Quest Diagnostics 2007 Annual Report Download - page 97

Forward Agreements were entered into to hedge a portion of the Company’s interest rate exposure associated
with the debt securities that were issued in the second quarter of 2007. In connection with the Company’s 2007
Senior Notes issued in June 2007, the Treasury Forward Agreements were settled and the Company paid $3.5
million, representing the loss on the settlement of the Treasury Forward Agreements. These losses are deferred in
stockholders’ equity, as a component of “accumulated other comprehensive income (loss)”, and are amortized as
an adjustment to interest expense over the term of the Senior Notes due 2017.
Interest Rate Swap Agreements
In August 2007, the Company entered into four separate variable-to-fixed interest rate swap agreements (“the
Interest Rate Swap Agreements”), whereby the Company fixed the interest rates on $500 million of its Term
Loan due May 2012 for periods ranging from October 2007 through October 2009. The fixed interest rates range
from 5.095% to 5.267%.
The Interest Rate Swap Agreements qualify as cash flow hedges under the requirements of SFAS 133. As
such, gains and losses on the Interest Rate Swap Agreements are deferred into “accumulated other comprehensive
income (loss)” until the hedged transaction impacts the Company’s earnings. During the year ended December
31, 2007, the Company deferred losses of $2.7 million into “accumulated other comprehensive income (loss)”.
The cash flow hedges were effective during 2007.
Fair Value of Financial Instruments
The carrying amounts of cash and cash equivalents, accounts receivable and accounts payable and accrued
expenses approximate fair value based on the short maturity of these instruments. At December 31, 2007, the fair
value of the interest rate swap agreements was not material. At December 31, 2007 and 2006, the fair value of
the Company’s debt was estimated at $3.6 billion and $1.6 billion, respectively, using quoted market prices and
yields for the same or similar types of borrowings, taking into account the underlying terms of the debt
instruments. At December 31, 2007 and 2006, the estimated fair value exceeded the carrying value of the debt by
$59.1 million and $0.4 million, respectively.
12. PREFERRED STOCK AND COMMON STOCKHOLDERS’ EQUITY
Series Preferred Stock
Quest Diagnostics is authorized to issue up to 10 million shares of Series Preferred Stock, par value $1.00
per share. The Company’s Board of Directors has the authority to issue such shares without stockholder approval
and to determine the designations, preferences, rights and restrictions of such shares. Of the authorized shares,
1,300,000 shares have been designated Series A Preferred Stock and 1,000 shares have been designated Voting
Cumulative Preferred Stock. No shares are currently outstanding.
Common Stock
On May 4, 2006, the Company’s Restated Certificate of Incorporation was amended to increase the number
of shares of common stock, par value $0.01 per share, from 300 million shares to 600 million shares.
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QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(dollars in thousands unless otherwise indicated)