Quest Diagnostics 2009 Annual Report Download - page 82

is based on the Company’s ability to recover the asset from the expected future pre-tax cash flows (undiscounted
and without interest charges) of the related operations. If the expected undiscounted pre-tax cash flows are less
than the carrying amount of such asset, an impairment loss is recognized for the difference between the estimated
fair value and carrying amount of the asset.
Investments
The Company accounts for investments in trading and available-for-sale equity securities, which are included
in “other assets” in the consolidated balance sheets at fair value. Both realized and unrealized gains and losses
for trading securities are recorded currently in earnings as a component of non-operating expenses within “other
expense, net” in the consolidated statements of operations. Unrealized gains and losses, net of tax, for available-
for-sale securities are recorded as a component of “accumulated other comprehensive loss” within stockholders’
equity. Recognized gains and losses for available-for-sale securities are recorded in “other expense, net” in the
consolidated statements of operations. Gains and losses on securities sold are based on the average cost method.
The Company periodically reviews its investments to determine whether a decline in fair value below the
cost basis is other than temporary. The primary factors considered in the determination are: the length of time
that the fair value of the investment is below carrying value; the financial condition, operating performance and
near term prospects of the investee; and the Company’s intent and ability to hold the investment for a period of
time sufficient to allow for a recovery in fair value. If the decline in fair value is deemed to be other than
temporary, the cost basis of the security is written down to fair value.
Investments at December 31, 2009 and 2008 consisted of the following:
2009 2008
Available-for-sale equity securities ...................................... $ 2 $ 255
Trading equity securities ............................................... 33,871 25,383
Other investments ...................................................... 8,360 15,539
Total ............................................................. $42,233 $41,177
Investments in available-for-sale equity securities consist of equity securities in public corporations.
Investments in trading equity securities represent participant-directed investments of deferred employee
compensation and related Company matching contributions held in a trust pursuant to the Company’s
supplemental deferred compensation plan (see Note 13). Other investments do not have readily determinable fair
values and consist of investments in preferred and common shares of privately held companies and are accounted
for under the cost method.
As of December 31, 2009, the Company had no gross unrealized losses from available-for-sale equity
securities. As of December 31, 2008, the Company had gross unrealized losses from available-for-sale equity
securities of $0.6 million. For the year ended December 31, 2009, “other expense, net,” within the consolidated
statements of operations, includes $7.8 million of charges principally associated with the write-down of an
investment accounted for under the cost method. For the years ended December 31, 2008 and 2007, “other
expense, net,” includes $8.9 million and $4.0 million, respectively, of charges associated with the write-down of
available-for-sale equity securities. For the years ended December 31, 2009, 2008 and 2007, gains (losses) from
trading equity securities totaled $6.0 million, $(9.9) million and $2.7 million, respectively, and are included in
“other expense, net.”
Derivative Financial Instruments
The Company uses derivative financial instruments to manage its exposure to market risks for changes in
interest rates and foreign currency. This strategy includes the use of interest rate swap agreements, forward
starting interest rate swap agreements and foreign currency forward contracts to manage its exposure to
movements in interest and currency rates. The Company has established policies and procedures for risk
assessment and the approval, reporting and monitoring of derivative financial instrument activities. These policies
prohibit holding or issuing derivative financial instruments for speculative purposes. The Company does not enter
into derivative financial instruments that contain credit-risk-related contingent features or requirements to post
collateral.
F-12
QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(dollars in thousands unless otherwise indicated)