Quest Diagnostics 2003 Annual Report Download - page 83

QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(dollars in thousands unless otherwise indicated)
Senior Subordinated Notes due 2009 and $23 million of related tender premium and associated tender offer
costs.
The Company financed the cash portion of the purchase price and related transaction costs, and the
repayment of substantially all of Unilab’s outstanding debt and related accrued interest, with the proceeds from
a new $450 million amortizing term loan due 2007 (see Note 11) and cash on-hand.
As part of the Unilab acquisition, Quest Diagnostics acquired all of Unilab’s operations, including its
primary testing facilities in Los Angeles, San Jose and Sacramento, California, and approximately 365 patient
service centers and 35 rapid response laboratories and approximately 4,100 employees. The Company expects to
realize significant benefits from the acquisition of Unilab. As the leading commercial clinical laboratory in
California, the acquisition of Unilab positions the Company to capitalize on its leading position within the
laboratory testing industry, further enhancing its national network and access to its comprehensive range of
services. Customers and patients are expected to benefit from the acquisition by having greater access to
diagnostic testing services through the Company’s expanded network of patient service centers. In addition,
customers will be provided with state-of-the-art electronic connectivity services, innovative technologies and an
expanded esoteric testing menu from the Company’s Nichols Institute based in San Juan Capistrano, California.
In connection with the acquisition of Unilab, as part of a settlement agreement with the United States
Federal Trade Commission, the Company entered into an agreement to sell to Laboratory Corporation of
America Holdings, Inc., (“LabCorp’’), certain assets in northern California for $4.5 million, including the
assignment of agreements with four independent physician associations (“IPA’’) and leases for 46 patient service
centers (five of which also serve as rapid response laboratories) (the “Divestiture’’). Approximately $27 million
in annual net revenues were generated by capitated fees under the IPA contracts and associated fee-for-service
testing for physicians whose patients use these patient service centers, as well as from specimens received
directly from the IPA physicians. The Company completed the transfer of assets and assignment of the IPA
agreements to LabCorp and recorded a $1.5 million gain in the third quarter of 2003 in connection with the
Divestiture, which is included in “other operating (income) expense, net’’ within the consolidated statements of
operations.
The acquisition of Unilab was accounted for under the purchase method of accounting. As such, the cost
to acquire Unilab has been allocated to the assets and liabilities acquired based on estimated fair values as of
the closing date. The consolidated financial statements include the results of operations of Unilab subsequent to
the closing of the acquisition.
The following table summarizes the Company’s purchase price allocation related to the acquisition of
Unilab based on the estimated fair value of the assets acquired and liabilities assumed on the acquisition date.
Fair Values
as of
February 28, 2003
Current assets ......................................................... $193,798
Property, plant and equipment.......................................... 10,855
Goodwill ............................................................. 735,853
Other assets .......................................................... 47,777
Total assets acquired ................................................ 988,283
Current liabilities...................................................... 62,002
Long-term liabilities ................................................... 7,369
Long-term debt ....................................................... 221,291
Total liabilities assumed ............................................. 290,662
Net assets acquired ................................................. $697,621
Based on management’s review of the net assets acquired and consultations with third-party valuation
specialists, no intangible assets meeting the criteria under SFAS No. 141, “Business Combinations’’, were
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