Quest Diagnostics 2009 Annual Report Download - page 63

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In addition, the operating income percentage for the year ended December 31, 2008, reflects the impact of a
fourth quarter charge of $16.2 million, principally associated with workforce reductions and the impact of the
various items which affected cost of services and selling, general and administrative expenses as a percentage of
net revenues.
Other Income (Expense)
Other expense, net represents miscellaneous income and expense items related to non-operating activities
such as gains and losses associated with investments and other non-operating assets. For the year ended
December 31, 2008, other expense, net includes a third quarter charge of $8.9 million associated with the write-
down of an equity investment and losses of $9.9 million associated with investments held in a trust pursuant to
our supplemental deferred compensation plan. For the year ended December 31, 2007, other expense, net includes
a $4 million charge related to the write-down of an investment.
Income Tax Expense
The effective income tax rates for the years ended December 31, 2008 and 2007 were 36.8% and 38.2%,
respectively. The decrease in 2008 was primarily due to the favorable resolution of various tax contingencies in
2008.
Discontinued Operations
During the third quarter of 2008, the Company and NID reached an agreement in principle with the United
States Attorney’s Office to settle the previously disclosed federal government investigation of NID, a test kit
subsidiary voluntarily closed in 2006. Loss from discontinued operations, net of taxes, for the year ended
December 31, 2008 was $51 million, or $0.26 per diluted share, compared to $214 million, or $1.10 per diluted
share in 2007. Results for the years ended December 31, 2008 and 2007 reflect charges of $75 million and $241
million, respectively, to reserve for the settlement and related matters, which are more fully described in Note 16
to the Consolidated Financial Statements.
Quantitative and Qualitative Disclosures About Market Risk
We address our exposure to market risks, principally the market risk of changes in interest rates, through a
controlled program of risk management that includes the use of derivative financial instruments. We do not hold
or issue derivative financial instruments for trading purposes. We believe that our exposures to foreign exchange
impacts and changes in commodities prices are not material to our consolidated financial condition or results of
operations. See Note 11 to the Consolidated Financial Statements for additional discussion of our financial
instruments and hedging activities.
At December 31, 2009 and 2008, the fair value of our debt was estimated at approximately $3.3 billion and
$2.9 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, 2009, the estimated fair value
exceeded the carrying value of the debt by $151 million and at December 31, 2008, the carrying value exceeded
the estimated fair value of the debt by $155 million. A hypothetical 10% increase in interest rates (representing
46 basis points and 53 basis points at December 31, 2009 and 2008, respectively) would potentially reduce the
estimated fair value of our debt by approximately $96 million and $75 million at December 31, 2009 and 2008,
respectively.
Borrowings under our senior unsecured revolving credit facility, our secured receivables credit facility and
our term loan due May 2012 are subject to variable interest rates. Interest on our secured receivables credit
facility is based on rates that are intended to approximate commercial paper rates for highly-rated issuers. Interest
rates on our senior unsecured revolving credit facility and term loan due May 2012 are subject to a pricing
schedule that can fluctuate based on changes in our credit ratings. As such, our borrowing cost under these credit
arrangements will be subject to both fluctuations in interest rates and changes in our credit ratings. As of
December 31, 2009, the borrowing rates under these credit facilities were: for our secured receivables credit
facility, 1.38%; for our senior unsecured credit facility, LIBOR plus 0.40%; and for our term loan due May 2012,
LIBOR plus 0.50%. At December 31, 2009, the weighted average LIBOR rate was 0.23%. At December 31,
2009, there were $742 million outstanding under our term loan due May 2012 and no borrowings outstanding
under our $750 million senior unsecured revolving credit facility or our $525 million secured receivables credit
facility.
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