LabCorp 2006 Annual Report Download - page 47

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars and shares in millions, except per share data)
Laboratory Corporation of America® Holdings 2006 45
............................... ........
.......................................
The aggregate intrinsic value in the table above represents the
total pre-tax intrinsic value (the difference between the Company’s
closing stock price on the last trading day of 2006 and the exercise
price, multiplied by the number of in-the-money options) that would
have been received by the option holders had all option holders
exercised their options on December 31, 2006. The amount of
intrinsic value will change based on the fair market value of the
Company’s stock.
Cash received by the Company from option exercises, the actual
tax benefit realized for the tax deductions and the aggregate intrinsic
value of options exercised from option exercises under all share-based
payment arrangements during the years ended December 31, 2006,
2005, and 2004 were as follows:
2006 2005 2004
Cash received by the Company $72.9 $49.7 $48.9
Tax benefits realized $19.0 $11.0 $10.2
Aggregate intrinsic value $48.0 $27.9 $25.8
The following table summarizes information concerning currently outstanding and exercisable options.
Options Outstanding Options Exercisable
Weighted-Average
Weighted-
Remaining Average Average
Range of Number Contractual Exercise Number Exercise
Exercise Prices Outstanding Life Price Exercisable Price
$ 4.84 – 33.06 1.0 4.7 $28.69 1.0 $28.68
$ 34.25 – 39.00 1.0 7.1 $38.96 0.5 $38.93
$ 39.15 – 43.53 0.8 5.1 $42.38 0.7 $42.39
$ 47.89 – 47.89 1.0 8.2 $47.89 0.3 $47.89
$ 48.02 – 59.37 1.3 9.1 $58.43 – $48.66
5.1 7.0 $44.10 2.5 $36.76
The following table shows the weighted-average grant-date fair
values of options and the weighted-average assumptions that the
Company used to develop the fair value estimates:
2006 2005 2004
Fair value per option $12.24 $15.62 $13.66
Valuation assumptions
Weighted-average expected life (in years) 3.1 3.1 3.1
Risk free interest rate 4.3% 4.4% 3.5%
Expected volatility 0.2 0.4 0.5
Expected dividend yield 0.0% 0.0% 0.0%
The Black Scholes model incorporates assumptions to value
stock-based awards. The risk-free interest rate for periods within the
contractual life of the option is based on a zero-coupon U.S. govern-
ment instrument over the contractual term of the equity instrument.
Expected volatility of the Company’s stock is based on historical
volatility of the Company’s stock. The Company uses historical data
to calculate the expected life of the option. Groups of employees
and non-employee directors that have similar exercise behavior with
regard to option exercise timing and forfeiture rates are considered
separately for valuation purposes. For 2006, expense related to the
Company’s stock option plan totaled $21.0.
Restricted Stock and Performance Shares
The following table summarizes grants of restricted stock and perfor-
mance shares (“nonvested shares”) made by the Company to officers,
key employees, and non-employee directors under all plans. Restricted
stock becomes vested annually in equal one third increments beginning
on the first anniversary of the grant. The performance share awards
represent a three year award opportunity for the period 2005-2007
and become vested in 2008. Performance share awards are subject
to certain earnings per share and revenue targets, the achievement
of which may increase or decrease the number of shares which the
grantee receives upon vesting. The unearned restricted stock and per-
formance share compensation is being amortized to expense over the
applicable vesting periods. For 2006, 2005 and 2004, total restricted
stock and performance share compensation expense was $17.7,
$13.7 and $15.5, respectively.
The fair value of restricted stock and performance share awards
is determined based on the closing price of the Company’s common
stock on the day immediately preceding the grant date.