LabCorp 2010 Annual Report Download - page 29

27
LABORATORY CORPORATION OF AMERICA
Notes to Consolidated Financial Statements
Concentration of Credit Risk
Financial instruments that potentially subject the Company to
concentrations of credit risk consist primarily of cash and cash
equivalents and accounts receivable.
The Company maintains cash and cash equivalents with
various major financial institutions. The total cash balances
on deposit that exceeded the balances insured by the
F.D.I.C., were approximately $52.2 at December 31, 2010.
Cash equivalents at December 31, 2010, totaled $177.4,
which includes amounts invested in money market funds,
time deposits, municipal, treasury and government funds.
Substantially all of the Company’s accounts receivable
are with companies in the health care industry and individu-
als. 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 $125.0 and $106.4 at December 31, 2010
and 2009, 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 earn-
ings 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 earlier of the date of
issuance or 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.
The following represents a reconciliation of basic earnings per share to diluted earnings per share:
2010 2009 2008
Per Share Per Share Per Share
Income Shares Amount Income Shares Amount Income Shares Amount
Basic earnings per share $ 558.2 103.0 $ 5.42 $ 543.3 107.4 $ 5.06 $ 464.5 109.7 $ 4.23
Stock options – 0.6 – 0.5 – 0.7
Restricted stock awards and other – 0.3 – 0.2 – 0.3
Effect of convertible debt, net of tax – 1.5 – 1.0 – 1.1
Diluted earnings per share $ 558.2 105.4 $ 5.29 $ 543.3 109.1 $ 4.98 $ 464.5 111.8 $ 4.16
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,
2010 2009 2008
Stock options 2.7 4.6 2.4
Stock Compensation Plans
The Company measures stock compensation cost for all equity
awards at fair value on the date of grant and recognizes com-
pensation expense over the service period for awards expected
to vest. The fair value of restricted stock awards and performance
shares is determined based on the number of shares granted
and the quoted price of the Company’s common stock on grant
date. Such value is recognized as expense over the service
period, net of estimated forfeitures. The estimation of equity
awards that will ultimately vest requires judgment and the
Company considers many factors when estimating expected
forfeitures, including types of awards, employee class, and
historical experience. The cumulative effect on current and
prior periods of a change in the estimated forfeiture rate is
recognized as compensation cost in earnings in the period
of the revision. Actual results and future estimates may differ
substantially from the Company’s current estimates.
See note 14 for assumptions used in calculating compensation
expense for the Company’s stock compensation plans.
Cash Equivalents
Cash equivalents (primarily investments in money market funds,
time deposits, municipal, treasury and government funds which
have original maturities of three months or less at the date of
purchase) are carried at cost which approximates market.
Inventories
Inventories, consisting primarily of purchased laboratory
and client supplies, are stated at the lower of cost (first-in,
first-out) or market.