SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 8-K
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of Earliest Event Reported): February 26, 2003
Commission file number 1-12215
Quest Diagnostics Incorporated
One Malcolm Avenue
Teterboro, NJ 07608
(201) 393-5000
Delaware
(State of Incorporation)
16-1387862
(I.R.S. Employer Identification Number)
Item 2. Acquisition or Disposition of Assets
On February 26, 2003, Quest Diagnostics accepted for payment
approximately 99.1% of the outstanding capital stock of Unilab Corporation
("Unilab"), the leading independent clinical laboratory in California. On
February 28, 2003, Quest Diagnostics acquired the remaining shares of Unilab
through a merger of Unilab into a wholly owned subsidiary of Quest Diagnostics.
In connection with the acquisition, Quest Diagnostics issued 7,054,764 shares of
its common stock and paid approximately $297 million in cash. In addition, Quest
Diagnostics reserved approximately 292,300 shares for issuance in connection
with outstanding Unilab stock options that were converted into options to
acquire common stock of Quest Diagnostics. Immediately following the
acquisition, Quest Diagnostics had 105,181,208 outstanding shares of common
stock. Following the completion of the acquisition, Quest Diagnostics repaid
approximately $100 million of bank indebtedness of Unilab and repaid all of the
$100.8 million aggregate principal amount of Unilab's 12 3/4% Senior
Subordinated Notes due 2009 for an aggregate purchase price of approximately
$124 million plus accrued interest.
Quest Diagnostics financed the cash portion of the purchase price and
related transaction costs and the repayment of substantially all of Unilab's
outstanding debt through $450 million in borrowings under an amortizing five
year term loan and cash on hand. The term loan carries interest at LIBOR plus
1.3125% and requires principal repayments of the amounts borrowed equal to
16.25%, 20%, 20%, 21.25% and 22.5% in years one through five, respectively.
Unilab generated net revenues of $429 million in 2002, has three
regional laboratories, approximately 365 patient service centers and 35 rapid
response laboratories, and approximately 4,100 employees. Days sales outstanding
were 53 at December 31, 2002. During 2002, Unilab processed approximately 15
million requisitions for testing.
Quest Diagnostics expects to incur up to $20 million of costs during
2003 and 2004 to integrate Unilab and Quest Diagnostics' existing California
operations. Upon completion of the Unilab integration, Quest Diagnostics expects
to realize approximately $25 million to $30 million of annual synergies. Quest
Diagnostics expects to achieve this annual rate of synergies by the end of 2005.
In connection with the acquisition of Unilab, as part of a settlement
agreement with the United States Federal Trade Commission and the State of
California, Quest Diagnostics entered into an agreement to sell to Laboratory
Corporation of America Holdings, Inc. ("LabCorp") certain assets in northern
California, 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) for $4.5 million.
Approximately $27 million in annual net revenues are 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.
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Item 7. Financial Statements and Schedules
a. Financial statements of businesses acquired.
The financial statements of Unilab as of December 31, 2002 and 2001
and for the three years ended December 31, 2002, 2001 and 2000 are
included as Exhibit 99.1.
b. Pro forma financial information
The unaudited pro forma balance sheet of Quest Diagnostics as of
December 31, 2002 and the unaudited pro forma statements of
operations of Quest Diagnostics for the years ended
December 31, 2002 and 2001 will be filed by amendment.
c. The following exhibits are filed as a part of this report on Form
8-K:
10.1 Agreement and Plan of Merger, dated as of April 2, 2002, as
amended, among Quest Diagnostics, Quest Diagnostics Newco
Incorporated and Unilab Corporation (filed as an annex to Quest
Diagnostics' final prospectus, dated August 6, 2002, and
incorporated herein by reference)
10.2 Amendment to the Agreement and Plan of Merger, dated as of May 13,
2002, among Quest Diagnostics, Quest Diagnostics Newco
Incorporated and Unilab Corporation (filed as an annex to Quest
Diagnostics' final prospectus, dated August 6, 2002, and
incorporated herein by reference)
10.3 Amendment No. 2 to the Agreement and Plan of Merger, dated as of
June 20, 2002, among Quest Diagnostics, Quest Diagnostics Newco
Incorporated and Unilab Corporation (filed as an annex to Quest
Diagnostics' final prospectus, dated August 6, 2002, and
incorporated herein by reference)
10.4 Amendment No. 3 to the Agreement and Plan of Merger, dated as of
September 25, 2002, among Quest Diagnostics, Quest Diagnostics
Newco Incorporated and Unilab Corporation (incorporated herein by
reference to Exhibit (a)(11) of Quest Diagnostics' Schedule TO
Amendment No. 12 filed with the Commission on September 26, 2002,
file No. 001-12215)
10.5 Amendment No. 4 to the Agreement and Plan of Merger, dated as of
January 4, 2003, among Quest Diagnostics, Quest Diagnostics Newco
Incorporated and Unilab Corporation (incorporated herein by
reference to Exhibit (a)(20) of Quest
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Diagnostics' Schedule TO Amendment No. 20 filed with the
Commission on January 6, 2003, file No. 001-12215)
10.6 Stockholders Agreement, dated as of April 2, 2002, as amended,
among Quest Diagnostics, Quest Diagnostics Newco Incorporated,
Kelso Investment Associates VI, L.P. and KEP VI, LLC (filed as an
annex to Quest Diagnostics' final prospectus, dated August 6, 2002
and incorporated herein by reference)
10.7 Term Loan Credit Agreement dated as of June 21, 2002 among Quest
Diagnostics, certain subsidiary guarantors of the Company, the
lenders party thereto, and Bank of America, N.A., as
Administrative Agent (filed as an Exhibit to Quest Diagnostics'
Registration Statement on Form S-4 (No. 333-88330) and
incorporated herein by reference)
10.8 First Amendment to Credit Agreement dated as of September 20, 2002
among Quest Diagnostics, certain subsidiary guarantors of the
Company, the lenders party thereto, and Bank of America, N.A., as
Administrative Agent (filed as an Exhibit to the Quest
Diagnostics' quarterly report on Form 10-Q for the quarter ended
September 30, 2002 and incorporated herein by reference)
10.9 Second Amendment to Credit Agreement dated as of December 19, 2002
among Quest Diagnostics, certain subsidiary guarantors of the
Company, the lenders party thereto, and Bank of America, N.A., as
Administrative Agent (filed as an Exhibit to post effective
amendment No. 1 to Quest Diagnostics' Registration Statement on
Form S-4 (No. 333-88330) and incorporated herein by reference)
99.1 The financial statements of Unilab Corporation as of December 31,
2002 and 2001 and for the three years ended December 31, 2002,
2001 and 2000.
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Signature
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
March 12, 2003
QUEST DIAGNOSTICS INCORPORATED
By: /s/ Robert A. Hagemann
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Robert A. Hagemann
Vice President and Chief Financial Officer
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