LabCorp 2006 Annual Report Download - page 46

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars and shares in millions, except per share data)
44 Laboratory Corporation of America® Holdings 2006
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The tax benefit associated with option exercises from stock plans
reduced taxes currently payable by approximately $20.4, $11.9 and
$11.1 in 2006, 2005 and 2004, respectively. Such benefits are
recorded as additional paid-in-capital.
The effective tax rates on earnings before income taxes is reconciled
to statutory federal income tax rates as follows:
Years Ended December 31,
2006 2005 2004
Statutory federal rate 35.0% 35.0% 35.0%
State and local income taxes,
net of federal income tax effect 4.3 4.5 4.4
Change in valuation allowance – 0.2 –
Dividend received deduction for
foreign repatriation – (1.1) –
Other 0.8 1.1 1.6
Effective rate 40.1% 39.7% 41.0%
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are as follows:
December 31, December 31,
2006 2005
Deferred tax assets:
Employee compensation and benefits $ 43.9 $ –
Accounts receivable – 4.3
Self-insurance reserves 22.3 18.0
Post-retirement benefit obligation 18.1 18.2
Acquisition and restructuring reserves 6.2 20.1
Tax loss carryforwards 16.9 26.6
Other 1.7 6.9
109.1 94.1
Less valuation allowance (3.9) (3.9)
Net deferred tax assets $ 105.2 $ 90.2
Deferred tax liabilities:
Employee compensation and benefits – (2.3)
Accounts receivable (14.7) –
Deferred earnings (18.1) (15.3)
Intangible assets (282.0) (268.0)
Property, plant and equipment (29.8) (41.8)
Zero-coupon subordinated notes (90.6) (69.7)
Currency translation adjustment (57.9) (58.7)
Total gross deferred tax liabilities (493.1) (455.8)
Net deferred tax liabilities $(387.9) $(365.6)
The Company has state tax loss carryovers of approximately
$29.3, which expire in 2007 through 2024. In addition, the Company
has federal tax loss carryovers of approximately $41.4 expiring periodi-
cally through 2024. The utilization of these tax loss carryovers is limited
due to change of ownership rules. However, at this time the Company
expects to fully utilize substantially all of its tax loss carryovers.
All income tax years through and including 2003 have been
finalized with the Internal Revenue Service. Management believes
adequate provisions have been recorded related to all open tax years.
The Company provided for taxes on undistributed earnings of
foreign subsidiaries.
14. STOCK COMPENSATION PLANS
Stock Incentive Plans
There are currently 19.7 million shares authorized for issuance under
the 2000 Stock Incentive Plan, the Amended and Restated 1999 Stock
Incentive Plan and the 1994 Stock Option Plan. Each of these plans
was approved by shareholders. At December 31, 2006, there were
1.9 million additional shares available for grant under the Company’s
stock option plans.
Stock Options
The following table summarizes grants of non-qualified options made
by the Company to officers, key employees, and non-employee
directors under all plans. Stock options are generally granted at an
exercise price equal to or greater than the fair market price per share
on the date of grant. Also, for each grant, options vest ratably over a
period of three years on the anniversaries of the grant date, subject to
their earlier expiration or termination.
Changes in options outstanding under the plans for the periods
indicated were as follows:
Weighted-
Weighted- Average
Average Remaining Aggregate
Number of Exercise Price Contractual Intrinsic
Options per Option Term Value
Outstanding at
December 31, 2005 6.0 $38.10
Granted 1.4 58.58
Exercised (2.1) 35.65
Cancelled (0.2) 50.90
Outstanding at
December 31, 2006 5.1 $44.10 7.0 $150.2
Vested and expected to vest
at December 31, 2006 5.0 $43.73 7.0 $147.3
Exercisable at
December 31, 2006 2.5 $36.76 5.7 $93.6