Quest Diagnostics 2003 Annual Report Download - page 89

QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(dollars in thousands unless otherwise indicated)
6. SUPPLEMENTAL CASH FLOW AND OTHER DATA
2003 2002 2001
Depreciation expense ................................................. $ 145,701 $123,018 $101,620
Interest expense ..................................................... (60,630) (56,347) (76,765)
Interest income ...................................................... 841 2,674 6,242
Interest expense, net ................................................. (59,789) (53,673) (70,523)
Interest paid ......................................................... 59,394 56,102 58,537
Income taxes paid ................................................... 211,966 83,710 26,384
Businesses acquired:
Fair value of assets acquired ......................................... $ 989,778 $561,267 $182,136
Fair value of liabilities assumed ...................................... 291,422 215,810 29,272
Non-cash financing activities:
Fair value of common stock issued to acquire Unilab .................. $ 372,464 - -
Fair value of converted options issued in conjunction with the Unilab
acquisition ........................................................ 8,452 - -
7. LOSS ON DEBT EXTINGUISHMENT
On June 27, 2001, the Company refinanced a majority of its long-term debt on a senior unsecured basis to
reduce overall interest costs and obtain less restrictive covenants. Specifically, the Company completed a $550
million senior notes offering (the “Senior Notes’’) and entered into a new $500 million senior unsecured credit
facility (the “Credit Agreement’’) which included a five-year $325 million revolving credit agreement and a
$175 million term loan. The Company used the net proceeds from the senior notes offering and the term loan,
together with cash on hand, to repay all of the $584 million which was outstanding under its then existing
senior secured credit agreement, including the costs to settle existing interest rate swap agreements, and to
consummate a cash tender offer and consent solicitation for its 10
3
⁄ 4 % senior subordinated notes due 2006 (the
“Subordinated Notes’’). During the remainder of 2001, the Company repaid the $175 million term loan under
the Credit Agreement.
In conjunction with its debt refinancing, the Company recorded a loss on debt extinguishment of $42
million, $36 million of which represented the write-off of $23 million of deferred financing costs, associated
with the Company’s debt which was refinanced, and $13 million of payments related primarily to the tender
premium incurred in connection with the Company’s cash tender offer of the Subordinated Notes. 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. Prior to
the Company’s debt refinancing in June 2001, the Company’s senior secured credit agreement required the
Company to maintain interest rate swap agreements to mitigate the risk of changes in interest rates associated
with a portion of its variable interest rate indebtedness. These interest rate swap agreements were considered a
hedge against changes in the amount of future cash flows associated with the interest payments of the
Company’s variable rate debt obligations. Accordingly, the interest rate swap agreements were recorded at their
estimated fair value in the Company’s consolidated balance sheet and the related losses on these contracts were
deferred in stockholders’ equity as a component of comprehensive income. In conjunction with the debt
refinancing, the interest rate swap agreements were terminated and the losses reflected in stockholders’ equity as
a component of comprehensive income were reclassified to earnings and reflected as a charge within the loss on
debt extinguishment in the consolidated statements of operations for the year ended December 31, 2001.
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