Quest Diagnostics 2011 Annual Report Download - page 98

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As of December 31, 2011, long-term debt maturing in each of the years subsequent to December 31, 2012 is
as follows:
Year ending December 31,
2013 ...................................................................... $ 8,853
2014 ...................................................................... 208,471
2015 ...................................................................... 505,927
2016 ...................................................................... 301,689
2017 ...................................................................... 375,513
Thereafter . . . .............................................................. 1,937,339
Total maturities of long-term debt .......................................... 3,337,792
Unamortized discount . ..................................................... (23,790)
Fair value basis adjustment attributable to hedged debt....................... 56,520
Total long-term debt, net of current portion............................. $3,370,522
12. FINANCIAL INSTRUMENTS
Interest Rate Derivatives – Cash Flow Hedges
The Company has entered into various interest rate lock agreements and forward starting interest rate swap
agreements to hedge part of the Company’s interest rate exposure associated with the variability in future cash
flows attributable to changes in interest rates. Prior to their maturity or settlement, the Company records
derivative financial instruments, which have been designated as cash flow hedges, as either an asset or liability
measured at their fair value. The effective portion of changes in the fair value of these derivatives represent
deferred gains or losses that are recorded in accumulated other comprehensive (loss) income that are reclassified
from accumulated other comprehensive (loss) income to the statement of operations in the same period or periods
during which the hedged transaction affects earnings, which is when the Company recognizes interest expense on
the hedged cash flows. The total net loss, net of taxes, recognized in accumulated other comprehensive (loss)
income, related to the Company’s cash flow hedges as of December 31, 2011 and December 31, 2010 was $7.7
million and $6.6 million, respectively. The loss recognized on the Company’s cash flow hedges for the years
ended December 31, 2011, 2010 and 2009, as a result of ineffectiveness, was not material. The net amount of
deferred losses on cash flow hedges that is expected to be reclassified from accumulated other comprehensive
(loss) income into earnings within the next twelve months is $1.3 million.
Interest Rate Derivatives – Fair Value Hedges
The Company maintains various fixed-to-variable interest rate swaps which have an aggregate notional
amount of $550 million and variable interest rates based on six-month LIBOR plus 0.54% and one-month LIBOR
plus 1.33%.
These derivative financial instruments are accounted for as fair value hedges of a portion of the Senior
Notes due 2016 and a portion of the Senior Notes due 2020 and effectively convert that portion of the debt into
variable interest rate debt. The Company recognizes the changes in the fair value of both the fixed-to-variable
interest rate swaps and the related underlying debt obligations in other income (expense), net as equal and
offsetting gains and losses. These interest rate swaps are classified as assets with fair values of $56.5 million and
$10.5 million at December 31, 2011 and 2010, respectively. Since inception, the fair value hedges have been
effective; therefore, there is no impact on earnings for the years ended December 31, 2011, 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. As of December 31, 2011, the total notional amount of foreign currency forward
contracts in U.S. dollars was $37.9 million and principally consisted of contracts in Swedish krona.
F-26
QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(dollars in thousands unless otherwise indicated)