Quest Diagnostics 2011 Annual Report Download - page 104

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or losses measured by the mirrored rate of return on investments elected by plan participants. Each plan
participant is fully vested in all deferred compensation, Company match and earnings credited to their account.
The Company maintains another unfunded, non-qualified supplemental deferred compensation plan that is not
material. The amounts accrued under the Company’s deferred compensation plans were $47 million and $39
million at December 31, 2011 and 2010, respectively. Although the Company is currently contributing all
participant deferrals and matching amounts to trusts, the funds in these trusts, totaling $47 million and $39
million at December 31, 2011 and 2010, respectively, are general assets of the Company and are subject to any
claims of the Company’s creditors.
The Company also offers certain employees the opportunity to participate in a non-qualified deferred
compensation program. Eligible participants are allowed to defer up to 20 thousand dollars of eligible
compensation per year. The Company matches employee contributions equal to 25%, up to a maximum of 5
thousand dollars per plan year. A participant’s deferrals, together with Company matching credits, are “invested”
at the direction of the employee in a hypothetical portfolio of investments which are tracked by an administrator.
Each participant is fully vested in their deferred compensation and vest in Company matching contributions over
a four-year period at 25% per year. The amounts accrued under this plan were $25 million and $23 million at
December 31, 2011 and 2010, respectively. The Company purchases life insurance policies, with the Company
named as beneficiary of the policies, for the purpose of funding the program’s liability. The cash surrender value
of such life insurance policies was $21 million and $20 million at December 31, 2011 and 2010, respectively.
For the years ended December 31, 2011, 2010 and 2009, the Company’s expense for matching contributions
to these plans were not material.
15. RELATED PARTY TRANSACTIONS
At December 31, 2010, GSK beneficially owned approximately 18% of the outstanding shares of Quest
Diagnostics common stock. On January 31, 2011, the Company agreed to repurchase from SB Holdings Capital
Inc., a wholly-owned subsidiary of GSK, approximately one-half of GSK’s ownership interest in the Company, or
15.4 million shares of the Company’s common stock at a purchase price of $54.30 per share for $835 million
(the “Repurchase”).
In a separate transaction on January 31, 2011, GSK agreed to sell in an underwritten offering to the public,
its remaining ownership interest in the Company, or 15.4 million shares of the Company’s common stock (the
“Offering”). The Company did not sell any shares of common stock in the Offering, which closed on February 4,
2011, and did not receive any of the proceeds. Subsequent to the Repurchase and the Offering, GSK no longer
beneficially owned any shares of Quest Diagnostics common stock.
Quest Diagnostics is the primary provider of testing to support GSK’s clinical trials testing requirements
under a worldwide agreement (the “Clinical Trials Agreement”). Net revenues, primarily derived under the
Clinical Trials Agreement, were $63 million and $72 million for 2010 and 2009, respectively. At December 31,
2010, accounts receivable due from GSK were $16 million.
During 2009, the Company paid SmithKline Beecham approximately $10 million related to the realization of
certain pre-acquisition tax benefits for net loss carryforwards that were payable to SmithKline Beecham pursuant
to a tax indemnification arrangement. Amounts due to GSK at December 31, 2010 were not material.
16. COMMITMENTS AND CONTINGENCIES
Letter of Credit Lines and Contractual Obligations
The Company has a line of credit with a financial institution totaling $85 million for the issuance of letters
of credit (the “Letter of Credit Line”). The Letter of Credit Line, which is renewed annually, matures on
November 18, 2012 and is guaranteed by the Subsidiary Guarantors.
In support of its risk management program, to ensure the Company’s performance or payment to third
parties, $63 million in letters of credit were outstanding at December 31, 2011. The letters of credit primarily
represent collateral for current and future automobile liability and workers’ compensation loss payments. In
addition, $5 million of bank guarantees were outstanding at December 31, 2011 in support of certain foreign
operations.
F-32
QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(dollars in thousands unless otherwise indicated)