Quest Diagnostics 2006 Annual Report Download - page 112

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represented the $2.5 million the Company received upon the settlement of its Treasury Lock Agreements, net of
amounts reclassified as a reduction to interest expense (see Note 10).
Dividend Program
During each of the quarters of 2006, 2005 and 2004, the Company’s Board of Directors has declared a
quarterly cash dividend of $0.10, $0.09 and $0.075 per common share, respectively.
Share Repurchase Plan
In 2003, the Company’s Board of Directors authorized a share repurchase program, which permitted the
Company to purchase up to $600 million of its common stock. In July 2004, January 2005 and January 2006, the
Company’s Board of Directors authorized the Company to purchase up to an additional $300 million, $350
million and $600 million, respectively, of its common stock. Under a separate authorization from the Board of
Directors, in December 2004 the Company repurchased 5.4 million shares of its common stock for approximately
$254 million from GlaxoSmithKline plc. For the year ended December 31, 2006, the Company repurchased 8.9
million shares of its common stock at an average price of $53.23 per share for $472 million. For the year ended
December 31, 2006, the Company reissued 4.2 million shares in connection with employee benefit plans. For the
year ended December 31, 2005, the Company repurchased 7.8 million shares of its common stock at an average
price of $49.98 per share for $390 million. For the year ended December 31, 2005, the Company reissued 5.6
million shares and 4.3 million shares, respectively, in connection with the conversion of its Debentures and for
employee benefit plans. At December 31, 2006, $250 million of the share repurchase authorization remained
available.
12. STOCK OWNERSHIP AND COMPENSATION PLANS
For the year ended December 31, 2006, the stock-based compensation expense recorded in accordance with
SFAS 123R totaled $55 million. In addition, in connection with the adoption of SFAS 123R, net cash provided
by operating activities decreased and net cash provided by financing activities increased for the year ended
December 31, 2006 by $33 million related to excess tax benefits from stock-based compensation arrangements.
Employee and Non-employee Directors Stock Ownership Programs
In 2005, the Company established the ELTIP to replace the Company’s prior Employee Equity Participation
Programs established in 1999 (the “1999 EEPP”) and 1996 (the “1996 EEPP”). The ELTIP provides for three
types of awards: (a) stock options, (b) stock appreciation rights and (c) incentive stock awards. The ELTIP
provides for the grant to eligible employees of either non-qualified or incentive stock options, or both, to
purchase shares of Quest Diagnostics common stock at a price of no less than the fair market value on the date
of grant. The stock options are subject to forfeiture if employment terminates prior to the end of the prescribed
vesting 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 seven years from date of grant for those granted subsequent to
January 1, 2005. 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 seven years from date of grant. No stock
appreciation rights have been granted under the ELTIP or the 1999 EEPP. Under the incentive stock provisions
of the plan, the ELTIP 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, as determined by the Board of Directors. The actual
amount of performance share awards is based on the Company’s earnings per share growth for the performance
period compared to that of a peer group of companies. Key executive, managerial and technical employees are
eligible to participate in the ELTIP. The provisions of the 1999 EEPP and the 1996 EEPP were similar to those
F-25
QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(dollars in thousands unless otherwise indicated)