Quest Diagnostics 2005 Annual Report Download - page 91

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QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(dollars in thousands unless otherwise indicated)
statements, unless it is impracticable to determine the period-specific effects or the cumulative effect of the
change. SFAS 154 is effective for the Company beginning January 1, 2006.
3. BUSINESS ACQUISITIONS
Acquisition of LabOne, Inc.
On November 1, 2005, the Company completed its acquisition of LabOne, Inc. (“LabOne’’) in a transaction
valued at approximately $947 million, including approximately $138 million of assumed debt of LabOne.
LabOne provides health screening and risk assessment services to life insurance companies, as well as clinical
diagnostic testing services to healthcare providers and drugs-of-abuse testing to employers.
Under the terms of the merger agreement, the Company paid $43.90 per common share in cash or $768
million in total to acquire all of the outstanding common shares of LabOne. In addition, the Company paid $33
million in cash for outstanding stock options of LabOne. Pursuant to the terms of the merger agreement, upon
the change in control of LabOne, LabOne’s outstanding stock options became fully vested and exercisable and
were cancelled in exchange for the right to receive an amount, for each share subject to the stock option, equal
to the excess of $43.90 per share over the exercise price per share of such option. The aggregate purchase price
of $809 million includes transaction costs of approximately $8 million.
In conjunction with the acquisition of LabOne, the Company repaid approximately $127 million of debt,
representing substantially all of LabOne’s existing outstanding debt as of November 1, 2005.
The Company financed the all cash purchase price and related transaction costs associated with the LabOne
acquisition, and the repayment of substantially all of LabOne’s outstanding debt with the net proceeds from a
$900 million private placement of senior notes (see Note 10) and cash on-hand.
Through the acquisition of LabOne, the Company acquired all of LabOne’s operations, including its health
screening and risk assessment services for life insurance companies, its clinical diagnostic testing services, and
its drugs-of-abuse testing for employers. LabOne has 3,100 employees and principal laboratories in Lenexa,
Kansas, as well as in Cincinnati, Ohio.
The acquisition of LabOne was accounted for under the purchase method of accounting. As such, the cost
to acquire LabOne was allocated to the respective assets and liabilities acquired based on their estimated fair
values as of the closing date. A preliminary allocation of the costs to acquire LabOne has been made to certain
assets and liabilities of LabOne based on preliminary estimates. The Company is continuing to assess the
estimated fair values of the assets and liabilities acquired and the portion of goodwill allocable to its clinical
laboratory testing business and its risk assessment business. The consolidated financial statements include the
results of operations of LabOne subsequent to the closing of the acquisition.
The preliminary allocation of the cost to acquire LabOne is as follows:
Estimated
Fair Values as of
November 1, 2005
Current assets ....................................................... $ 132,699
Property, plant and equipment ........................................ 86,396
Intangible assets ..................................................... 139,500
Goodwill ............................................................ 680,109
Other assets ......................................................... 596
Total assets acquired ............................................ 1,039,300
Current liabilities .................................................... 48,402
Long-term liabilities ................................................. 46,754
Long-term debt ...................................................... 135,079
Total liabilities assumed ......................................... 230,235
Net assets acquired .............................................. $ 809,065
Of the $139 million of acquired intangible assets, $130 million was assigned to customer relationships that
are being amortized over 20 years and $9 million was assigned to trade names that are not subject to
F-14