LabCorp 2008 Annual Report Download - page 50

Notes to Consolidated Financial Statements
(Dollars and shares in millions, except per share data)
Laboratory Corporation of America
48 Laboratory Corporation of America® Holdings 2008
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:
2008 2007 2006
Fair value per option $ 13.25 $ 14.84 $ 12.24
Valuation assumptions
Weighted average expected life (in years) 3.2 3.1 3.1
Risk free interest rate 2.7% 4.7% 4.3%
Expected volatility 0.2 0.2 0.2
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. government 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 2008 and 2007,
expense related to the Company’s stock option plan totaled $17.3 and $14.5, respectively. The
2008 expense amount includes $0.8 related to the acceleration of the recognition of stock
compensation as a result of EVP retirement.
Restricted Stock and Performance Shares
The Company grants restricted stock and performance shares (“nonvested shares”) 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 represented a three year award opportunity for the period 2005-2007
and became vested in 2008. A new performance share grant in 2008 represents a three year
award opportunity for the period 2008-2010 and becomes vested in the first quarter of 2011.
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 performance share compensation is being
amortized to expense over the applicable vesting periods. For 2008, 2007 and 2006, total
restricted stock and performance share compensation expense was $14.0, $16.7 and $17.7,
respectively. The 2008 expense amount includes $1.2 related to the acceleration of the recognition
of stock compensation as a result of EVP retirement.
Prior to May 2008, the fair value of restricted stock and performance share awards was
determined based on the closing price of the Company’s common stock on the day immediately
preceding the grant date. For restricted stock and performance share awards granted after
May 2008, the fair value of the awards is determined based on the closing price of the Company’s
common stock on the day of the grant.
The following table shows a summary of nonvested shares for the year ended
December 31, 2008:
Weighted-
Average
Number of Grant Date
Shares Fair Value
Nonvested at January 1, 2008 1.2 $ 52.16
Granted 0.3 79.18
Vested (1.1) 49.14
Nonvested at December 31, 2008 0.4 76.04
As of December 31, 2008, there was $15.7 of total unrecognized compensation cost
related to nonvested restricted stock and performance share-based compensation arrangements
granted under the stock incentive plans. That cost is expected to be recognized over a weighted
average period of 1.9 years.
Employee Stock Purchase Plan
The Company has an employee stock purchase plan, begun in 1997 and amended in 1999,
2004 and 2008, with 4.5 million shares of common stock authorized for issuance. The plan
permits substantially all employees to purchase a limited number of shares of Company stock
at 85% of market value. The Company issues shares to participating employees semi-annually
in January and July of each year. Approximately 173, 174, and 207 thousand shares were
purchased by eligible employees in 2008, 2007 and 2006 respectively. For 2008 and 2007,
expense related to the Company’s employee stock purchase plan was $2.9 and $2.8, respectively.
The following table summarizes information concerning currently outstanding and exercisable options.
Options Outstanding Options Exercisable
Weighted Average
Range of Number Remaining Average Number Weighted Average
Exercise Prices Outstanding Contractual Life Exercise Price Exercisable Exercise Price
$ 6.80 – 47.89 1.2 4.9 $ 41.74 1.2 $ 41.74
$48.02 – 59.37 0.8 7.1 $ 58.39 0.5 $ 58.27
$75.63 – 75.63 1.7 9.4 $ 75.63 – $ –
$77.58 – 80.37 1.2 8.2 $ 80.31 0.4 $ 80.34
4.9 7.6 $ 65.59 2.1 $ 53.06