Quest Diagnostics 2008 Annual Report Download - page 99

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converted into the amount the respective holder would have received if the holder had converted the debentures
prior to November 1, 2005, plus an additional premium. As a result of the change in control of LabOne, and as
provided in the indenture to the debentures, the conversion rate increased so that each $1,000 principal amount of
the debentures was convertible into cash in the amount of $1,280.88 if converted by December 1, 2005. As a
result of the change in control of LabOne, of the total outstanding principal balance of the Debentures due June
2034 of $103.5 million, $99 million of principal was converted for $126.8 million in cash, reflecting a premium
of $27.8 million. The remaining outstanding principal of the Debentures due June 2034 totaling $4.5 million was
adjusted to its estimated fair value of $2.9 million on the date of the acquisition, reflecting a discount of $1.6
million based on the net present value of the estimated remaining obligations, at then current interest rates. The
Debentures due June 2034 require semi-annual interest payments in June and December.
As of December 31, 2008, long-term debt maturing in each of the years subsequent to December 31, 2009 is
as follows:
Year ending December 31,
2010.......................................................................... $ 401,287
2011.......................................................................... 808,335
2012.......................................................................... 561,397
2013.......................................................................... 670
2014.......................................................................... 276
Thereafter..................................................................... 1,306,124
Total long-term debt ........................................................ $3,078,089
10. FINANCIAL INSTRUMENTS
Treasury Lock Agreements
In October 2005, the Company entered into interest rate lock agreements with two financial institutions for a
total notional amount of $300 million to lock the U.S. treasury rate component of a portion of the Company’s
offering of its debt securities in the fourth quarter of 2005 (the “Treasury Lock Agreements”). The Treasury Lock
Agreements, which had an original maturity date of November 9, 2005, were entered into to hedge part of the
Company’s interest rate exposure associated with the minimum amount of debt securities that were issued in the
fourth quarter of 2005. In connection with the Company’s private placement of its Senior Notes due 2015 on
October 25, 2005, the Treasury Lock Agreements were settled and the Company received $2.5 million,
representing the gain on the settlement of the Treasury Lock Agreements. These gains are deferred in
stockholders’ equity, as a component of “accumulated other comprehensive (loss) income”, and amortized as an
adjustment to interest expense over the term of the Senior Notes due 2015.
Treasury Forward Agreements
In June 2007, the Company entered into forward starting interest rate swap agreements with three financial
institutions for a total notional amount of $300 million to lock the interest rate of a portion of the Company’s
offering of its debt securities in the second quarter of 2007 (the “Treasury Forward Agreements”). The Treasury
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 (loss) income”, 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 various 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. As of December 31, 2008,
F-27
QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(dollars in thousands unless otherwise indicated)