LabCorp 2006 Annual Report Download - page 38

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars and shares in millions, except per share data)
36 Laboratory Corporation of America® Holdings 2006
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During the second half of 2006, the Company recorded charges of approximately $11.6, related to the acceleration of the recognition of
stock compensation due to the announced retirement of the Company’s Chief Executive Officer, effective December 31, 2006.
The following tables summarize the components of the Company’s stock-based compensation programs recorded as expense for the
years ended December 31, 2006, 2005, and 2004:
2006 2005 2004
Pre-tax Tax Pre-tax Tax Pre-tax Tax
Expense Benefit Net Expense Benefit Net Expense Benefit Net
Stock option and stock purchase plans $23.3 $ (9.4) $13.9 $ – $ – $ – $ – $ – $ –
Restricted stock and
performance share awards 17.7 (7.1) 10.6 13.7 (5.5) 8.2 15.5 (6.4) 9.1
CEO retirement charge 11.6 (4.6) 7.0 – – – – – –
Total share based compensation $52.7 $(21.1) $31.6 $13.7 $(5.5) $8.2 $15.5 $(6.4) $9.1
The following table shows the pro forma net income for the
years ended December 31, 2005 and 2004 as if the fair value based
method had been applied to all awards:
2005 2004
Net earnings, as reported $386.2 $363.0
Add: Stock-based compensation
recorded as expense, net of related tax effects 8.2 9.1
Deduct: Total stock-based compensation
determined under fair value method
for all awards, net of related tax effects (24.8) (29.9)
Pro forma net income $369.6 $342.2
Basic earnings per common share
As reported $2.89 $2.60
Pro forma 2.77 2.45
Diluted earnings per common share
As reported $2.71 $2.45
Pro forma 2.55 2.27
See note 14 for assumptions used in calculating pro forma compen-
sation expense for the employee stock option and stock purchase plans.
Cash Equivalents:
Cash equivalents (primarily investments in money market funds,
time deposits, commercial paper and Eurodollars which have original
maturities of three months or less at the date of purchase) are carried
at cost which approximates market.
Short-Term Investments:
The items classified as short-term investments are principally Auction
Rate Securities (ARS), Variable Rate Demand Notes (VRDN), and U.S.
Government Agency securities. The Company classifies the ARS and
VRDN as available-for-sale. Securities accounted for as available-for-
sale are required to be reported at fair value with unrealized gains and
losses, net of taxes, excluded from net income and shown separately
as a component of accumulated other comprehensive income within
shareholders’ equity. The securities that the Company has classified
as available-for-sale generally trade at par and as a result typically do not
have any realized or unrealized gains or losses. No gains or losses were
realized on sales of ARS and VRDN for the years ended December 31, 2006,
2005, and 2004. As of December 31, 2006, there are no unrealized
holding gains or losses on these securities. The Company had $135.4
and $17.7 of ARS and VRDN classified as short-term investments as of
December 31, 2006 and 2005, respectively.
The U.S. Government Agency securities with original maturities
between six and twelve months are carried at cost, which approximates
market. It is the intent of the Company to hold these investments until
they mature or are called by the issuer.
Inventories:
Inventories, consisting primarily of purchased laboratory supplies,
are stated at the lower of cost (first-in, first-out) or market.
Property, Plant and Equipment:
Property, plant and equipment are recorded at cost. The cost of properties
held under capital leases is equal to the lower of the net present value
of the minimum lease payments or the fair value of the leased property
at the inception of the lease. Depreciation and amortization expense is
computed on all classes of assets based on their estimated useful lives,
as indicated below, using principally the straight line method.
Years
Buildings and building improvements 35
Machinery and equipment 3-10
Furniture and fixtures 5-10
Leasehold improvements and assets held under capital leases
are amortized over the shorter of their estimated lives or the term
of the related leases. Expenditures for repairs and maintenance are
charged to operations as incurred. Retirements, sales and other dis-
posals of assets are recorded by removing the cost and accumulated
depreciation from the related accounts with any resulting gain or loss
reflected in operations.