Quest Diagnostics 2015 Annual Report Download - page 108

QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
(in millions unless otherwise indicated)
F- 33
Interest Rate Derivatives – Fair Value Hedges
The Company maintains various fixed-to-variable interest rate swaps to convert a portion of the Company's long-term
debt into variable interest rate debt. A summary of the notional amounts of interest rate derivatives – fair value hedges as of
December 31, 2015 and 2014 is as follows:
Floating Rate Notional Amount
Debt Instrument Paid by the Company 2015 2014
3.20% Senior Notes due April 2016 Six-month LIBOR plus a 2.3% spread $ — $ 200
4.75% Senior Notes due January 2020 One-month LIBOR plus a 3.6% spread 350 350
4.70% Senior Notes due April 2021 One-month LIBOR plus a 2.45% to 3.39% spread 400 400
4.25% Senior Notes due April 2024 One-month LIBOR plus a 1.54% to 1.59% spread 250 250
3.50% Senior Notes due March 2025 One-month LIBOR plus a 1.44% spread 200 —
$ 1,200 $ 1,200
In April 2015, the Company terminated the outstanding interest rate swaps associated with the Senior Notes due 2016.
The value of these interest rate swaps at the date of termination was not material. The net amount of losses on fair value hedges
related to the Senior Notes due 2016 reclassified into earnings upon redemption for the year ended December 31, 2015 was not
material.
In prior years, the Company entered into various fixed-to-variable interest rate swap agreements that were accounted
for as fair value hedges of a portion of the Senior Notes due 2016 and a portion of the Senior Notes due 2020. In July 2012, the
Company monetized the value of these interest rate swap assets by terminating the hedging instruments. The asset value,
including accrued interest through the date of termination, was $72 million and the amount to be amortized as a reduction of
interest expense over the remaining terms of the hedged debt instruments was $65 million, of which the remaining unamortized
balance as of December 31, 2015 was $28 million.
Since inception, the fair value hedges have been effective or highly effective; therefore, there is no impact on earnings
for the years ended December 31, 2015, 2014 and 2013 as a result of hedge ineffectiveness.
Interest Rate Derivatives - Economic Hedges
In March 2015, in connection with the retirement of debt (see Note 13), the Company entered into reverse interest rate
lock agreements with several financial institutions which were not designated for hedge accounting. The Company entered into
these agreements to hedge the variability in cash flows associated with $280 million of the $1.3 billion principal amount of debt
that was retired in the first and second quarters of 2015. These agreements were settled during the first and second quarters of
2015 which resulted in a gain of $3 million which was recognized in other (expense) income, net.
QUEST DIAGNOSTICS 2015 ANNUAL REPORT ON FORM 10-K