LabCorp 2009 Annual Report Download - page 58

56 LABORATORY CORPORATION OF AMERICA
LABORATORY CORPORATION OF AMERICA
Notes to Consolidated Financial Statements
As of December 31, 2009, there was $19.9 of total unrecog-
nized 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 1.8 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 193, 173 and
174 thousand shares were purchased by eligible employees in
2009, 2008 and 2007 respectively. For 2009, 2008 and 2007,
expense related to the Company’s employee stock purchase
plan was $2.7, $2.9 and $2.8, respectively.
The Company uses the Black-Scholes model to calculate
the fair value of the employee’s purchase right. The fair value of
the employee’s purchase right and the assumptions used in its
calculation are as follows:
2009 2008 2007
Fair value of the employee’s purchase right $ 14.28 $ 16.10 $ 16.98
Valuation assumptions
Risk-free interest rate 0.2% 1.2% 4.1%
Expected volatility 0.2 0.3 0.3
Expected dividend yield 0.0% 0.0% 0.0%
15. Commitments and Contingent Liabilities
The Company was a party in a patent case originally filed by
Competitive Technologies, Inc. and Metabolite Laboratories, Inc.
in the United States District Court for the District of Colorado.
After a jury trial, the district court entered judgment against the
Company for patent infringement, with total damages and
attorney’s fees payable by the Company of approximately
$7.8. The underlying judgment has been paid. The Company
vigorously contested the judgment and appealed the case
ultimately to the United States Supreme Court. On June 22,
2006, the Supreme Court dismissed the Company’s appeal
and the case was remanded to the District Court for further
proceedings including resolution of a related declaratory judgment
action initiated by the Company addressing the plaintiffs’ claims
for post trial damages. On August 15, 2008, the District Court
entered judgment in favor of the Company on all of the plaintiffs’
remaining claims. Metabolite Laboratories, Inc. has filed a notice
of appeal and the appeal is pending. The Company does not
expect the resolution of these issues to have a material adverse
effect on its financial position, results of operations or liquidity.
A subsidiary of the Company, DIANON Systems, Inc.
(“DIANON”), is the appellant in a wrongful termination lawsuit
originally filed by G. Berry Schumann in Superior Court in the
State of Connecticut. After a jury trial, the state court entered
judgment against DIANON, with total damages, attorney’s fees,
and pre-judgment interest payable by DIANON, of approxi-
mately $10.0. DIANON filed a notice of appeal in December
2009 and is awaiting a briefing schedule. DIANON has disputed
liability and intends to contest the case vigorously on appeal.
The Company is involved in various claims and legal actions,
including arbitrations, class actions and other litigation, arising
in the ordinary course of business. Some of these actions
involve claims that are substantial in amount. These matters
include, but are not limited to, intellectual property disputes,
professional liability, employee related matters, and inquiries,
including subpoenas and other civil investigative demands,
from governmental agencies and Medicare or Medicaid payers
and managed care payers reviewing billing practices or request-
ing comment on allegations of billing irregularities that are brought
to their attention through billing audits or third parties. The
Company receives civil investigative demands or other inquiries
from various governmental bodies in the ordinary course of its
business. Such inquiries can relate to the Company or other
health care providers. The Company works cooperatively to
respond to appropriate requests for information.
As previously reported on May 22, 2006, the Company
received a subpoena from the California Attorney General seek-
ing documents related to billing to the state’s Medicaid program.
The Company subsequently reported during the third quarter of
2008, that it received a request from the California Attorney
General for additional information. On March 20, 2009, a qui tam
lawsuit, California ex rel. Hunter Laboratories, LLC et al. v. Quest
Diagnostics Incorporated, et al., which was joined by the California
Attorney General and to which the previous subpoena related,
was unsealed. The lawsuit was brought against the Company
and several other major laboratories operating in California
and alleges that the defendants improperly billed the state Med-
icaid program.
During 2009, the Company received subpoenas from two state
agencies requesting documents related to its billing to Medicaid in