Quest Diagnostics 2009 Annual Report Download - page 97

As of December 31, 2009, long-term debt maturing in each of the years subsequent to December 31, 2010 is
as follows:
Year ending December 31,
2011.......................................................................... $ 344,524
2012.......................................................................... 563,095
2013.......................................................................... 2,428
2014.......................................................................... 1,844
2015.......................................................................... 500,321
Thereafter..................................................................... 1,559,377
Total maturities of long-term debt.............................................. 2,971,589
Unamortized discount.......................................................... (20,399)
Fair value basis adjustment attributable to hedged debt . . ........................ (14,398)
Total long-term debt, net of current portion . ................................. $2,936,792
11. FINANCIAL INSTRUMENTS
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, net of income taxes, as a component of “accumulated other comprehensive loss,” and are
amortized as an adjustment to interest expense over the term of the Senior Notes due 2017.
Interest Rate Swap Agreements – Cash Flow Hedges
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. In October 2009, the
remaining Interest Rate Swap Agreements, with fixed interest rates ranging from 5.13% to 5.27%, on $200
million of the Term Loan due May 2012 matured with no net settlement.
During the third quarter of 2009, the Company entered into various forward starting interest rate swap
agreements (the “Forward Starting Interest Rate Swap Agreements”) for an aggregate notional amount of $400
million. The Forward Starting Interest Rate Swap Agreements had fixed interest rates ranging from 4.120% to
4.575%. The Forward Starting Interest Rate Swap Agreements were 17 to 18 month forward agreements that
covered a ten-year hedging period and were entered into to hedge part of the Company’s interest rate exposure
associated with forecasted new debt issuances related to the refinancing of certain debt maturing through 2011. In
connection with the issuance of our 2009 Senior Notes, the Forward Starting Interest Rate Swap Agreements
were terminated and the Company paid $10.5 million, representing the losses on the settlement of the Forward
Starting Interest Rate Swaps. These losses are deferred in stockholders’ equity, net of income taxes, as a
component of “accumulated other comprehensive loss,” and amortized as an adjustment to interest expense over
the term of the Senior Notes due 2020.
The Interest Rate Swap Agreements and Forward Starting Interest Rate Swap Agreements have been
accounted for as cash flow hedges. Prior to their maturity or settlement, the Company recorded these derivative
financial instruments as either an asset or liability measured at its fair value. The effective portion of changes in
the fair value of the derivatives was recorded in “accumulated other comprehensive loss.” Any deferred gains or
losses are reclassified from “accumulated other comprehensive loss” to the statement of operations in the same
period or periods during which the hedged transaction affects earnings, which is when the Company recognizes
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QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(dollars in thousands unless otherwise indicated)