Quest Diagnostics 2008 Annual Report Download - page 67

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Fair Value Measurements
On January 1, 2008, we adopted SFAS No. 157, “Fair Value Measurements.” Adoption of this accounting
standard did not have a material effect on our financial position, results of operations or cash flows. See Note 2
to the Consolidated Financial Statements for further details.
SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (“SFAS 159”) became
effective for the Company on January 1, 2008. As of January 1, 2008 and for the year ended December 31,
2008, the Company has elected not to apply the fair value option to any of its financial assets or financial
liabilities on-hand, which were not already measured at fair value, because the Company does not believe that
application of SFAS 159’s fair value option is appropriate given the nature of its business operations. See Note 2
to the Consolidated Financial Statements for further details.
Liquidity and Capital Resources
Cash and Cash Equivalents
Cash and cash equivalents at December 31, 2008 totaled $254 million, compared to $168 million at
December 31, 2007. Cash and cash equivalents consist of highly liquid short-term investments, including time
deposits with highly-rated banks, and various insured money market funds, including those that invest in U.S.
Treasury securities. The Company has not suffered any losses associated with its cash and cash equivalents. Cash
flows from operating activities in 2008 were $1.1 billion, which were used to fund investing and financing
activities of $199 million and $778 million, respectively. Cash and cash equivalents at December 31, 2007 totaled
$168 million, compared to $150 million at December 31, 2006. Cash flows from operating activities in 2007
were $927 million which, together with $850 million of cash flows from financing activities, were used to fund
investing activities of $1.8 billion.
Cash Flows from Operating Activities
Net cash provided by operating activities for 2008 was $1.1 billion compared to $927 million in 2007. This
increase was primarily due to higher earnings in the current year. Net cash provided by operating activities for
the year ended December 31, 2007 was reduced by $57 million of fees and other expenses paid in connection
with the acquisition of AmeriPath. Days sales outstanding, a measure of billing and collection efficiency, were 44
days at December 31, 2008 compared to 48 days at December 31, 2007.
Net cash provided by operating activities for 2007 was $927 million compared to $952 million in 2006. This
decrease was primarily due to lower earnings in 2007 and increased payments associated with variable
compensation earned in the prior year, coupled with the payment of $57 million of fees and other expenses
associated with the acquisition of AmeriPath. Partially offsetting these items was a net source of funds from
reductions in net accounts receivable in the current year compared to a net use of funds in the prior year.
Cash Flows from Investing Activities
Net cash used in investing activities in 2008 was $199 million, consisting principally of capital expenditures
of $213 million, partially offset by $23 million related to the receipt of a payment from an escrow fund
established at the time of the acquisition of HemoCue.
Net cash used in investing activities in 2007 was $1.8 billion, consisting primarily of $1.2 billion related to
the acquisition of AmeriPath, $309 million related to the acquisition of HemoCue and capital expenditures of
$219 million.
Cash Flows from Financing Activities
Net cash used in financing activities in 2008 was $778 million, consisting primarily of net reductions of debt
of $459 million. Debt repayments of $482 million, consisting primarily of the repayment of $120 million on our
Secured Receivables Credit Facility, $60 million on our term loan due December 31, 2008 and $293 million on
our term loan due May 31, 2012, were partially offset by borrowings of $20 million under our Secured
Receivables Credit Facility. Since the completion of the AmeriPath acquisition in May 2007, we have reduced
our total debt by $876 million.
Net cash used by financing activities for the year ended December 31, 2008 also included $33 million in
proceeds from the exercise of stock options, including related tax benefits, offset by purchases of treasury stock
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