Quest Diagnostics 2006 Annual Report Download - page 103

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 had 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. During 2006, the Company adjusted its purchase price allocation for the LabOne
acquisition based on the finalized fair value estimates for certain assets and liabilities acquired, primarily
associated with property, plant and equipment, net of related deferred income taxes, and recorded additional
goodwill of approximately $10 million. The consolidated financial statements include the results of operations of
LabOne subsequent to the closing of the acquisition.
The following table summarizes the Company’s purchase price allocation of the cost to acquire LabOne:
Fair Values as of
November 1, 2005
Current assets ........................................................... $ 135,452
Property, plant and equipment ........................................... 75,692
Intangible assets. . ....................................................... 139,500
Goodwill ............................................................... 690,554
Other assets............................................................. 4,813
Total assets acquired. . .............................................. 1,046,011
Current liabilities. ....................................................... 51,125
Long-term liabilities ..................................................... 50,024
Long-term debt . . ....................................................... 135,079
Total liabilities assumed ............................................ 236,228
Net assets acquired . . . .............................................. $ 809,783
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
amoritization. Of the $691 million allocated to goodwill, approximately $47 million is expected to be deductible
for tax purposes.
Pro Forma Combined Financial Information
The following unaudited pro forma combined financial information for the years ended December 31, 2005
and 2004 assumes that the LabOne acquisition was completed on January 1, 2004.
2005 2004
Net revenues ..................................................... $5,889,615 $5,551,304
Net income ...................................................... 547,643 497,758
Basic earnings per common share:
Net income ...................................................... $ 2.71 $ 2.44
Weighted average common shares outstanding – basic.............. 201,833 203,920
Diluted earnings per common share:
Net income ...................................................... $ 2.66 $ 2.34
Weighted average common shares outstanding – diluted . . . ......... 205,530 214,145
The unaudited pro forma combined financial information presented above reflects certain reclassifications to
the historical financial statements of LabOne to conform the acquired company’s accounting policies and
classification of certain costs and expenses to that of Quest Diagnostics. These adjustments had no impact on pro
forma net income. Pro forma results for the year ended December 31, 2005 exclude $14.3 million of transaction
related costs, which were incurred and expensed by LabOne in conjunction with its acquisition by Quest
Diagnostics.
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QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(dollars in thousands unless otherwise indicated)