Quest Diagnostics 2008 Annual Report Download - page 81

selling price for the asset or pay the lowest price to settle the liability, after considering transaction costs.
However, when using the most advantageous market, transaction costs are only considered to determine which
market is the most advantageous and these costs are then excluded when applying a fair value measurement. The
adoption of SFAS 157 did not have a material effect on the Company’s financial position, results of operations
or cash flows.
In February 2008, the FASB issued FASB Staff Position (“FSP”) FAS 157-1, “Application of FASB
Statement No. 157 to FASB Statement No. 13 and Other Accounting Pronouncements That Address Fair Value
Measurements for Purposes of Lease Classification or Measurement under Statement 13” (“FSP FAS 157-1”).
FSP FAS 157-1 amended SFAS 157 to exclude from its scope SFAS No. 13, “Accounting for Leases,” and its
related interpretive accounting pronouncements that address leasing transactions. However, this exclusion does not
apply to the Company’s impairment of long-lived assets under a capital lease pursuant to SFAS No. 144,
“Accounting for Impairment or Disposal of Long-Lived Assets,” the Company’s cost to terminate an operating
lease under SFAS No. 146, “Accounting for Costs Associated with Exit and Disposal Activities,” and the
measurement of acquired leases in a business combination pursuant to SFAS No. 141 or 141(R), “Business
Combinations.” Also in February 2008, the FASB issued FSP FAS 157-2, “Effective Date of FASB Statement
No. 157” (“FSP FAS 157-2”). FSP FAS 157-2 amended SFAS 157 to defer the effective date of SFAS 157 for
one year for non-financial assets and non-financial liabilities, except for items that are recognized or disclosed at
fair value in the financial statements on a recurring basis, at least annually. The impact of SFAS 157 on the
Company’s non-financial assets and non-financial liabilities measured at fair value on a nonrecurring basis is not
expected to have a material effect on the Company’s financial position, results of operations or cash flows.
SFAS 157 creates a three-level hierarchy to prioritize the inputs used in the valuation techniques to derive
fair values. The basis for fair value measurements for each level within the hierarchy is described below with
Level 1 having the highest priority and Level 3 having the lowest.
Level 1: Quoted prices in active markets for identical assets or liabilities.
Level 2: Quoted prices for similar assets or liabilities in active markets; quoted prices for
identical or similar instruments in markets that are not active; and model-derived
valuations in which all significant inputs are observable in active markets.
Level 3: Valuations derived from valuation techniques in which one or more significant inputs
are unobservable.
The following table provides a summary of the recognized assets and liabilities that are measured at fair
value on a recurring basis.
December 31,
2008 Level 1 Level 2 Level 3
Quoted Prices
in Active
Markets for
Identical
Assets/
Liabilities
Significant
Other
Observable
Inputs
Significant
Unobservable
Inputs
Basis of Fair Value Measurements
Assets:
Trading securities ................................ $25,383 $25,383 $ - $ -
Cash surrender value of life insurance policies ..... 11,767 - 11,767 -
Foreign currency forward contracts ................ 2,617 - 2,617 -
Available-for-sale securities ....................... 255 233 22 -
Total .......................................... $40,022 $25,616 $14,406 $ -
Liabilities:
Interest rate swaps................................ $ 5,888 $ - $ 5,888 $ -
Foreign currency forward contracts ................ 4,142 - 4,142 -
Deferred compensation liabilities . . ................ 39,304 - 39,304 -
Total .......................................... $49,334 $ - $49,334 $ -
F-9
QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(dollars in thousands unless otherwise indicated)