Quest Diagnostics 2010 Annual Report Download - page 91

flow hedges that is expected to be reclassified from accumulated other comprehensive income (loss) into earnings
within the next twelve months is $1.1 million.
Interest Rate Swap Agreements – Fair Value Hedges
In November 2009, the Company entered into various fixed-to-variable interest rate swap agreements (the
“Fixed-to-Variable Interest Rate Swap Agreements”) which have a notional amount totaling $350 million and a
variable interest rate based on one-month LIBOR plus 1.33%. These derivative financial instruments are
accounted for as fair value hedges of a portion of our Senior Notes due 2020 and effectively convert that portion
of the debt into variable interest rate debt. Accordingly, the Company recognizes the changes in the fair value of
both the Fixed-to-Variable Interest Rate Swap Agreements and the underlying debt obligation in other income
(expense), net as equal and offsetting gains and losses. The fair value of the Fixed-to-Variable Interest Rate Swap
Agreements was an asset of $10.5 million at December 31, 2010 and a liability of $14.4 million at December 31,
2009. Since inception, the fair value hedges have been effective; therefore, there is no impact on earnings for the
years ended December 31, 2010 and 2009 as a result of hedge ineffectiveness.
Foreign Currency Forward Contracts
The Company uses foreign exchange forward contracts to manage its risk associated with foreign currency
denominated cash flows. The primary foreign currency exposures include Swedish krona and British pounds.
A summary of the fair values of derivative instruments in the consolidated balance sheets is stated in the
table below (in thousands):
Balance Sheet
Classification Fair Value
Balance Sheet
Classification Fair Value
December 31, 2010 December 31, 2009
Derivatives Designated as
Hedging Instruments
Asset Derivatives:
Interest rate swaps........ Other assets $10,483 $ —
Liability Derivatives:
Interest rate swaps........ — Other liabilities 14,398
Derivatives Not Designated
as Hedging Instruments
Asset Derivatives:
Foreign currency forward
contracts. . ............. Other current assets 4,527 Other current assets 2,357
Liability Derivatives:
Foreign currency forward
contracts. . ............. Other current liabilities 464 Other current liabilities 311
Total Net Derivatives Asset $14,546 $ —
Total Net Derivatives
Liability ................. $ — $12,352
12. PREFERRED STOCK AND COMMON STOCKHOLDERS’ EQUITY
Series Preferred Stock
Quest Diagnostics is authorized to issue up to 10 million shares of Series Preferred Stock, par value $1.00
per share. The Company’s Board of Directors has the authority to issue such shares without stockholder approval
and to determine the designations, preferences, rights and restrictions of such shares. Of the authorized shares,
1,300,000 shares have been designated Series A Preferred Stock and 1,000 shares have been designated Voting
Cumulative Preferred Stock. No shares are currently outstanding.
F-25
QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(dollars in thousands unless otherwise indicated)