Quest Diagnostics 2003 Annual Report Download - page 96

QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(dollars in thousands unless otherwise indicated)
period, as determined by the Board of Directors. The stock options expire on the date designated by the Board
of Directors but in no event more than eleven years from date of grant. Grants of stock appreciation rights
allow eligible employees to receive a payment based on the appreciation of Quest Diagnostics common stock in
cash, shares of Quest Diagnostics common stock or a combination thereof. The stock appreciation rights are
granted at an exercise price at no less than the fair market value of Quest Diagnostics common stock on the
date of grant. Stock appreciation rights expire on the date designated by the Board of Directors but in no event
more than eleven years from date of grant. No stock appreciation rights have been granted under the 1999
EEPP. Under the incentive stock provisions of the plan, the 1999 EEPP allows eligible employees to receive
awards of shares, or the right to receive shares, of Quest Diagnostics common stock, the equivalent value in
cash or a combination thereof. These shares are generally earned on achievement of financial performance goals
and are subject to forfeiture if employment terminates prior to the end of the prescribed vesting period, which
ranges primarily from three to four years. The market value of the shares awarded is recorded as unearned
compensation. The amount of unearned compensation is subject to adjustment based upon changes in earnings
estimates, if any, during the initial year of grant and is amortized to compensation expense over the prescribed
vesting period. Key executive, managerial and technical employees are eligible to participate in the 1999 EEPP.
The provisions of the 1996 EEPP were similar to those outlined above for the 1999 EEPP.
The 1999 EEPP increased the maximum number of shares of Quest Diagnostics common stock that may
be optioned or granted to 18 million shares. In addition, any remaining shares under the 1996 EEPP are
available for issuance under the 1999 EEPP.
In 1998, the Company established the Quest Diagnostics Incorporated Stock Option Plan for Non-employee
Directors (the “Director Option Plan’’). The Director Option Plan provides for the grant to non-employee
directors of non-qualified stock options to purchase shares of Quest Diagnostics common stock at no less than
fair market value on the date of grant. The maximum number of shares that may be issued under the Director
Option Plan is 1 million shares. The stock options expire ten years from date of grant and generally vest over
three years. During 2003, 2002 and 2001, grants under the Director Option Plan totaled 94, 94 and 81 thousand
shares, respectively.
Transactions under the stock option plans were as follows (options in thousands, except per share amounts):
2003 2002 2001
Options outstanding, beginning of year ................................ 8,922 8,695 9,246
Options granted ...................................................... 3,176 2,052 2,413
Options exercised .................................................... (1,616) (1,543) (2,576)
Options terminated ................................................... (242) (282) (388)
Options outstanding, end of year ...................................... 10,240 8,922 8,695
Exercisable .......................................................... 5,706 3,943 3,168
Weighted average exercise price:
Options granted .................................................... $ 53.33 $ 74.92 $ 55.08
Options exercised .................................................. 20.29 18.70 11.37
Options terminated ................................................. 58.31 26.05 25.31
Options outstanding, end of year .................................... 44.85 38.83 26.33
Exercisable, end of year ............................................ 34.01 22.09 13.97
Weighted average fair value of options at grant date ................... $ 23.21 $ 33.74 $ 25.79
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