBCL acquisition, and which were principally associated with the cancellation of a co-marketing agreement for clinical trials testing services, which charges were in large part offset by a reduction in reserves attributable to a favorable resolution of outstanding claims for reimbursements associated with billings of certain tests.

(f)    During 1999, we recorded provisions for restructuring and other special charges of $73 million in conjunction with the acquisition and planned integration of SBCL. Of the $73 million charge, $19.8 million represented stock-based employee compensation related to special one-time grants to certain employees of the combined company and accelerated vesting, $12.7 million represented professional and consulting fees related to planned integration activities and $3.5 million represented special recognition awards granted to certain employees involved in the transaction and integration planning processes of the SBCL acquisition. The remaining $36 million represented a charge to earnings in the fourth quarter of 1999 representing the costs associated with planned integration activities affecting Quest Diagnostics’ operations and employees. See Note 4 to the Consolidated Financial Statements for further details.

(g)    In conjunction with our debt refinancing in 2001, we recorded a loss on debt extinguishment of $42 million.  The loss represented the write-off of deferred financing costs of $23 million, associated with the debt which was refinanced, and $13 million of payments related primarily to the tender premium incurred in connection with our cash tender offer of our 10¾% senior subordinated notes due 2006.  The remaining $6 million of losses represented amounts incurred in conjunction with the cancellation of certain interest rate swap agreements which were terminated in connection with the debt that was refinanced.  See Note 7 to the Consolidated Financial Statements for further details.

(h)   During the fourth quarter of 2000, we recorded a $4.8 million loss on the extinguishment of debt representing the write-off of deferred financing costs resulting from the prepayment of $155 million of term loans under our then existing senior secured credit facility.

(i)     In conjunction with the acquisition of SBCL, we repaid the entire amount outstanding under our then existing credit agreement.  The loss on the extinguishment of debt recorded in the third quarter of 1999 represented $3.6 million of deferred financing costs, which were written-off in connection with the extinguishment of the then existing credit agreement.

(j)     Potentially dilutive common shares primarily include stock options and restricted common shares granted under our Employee Equity Participation Program.  During the period in which net income available for common stockholders is a loss, diluted weighted average common shares outstanding equals basic weighted average common shares outstanding, since under this circumstance, the incremental shares would have an anti-dilutive effect.

(k)    On December 31, 2001, the Company repurchased all of its then outstanding preferred stock for its par value of $1 million plus accrued dividends.