LabCorp 2007 Annual Report Download - page 39

Notes to Consolidated Financial Statements
(Dollars and shares in millions, except per share data)
Laboratory Corporation of America® Holdings 2007 37
The following represents a reconciliation of basic earnings per share to diluted earnings per share:
2007 2006 2005
Per Share Per Share Per Share
(shares in millions) Income Shares Amount Income Shares Amount Income Shares Amount
Basic earnings per share: $476.8 116.8 $4.08 $431.6 124.1 $3.48 $386.2 133.5 $2.89
Stock options – 1.2 – 1.3 – 1.0
Restricted stock awards and other – 0.8 – 0.7 – 0.4
Effect of convertible debt,
net of tax – 2.5 5.3 8.6 6.5 10.0
Diluted earnings per share: $476.8 121.3 $3.93 $436.9 134.7 $3.24 $392.7 144.9 $2.71
The following table summarizes the potential common shares not included in the computation of diluted earnings per share because their
impact would have been antidilutive:
Years Ended December 31,
2007 2006 2005
Stock options 1.2 1.1 –
exceeded the balances insured by the F.D.I.C., were approximately
$26.5 at December 31, 2007. Cash equivalents at December 31, 2007,
totaled $37.2, which includes amounts invested in treasury bills and
short-term bonds.
Substantially all of the Company’s accounts receivable are with
companies in the health care industry and individuals. However,
concentrations of credit risk are limited due to the number of the
Company’s clients as well as their dispersion across many different
geographic regions.
Accounts receivable balances (gross) from Medicare and Medicaid
were $104.0 and $99.3 at December 31, 2007 and 2006, respectively.
Earnings Per Share
Basic earnings per share is computed by dividing net earnings, less
preferred stock dividends and accretion, by the weighted average
number of common shares outstanding. Diluted earnings per share
is computed by dividing net earnings including the impact of dilutive
adjustments by the weighted average number of common shares
outstanding plus potentially dilutive shares, as if they had been issued
at the beginning of the period presented. Potentially dilutive common
shares result primarily from the Company’s outstanding stock options,
restricted stock awards, performance share awards, and shares
issuable upon conversion of zero-coupon subordinated notes.
Stock Compensation Plans
Effective January 1, 2006, the Company adopted Statement of
Financial Accounting Standards No. 123 (revised 2004), Share-Based
Payment (“SFAS 123(R)”), which requires the Company to measure
the cost of employee services received in exchange for all equity
awards granted, based on the fair market value of the award as of the
grant date. SFAS 123(R) supersedes Statement of Financial Accounting
Standards No. 123, Accounting for Stock-Based Compensation and
Accounting Principles Board Opinion No. 25, Accounting for Stock
Issued to Employees (“APB 25”). The Company adopted SFAS 123(R)
using the modifi ed prospective application method of adoption which
required the Company to record compensation cost related to unvested
stock awards as of December 31, 2005 by recognizing the unamortized
grant date fair value of these awards over the remaining service periods
of those awards with no change in historical reported earnings. Awards
granted after December 31, 2005 are valued at fair value in accordance
with provisions of SFAS 123(R) and recognized on a straight line basis
over the service periods of each award. The Company calculated
forfeiture rates for 2007 and 2006 based on its historical experience.
Prior to 2006, the Company accounted for stock-based compensation
in accordance with APB 25 using the intrinsic value method, which did
not require that compensation cost be recognized for the Company’s
stock option and stock purchase plans provided the option exercise price
was established at the common stock fair market value on the date of
grant. Under APB 25, the Company was required to record expense over
the vesting period for the value of its restricted stock and performance
share awards. Prior to 2006, the Company provided pro forma disclosure
amounts in accordance with SFAS No. 148, “Accounting for Stock-
Based Compensation – Transition and Disclosure” (SFAS No. 148), as
if the fair value method defi ned by SFAS No. 123 had been applied to
all of its stock-based compensation.
As a result of adopting SFAS 123(R), the Company’s net earnings
were reduced by $13.9 ($23.3 on a pre-tax basis) in 2006. The impact
on both basic and diluted earnings per share for the year ended
Laboratory Corporation of America