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4) COMMON STOCK During the third quarter of 1998, the Company’s Board of Directors approved a stock repurchase program authorizing the Company to purchase up to two million shares or approximately 6% of its outstanding Class B Common Stock. This initial repurchase program was completed during the third quarter of 1999, at which time, the Board of Directors approved a plan for repurchase of up to an additional two million shares of the Company’s Class B Common Stock and during the fourth quarter of 1999, the Board of Director’s approved a plan for an additional two million shares. Pursuant to the stock repurchase programs, the Company, from time to time and as conditions allow, may purchase a total of up to six million shares on the open market at prevailing market prices or in negotiated transactions off the market. Pursuant to the terms of these programs, the Company repurchased 580,500 shares at an average repurchase price of $42.90 per share ($24.9 million in the aggregate) during 1998 and 2,028,379 shares at an average repurchase price of $35.10 ($71.2 million in the aggregate) during 1999. Since inception of the repurchase program in 1998 through December 31, 1999, the Company repurchased a total of 2,608,879 shares at an average repurchase price of $36.85 per share ($96.1 million in the aggregate). In conjunction with the Company’s stock repur-chase program, during 1998 and 1999, the Company sold European-style put options which entitle the holder to sell shares of the Company’s Class B Common Stock to the Company at a specified price. The Company also purchased European-style call options which entitle the Company to purchase shares of the Company’s Class B Common Stock at a specified price. As of December 31, 1999 put options totaling 1,458,500 shares, with an average strike price of $28.47, were outstanding with various expiration dates in the second and third quarters of 2000. As of December 31, 1999 call options totaling 1,034,000 shares, with an average strike price of $28.47 per share, were outstanding with various expiration dates in the second and third quarters of 2000. As of December 31, 1999 the fair market value of these instruments was approximately $8 million. At December 31, 1999, 5,700,819 shares of Class B Common Stock were reserved for issuance upon conversion of shares of Class A, C and D Common Stock outstanding, for issuance upon exercise of options to purchase Class B Common Stock, and for issuance of stock under other incentive plans. Class A, C and D Common Stock are convertible on a share for share basis into Class B Common Stock. SFAS No. 123 requires the Company to disclose pro-forma net income and pro-forma earnings per share as if compensation expense were recognized for options granted beginning in 1995. Using this approach, the Company’s net earnings and earnings per share would have been the pro forma amounts indicated below:
The fair value of each option grant was estimated on the date of grant using the Black-Scholes option-pricing model with the following range of assumptions used for the thirteen option grants that occurred during 1999, 1998 and 1997:
Stock-based compensation costs on a pro forma basis would have reduced pretax income by $4.0 million ($2.5 million after tax) in 1999, $1.9 million ($1.2 million after-tax) in 1998 and $1.0 million ($604,000 after-tax) in 1997. Because the SFAS 123 method of accounting has not been applied to options granted prior to January 1, 1995, the resulting pro forma disclosures may not be representative of that to be expected in future years. Stock options to purchase Class B Common Stock have been granted to officers, key employees and directors of the Company under various plans.
During 1999, subject to shareholder approval, the Board of Directors approved a 1 million share increase in the reserve for Class B Common Stock available for grant pursuant to the terms of the 1992 Stock Option Plan. All stock options were granted with an exercise price equal to the fair market value on the date of the grant. Options are exercisable ratably over a four-year period beginning one year after the date of the grant. The options expire five years after the date of the grant. The outstanding stock options at December 31, 1999 have an average remaining contractual life of 2.9 years. At December 31, 1999, options for 744,219 shares were available for grant. At December 31, 1999, options for 634,808 shares of Class B Common Stock with an aggregate purchase price of $16.9 million (average of $26.55 per share) were exercisable. In connection with the stock option plan, the Company provides the optionee with a three year loan to cover the tax liability incurred upon exercise of the options. The loan is forgiven on the maturity date if the optionee is employed by the Company on that date. The Company recorded compensation expense over the service period and recognized compensation expense of $7.6 million in 1999, $8.4 million in 1998 and $5.1 million in 1997 in connection with this loan program.
In addition to the stock option plan the Company has the following stock incentive and purchase plans: (i) a Stock Compensation Plan which expires in November, 2004 under which Class B Common Shares may be granted to key employees, consultants and independent con-tractors (officers and directors are ineligible); (ii) a Stock Ownership Plan whereby eligible employees may purchase shares of Class B Common Stock directly from the Company at current market value and the Company will loan each eligible employee 90% of the purchase price for the shares, subject to certain limitations, (loans are partially recourse to the employees); (iii) a Restricted Stock Purchase Plan which allows eligible participants to purchase shares of Class B Common Stock at par value, subject to certain restrictions, and; (iv) a Stock Purchase Plan which allows eligible employees to purchase shares of Class B Common Stock at a ten percent discount. The Company has reserved 2 million shares of Class B Common Stock for issuance under these various plans and has issued 1,032,617 shares pursuant to the terms of these plans as of December 31, 1999, of which 57,680, 42,010 and 41,196 became fully vested during 1999, 1998 and 1997, respectively. Compensation expense of $1.1million in 1999, $488,000 in 1998 and $5.2 million in 1997 was recognized in connection with these plans. Annual Report Contents Home | Corporate info | Financial information | What's News | Stock price Annual Report | Job Openings | UHS Hospitals Copyright ©2000 UHS | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||