Quest Diagnostics 2011 Annual Report Download - page 89

Download and view the complete annual report

Please find page 89 of the 2011 Quest Diagnostics annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 123

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123

Level 1 Level 2 Level 3
Quoted Prices
in Active
Markets for
Identical
Assets/
Liabilities
Significant
Other
Observable
Inputs
Significant
Unobservable
Inputs
Basis of Fair Value Measurements
December 31, 2010
Assets:
Trading securities .................................... $ 38,740 $38,740 $ — $ —
Cash surrender value of life insurance policies. ........ 20,314 — 20,314 —
Interest rate swaps ................................... 10,483 — 10,483 —
Available-for-sale equity securities . . . ................. 5,066 — — 5,066
Foreign currency forward contracts. . . ................. 4,527 — 4,527 —
Total . ............................................. $ 79,130 $38,740 $35,324 $5,066
Liabilities:
Deferred compensation liabilities ...................... $ 61,964 $ — $61,964 $ —
Foreign currency forward contracts. . . ................. 464 — 464 —
Total . ............................................. $ 62,428 $ — $62,428 $ —
The Company offers certain employees the opportunity to participate in supplemental deferred compensation
plans. A participant’s deferrals, together with Company matching credits, are invested in a variety of participant-
directed stock and bond mutual funds that are classified as trading securities. Changes in the fair value of these
securities are measured using quoted prices in active markets based on the market price per unit multiplied by
the number of units held exclusive of any transaction costs. A corresponding adjustment for changes in fair value
of the trading securities is also reflected in the changes in fair value of the deferred compensation obligation. The
deferred compensation liabilities are classified within Level 2 because their inputs are derived principally from
observable market data by correlation to the trading securities.
The Company offers certain employees the opportunity to participate in a non-qualified deferred
compensation program. 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. The
Company purchases life insurance policies, with the Company named as beneficiary of the policies, for the
purpose of funding the program’s liability. Changes in the cash surrender value of the life insurance policies are
based upon earnings and changes in the value of the underlying investments. Changes in the fair value of the
deferred compensation obligation are derived using quoted prices in active markets based on the market price per
unit multiplied by the number of units. The cash surrender value and the deferred compensation obligations are
classified within Level 2 because their inputs are derived principally from observable market data by correlation
to the hypothetical investments.
The fair value measurements of foreign currency forward contracts are obtained from a third-party pricing
service and are based on market prices in actual transactions and other relevant information generated by market
transactions involving identical or comparable assets or liabilities. The fair value measurements of the Company’s
interest rate swaps are model-derived valuations as of a given date in which all significant inputs are observable
in active markets including certain financial information and certain assumptions regarding past, present and
future market conditions.
Investments in available-for-sale equity securities consist of the revaluation of an existing investment in
unregistered common shares of a publicly-held company. This investment is classified within Level 3 because the
unregistered securities contain restrictions on their sale, and therefore, the fair value measurement reflects a
discount for the effect of the restriction.
In the second quarter of 2009, the Company recorded a charge of $7.0 million associated with the write-
down of an investment due to the uncertainty of recoverability from an other-than-temporary impairment loss. A
F-17
QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(dollars in thousands unless otherwise indicated)