LabCorp 2010 Annual Report Download - page 42

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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, 2010:
Weighted-
Average
Number of Grant Date
Shares Fair Value
Nonvested at January 1, 2010 0.5 $ 69.43
Granted 0.2 70.60
Vested (0.1) 72.52
Nonvested at December 31, 2010 0.6 68.26
As of December 31, 2010, there was $20.8 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 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 0.2 shares were
purchased by eligible employees in 2010, 2009 and 2008,
respectively. For 2010, 2009 and 2008, expense related to
the Company’s employee stock purchase plan was $2.6, $2.7
and $2.9, 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:
2010 2009 2008
Fair value of the employee’s purchase right $ 15.39 $ 14.28 $ 16.10
Valuation assumptions
Risk free interest rate 0.2% 0.2% 1.2%
Expected volatility
0.2 0.2 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. filed an appeal to the Federal Circuit. The Federal Circuit
transferred the appeal to the Tenth Circuit Court of Appeals
and oral argument was heard on November 17, 2010. On
February 2, 2011, the Tenth Circuit Court of Appeals affirmed
the District Court judgment in favor of the Company.
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
approximately $10.0. DIANON filed a notice of appeal in
December 2009, and the case has been transferred to the
Connecticut Supreme Court. DIANON has disputed liability
and intends to contest the case vigorously on appeal.
As previously reported on May 22, 2006, the Company
received a subpoena from the California Attorney General
seeking documents related to billing to the state’s Medicaid
program. During the third quarter of 2008, the Company
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
LABORATORY CORPORATION OF AMERICA
Notes to Consolidated Financial Statements