UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

~~[X]~~☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, ~~2018~~2019

~~[ ]~~☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______ to ______

Commission file number 1-11353

LABORATORY ~~CORPORATION~~CORP OF

AMERICA HOLDINGS

(Exact name of registrant as specified in its charter)



Delaware		13-3757370
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)



358 South Main Street
Burlington,	North Carolina	27215
(Address of principal executive offices)		(Zip Code)

(Registrant's telephone number, including area code) ~~336-229-1127~~336-229-1127

Securities registered pursuant to Section 12(b) of the Exchange Act.

Title of Each Class Trading Symbol Name of exchange on which registered

Common Stock, $0.10 par value LH New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes ~~[X]~~☒ No ~~[ ]~~☐

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T (paragraph 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files). Yes ~~[X]~~☒ No ~~[ ]~~☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.



Large accelerated filer ~~[X]~~	☒	Accelerated filer ~~[ ]~~	☐
Non-accelerated filer ~~[ ] (Do not check if a smaller reporting company)~~	☐	Smaller reporting company ~~[ ]~~	☐
		Emerging growth company ~~[ ]~~	☐

If emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ~~[ ]~~☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ~~[ ]~~☐ No ~~[X]~~☒.

The number of shares outstanding of the issuer's common stock is ~~101.9~~97.7 million shares ~~net of treasury stock~~ as of ~~July 25, 2018~~.August 6, 2019.

INDEX

PART I. FINANCIAL INFORMATION



Item 1.	Financial ~~Statements:~~Statements (unaudited)

	Condensed Consolidated Balance Sheets	2
	June 30, ~~2018~~2019 and December 31, ~~2017~~2018

	Condensed Consolidated Statements of Operations	3
	Three ~~months~~ and six months ended June 30, ~~2018~~2019 and ~~2017~~ 2018

	Condensed Consolidated Statements of Comprehensive Earnings	4
	Three ~~months~~ and six months ended June 30, ~~2018~~2019 and ~~2017~~2018

	Condensed Consolidated Statements of Changes in Shareholders’ Equity	5
	~~Six~~Three and six months ended June 30, ~~2018~~2019 and ~~2017~~ 2018

	Condensed Consolidated Statements of Cash Flows	6
	Six months ended June 30, ~~2018~~2019 and ~~2017~~ 2018

	Notes to Unaudited Condensed Consolidated Financial Statements	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3128

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	4239

Item 4.	Controls and Procedures	4340

PART II. OTHER INFORMATION



Item 1.	Legal Proceedings	4442

Item 1A.	Risk Factors	4442

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	4442

Item 5.	Other Information	42

Item 6.	Exhibits	4442

INDEX

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements (unaudited)

LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in millions)

(unaudited)


	June 30, 2018			December 31, 2017			June 30, 2019			December 31, 2018
ASSETS
Current assets:
Cash and cash equivalents	$	221.4		$	316.6		$	265.4		$	426.8
Accounts receivable	1,520.3			1,531.0			1,576.1			1,467.9
Unbilled services	351.3			316.5			488.8			394.4
Supplies inventories	230.7			227.2			219.7			237.3
Prepaid expenses and other	286.1			308.8			298.6			309.0
Current assets held for sale	411.4			33.7
Total current assets	3,021.2			2,733.8			2,848.6			2,835.4
Property, plant and equipment, net	1,710.9			1,706.6			2,544.2			1,740.3
Goodwill, net	7,423.3			7,400.9			7,843.7			7,360.3
Intangible assets, net	4,049.5			4,166.1			4,015.9			3,911.1
Joint venture partnerships and equity method investments	58.9			58.4			86.7			60.5
Deferred income tax assets	1.7			1.9			1.7			1.7
Other assets, net	239.0			217.5			403.6			276.0
Long-term assets held for sale	—			387.8
Total assets	$	16,504.5		$	16,673.0		$	17,744.4		$	16,185.3

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	488.1		$	573.9		$	531.6		$	634.6
Accrued expenses and other	739.9			793.3			820.3			870.0
Unearned revenue	393.3			380.8			404.2			356.4
Short-term operating lease liabilities							229.2			—
Short-term finance lease liabilities							8.2			7.9
Short-term borrowings and current portion of long-term debt	417.8			417.5			502.3			10.0
Current liabilities held for sale	82.4			20.2
Total current liabilities	2,121.5			2,185.7			2,495.8			1,878.9
Long-term debt, less current portion	6,039.4			6,344.6			6,135.0			5,990.9
Operating lease liabilities							586.1			—
Financing lease liabilities							46.2			51.0
Deferred income taxes and other tax liabilities	914.1			875.5			948.3			940.0
Other liabilities	371.8			376.0			368.6			334.0
Long-term liabilities held for sale	—			66.3
Total liabilities	9,446.8			9,848.1			10,580.0			9,194.8
Commitments and contingent liabilities
Noncontrolling interest	20.0			20.8			20.0			19.1
Shareholders’ equity:
Common stock, 102.0 and 101.9 shares outstanding at June 30, 2018 and December 31, 2017, respectively	12.0			12.0
Common stock, 97.8 and 98.9 shares outstanding at June 30, 2019 and December 31, 2018, respectively							9.1			11.7
Additional paid-in capital	1,934.8			1,989.8			91.4			1,451.1
Retained earnings	6,603.1			6,196.1			7,455.8			7,079.8
Less common stock held in treasury	(1,105.2		)	(1,060.1		)	—			(1,108.1		)
Accumulated other comprehensive loss	(407.0		)	(333.7		)	(411.9		)	(463.1		)
Total shareholders’ equity	7,037.7			6,804.1			7,144.4			6,971.4
Total liabilities and shareholders’ equity	$	16,504.5		$	16,673.0		$	17,744.4		$	16,185.3

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

INDEX

LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in millions, except per share data)

(unaudited)


	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended June 30,						Six Months Ended June 30,
	2018			2017			2018			2017			2019			2018			2019			2018
Revenues	$	2,866.3		$	2,528.2		$	5,714.6		$	4,941.9		$	2,881.7		$	2,866.3		$	5,672.9		$	5,714.6
Cost of revenues	2,031.2			1,750.2			4,100.5			3,451.4			2,056.9			2,031.2			4,058.4			4,100.5
Gross profit	835.1			778.0			1,614.1			1,490.5			824.8			835.1			1,614.5			1,614.1
Selling, general and administrative expenses	395.2			357.7			792.2			700.6			415.3			395.2			809.1			792.2
Amortization of intangibles and other assets	58.5			51.4			120.8			99.0			60.2			58.5			117.3			120.8
Restructuring and other special charges	12.2			39.1			26.5			43.0			13.6			12.2			34.2			26.5
Operating income	369.2			329.8			674.6			647.9			335.7			369.2			653.9			674.6
Other income (expenses):
Interest expense	(63.1		)	(55.0		)	(126.6		)	(107.4		)	(59.1		)	(63.1		)	(115.8		)	(126.6		)
Equity method income, net	3.0			4.5			5.5			6.8			2.5			3.0			5.5			5.5
Investment income	0.8			0.4			1.4			0.7			1.4			0.8			2.0			1.4
Other, net	2.8			(0.5		)	(0.7		)	(3.6		)	(10.5		)	2.8			(20.9		)	(0.7		)
Earnings before income taxes	312.7			279.2			554.2			544.4			270.0			312.7			524.7			554.2
Provision for income taxes	78.6			94.1			147.6			176.0			79.3			78.6			148.1			147.6
Net earnings	234.1			185.1			406.6			368.4			190.7			234.1			376.6			406.6
Less: Net (earnings) loss attributable to the noncontrolling interest	(0.3		)	(0.3		)	0.4			(0.6		)	(0.3		)	(0.3		)	(0.6		)	0.4
Net earnings attributable to Laboratory Corporation of America Holdings	$	233.8		$	184.8		$	407.0		$	367.8		$	190.4		$	233.8		$	376.0		$	407.0

Basic earnings per common share	$	2.29		$	1.80		$	3.99		$	3.59		$	1.94		$	2.29		$	3.82		$	3.99
Diluted earnings per common share	$	2.27		$	1.78		$	3.94		$	3.54		$	1.93		$	2.27		$	3.79		$	3.94

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

INDEX

LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS

(in millions, except per share data)

(unaudited)


	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended June 30,						Six Months Ended June 30,
	2018			2017			2018			2017			2019			2018			2019			2018
Net earnings	$	234.1		$	185.1		$	406.6		$	368.4		$	190.7		$	234.1		$	376.6		$	406.6
Foreign currency translation adjustments	(121.9		)	157.2			(82.6		)	215.8			25.6			(121.9		)	47.2			(82.6		)
Net benefit plan adjustments	3.3			0.5			6.2			1.1			2.8			3.3			5.5			6.2
Other comprehensive earnings (loss) before tax	(118.6		)	157.7			(76.4		)	216.9			28.4			(118.6		)	52.7			(76.4		)
(Provision) benefit for income tax related to items of other comprehensive earnings	(7.2		)	(14.9		)	3.1			(20.8		)	(0.8		)	(7.2		)	(1.5		)	3.1
Other comprehensive earnings, net of tax	(125.8		)	142.8			(73.3		)	196.1			27.6			(125.8		)	51.2			(73.3		)
Comprehensive earnings	108.3			327.9			333.3			564.5			218.3			108.3			427.8			333.3
Less: Net (earnings) loss attributable to the noncontrolling interest	(0.3		)	(0.3		)	0.4			(0.6		)	(0.3		)	(0.3		)	(0.6		)	0.4
Comprehensive earnings attributable to Laboratory Corporation of America Holdings	$	108.0		$	327.6		$	333.7		$	563.9		$	218.0		$	108.0		$	427.2		$	333.7

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

INDEX

LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN

SHAREHOLDERS’ EQUITY

(in millions)

(unaudited)


	Common Stock			Additional Paid-in Capital			Retained Earnings		Treasury Stock			Accumulated Other Comprehensive Loss			Total Shareholders’ Equity
BALANCE AT DECEMBER 31, 2016	$	12.1		$	2,131.7		$	4,969.0	$	(1,012.7	)	$	(581.9	)	$	5,518.2
Net earnings attributable to Laboratory Corporation of America Holdings	—			—			367.8		—			—			367.8
Other comprehensive earnings, net of tax	—			—			—		—			196.1			196.1
Issuance of common stock under employee stock plans	0.1			31.3			—		—			—			31.4
Surrender of restricted stock and performance share awards	—			—			—		(46.2		)	—			(46.2		)
Conversion of zero-coupon convertible debt	—			12.8			—		—			—			12.8
Stock compensation	—			52.7			—		—			—			52.7
Purchase of common stock	(0.2		)	(255.8		)	—		—			—			(256.0		)
BALANCE AT JUNE 30, 2017	$	12.0		$	1,972.7		$	5,336.8	$	(1,058.9	)	$	(385.8	)	$	5,876.8
																		Common Stock			Additional Paid-in Capital			Retained Earnings		Treasury Stock			Accumulated Other Comprehensive Loss			Total Shareholders’ Equity
BALANCE AT DECEMBER 31, 2017	$	12.0		$	1,989.8		$	6,196.1	$	(1,060.1	)	$	(333.7	)	$	6,804.1		$	12.0		$	1,989.8		$	6,196.1	$	(1,060.1	)	$	(333.7	)	$	6,804.1
Net earnings attributable to Laboratory Corporation of America Holdings	—			—			407.0		—			—			407.0			—			—			173.2		—			—			173.2
Other comprehensive earnings, net of tax	—			—			—		—			(73.3		)	(73.3		)	—			—			—		—			52.5			52.5
Issuance of common stock under employee stock plans	—			43.0			—		—			—			43.0			—			28.4			—		—			—			28.4
Surrender of restricted stock and performance share awards	—			—			—		(45.1		)	—			(45.1		)
Net share settlement tax payments from issuance of stock to employees																		—			—			—		(25.0		)	—			(25.0		)
Stock compensation																		—			25.8			—		—			—			25.8
Purchase of common stock																		—			(75.0		)	—		—			—			(75.0		)
BALANCE AT MARCH 31, 2018																		$	12.0		$	1,969.0		$	6,369.3	$	(1,085.1	)	$	(281.2	)	$	6,984.0
Net earnings attributable to Laboratory Corporation of America Holdings																		—			—			233.8		—			—			233.8
Other comprehensive loss, net of tax																		—			—			—		—			(125.8		)	(125.8		)
Issuance of common stock under employee stock plans																		—			14.6			—		—			—			14.6
Net share settlement tax payments from issuance of stock to employees																		—			—			—		(20.1		)	—			(20.1		)
Stock compensation	—			52.0			—		—			—			52.0			—			26.2			—		—			—			26.2
Purchase of common stock	—			(150.0		)	—		—			—			(150.0		)	—			(75.0		)	—		—			—			(75.0		)
BALANCE AT JUNE 30, 2018	$	12.0		$	1,934.8		$	6,603.1	$	(1,105.2	)	$	(407.0	)	$	7,037.7		$	12.0		$	1,934.8		$	6,603.1	$	(1,105.2	)	$	(407.0	)	$	7,037.7

BALANCE AT DECEMBER 31, 2018																		$	11.7		$	1,451.1		$	7,079.8	$	(1,108.1	)	$	(463.1	)	$	6,971.4
Net earnings attributable to Laboratory Corporation of America Holdings																		—			—			185.6		—			—			185.6
Other comprehensive earnings, net of tax																		—			—			—		—			23.6			23.6
Issuance of common stock under employee stock plans																		—			24.7			—		—			—			24.7
Net share settlement tax payments from issuance of stock to employees																		—			—			—		(19.4		)	—			(19.4		)
Stock compensation																		—			25.5			—		—			—			25.5
Purchase of common stock																		(0.1		)	(100.0		)	—		—			—			(100.1		)
BALANCE AT MARCH 31, 2019																		$	11.6		$	1,401.3		$	7,265.4	$	(1,127.5	)	$	(439.5	)	$	7,111.3
Net earnings attributable to Laboratory Corporation of America Holdings																		—			—			190.4		—			—			190.4
Other comprehensive earnings, net of tax																		—			—			—		—			27.6			27.6
Issuance of common stock under employee stock plans																		—			9.2			—		—			—			9.2
Net share settlement tax payments from issuance of stock to employees																		—			—			—		(20.7		)	—			(20.7		)
Stock compensation																		—			26.5			—		—			—			26.5
Retirement of treasury stock																		(2.4		)	(1,145.8		)	—		1,148.2			—			—
Purchase of common stock																		(0.1		)	(199.8		)	—		—			—			(199.9		)
BALANCE AT JUNE 30, 2019																		$	9.1		$	91.4		$	7,455.8	$	—		$	(411.9	)	$	7,144.4

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

INDEX

LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in millions)

(unaudited)


	Six Months Ended June 30,						Six Months Ended June 30,
	2018			2017			2019			2018
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings	$	406.6		$	368.4		$	376.6		$	406.6
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization	281.3			255.1			277.1			281.3
Stock compensation	52.0			52.7			52.0			52.0
(Gain) loss on sale of assets	(0.3		)	0.6
Loss (gain) on sale of assets							4.5			(0.3		)
Loss on sale of business							8.8			—
Accreted interest on zero-coupon subordinated notes	0.1			0.2			—			0.1
Cumulative earnings less than distributions from equity method investments	(1.3		)	(4.0		)
Operating lease right-of-use asset expense							94.0			—
Earnings less distributions (excess)/deficit from equity method investments							8.0			(1.3		)
Asset impairment	2.3			15.1			—			2.3
Deferred income taxes	36.0			(4.6		)	15.2			36.0
Change in assets and liabilities (net of effects of acquisitions):
Decrease (increase) in accounts receivable	13.2			(50.2		)
(Increase) decrease in accounts receivable							(91.1		)	13.2
Increase in unbilled services	(36.5		)	(37.1		)	(67.4		)	(36.5		)
Increase in inventories	(4.7		)	(0.7		)	(1.7		)	(4.7		)
(Increase) decrease in prepaid expenses and other	(27.2		)	4.8
(Decrease) increase in accounts payable	(91.3		)	8.6
Increase (decrease) in unearned revenue	8.3			(10.0		)
Decrease (increase) in prepaid expenses and other							16.1			(27.2		)
Decrease in accounts payable							(109.0		)	(91.3		)
(Decrease) increase in unearned revenue							(5.0		)	8.3
Decrease in accrued expenses and other	(116.5		)	(62.5		)	(158.8		)	(71.4		)
Net cash provided by operating activities	522.0			536.4			419.3			567.1
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures	(159.7		)	(141.5		)	(179.4		)	(159.7		)
Proceeds from sale of assets	0.7			1.0			4.2			0.7
Proceeds from sale of held for sale assets	49.1			—
Acquisition of licensing technology	—			(2.3		)
Proceeds from sale of investment							3.4			—
Net proceeds from sale of held for sale assets							—			49.1
Investments in equity affiliates	(7.3		)	(26.1		)	(15.8		)	(7.3		)
Acquisition of businesses, net of cash acquired	(79.1		)	(568.0		)	(703.7		)	(79.1		)
Net cash used for investing activities	(196.3		)	(736.9		)	(891.3		)	(196.3		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from term loan							850.0			—
Payments on term loan	(295.0		)	—			(250.0		)	(295.0		)
Proceeds from revolving credit facilities	394.7			749.7			419.5			394.7
Payments on revolving credit facilities	(394.7		)	(440.7		)	(384.5		)	(394.7		)
Payments on zero-coupon subordinated notes	—			(23.2		)	(5.2		)	—
Noncontrolling interest distributions	(5.9		)	(0.5		)	(0.5		)	(5.9		)
Deferred payments on acquisitions	—			(1.5		)	(4.7		)	—
Payments on long-term lease obligations	(5.1		)	(4.3		)
Payments on other long-term obligations							(6.7		)	(5.1		)
Net share settlement tax payments from issuance of stock to employees							(40.1		)	(45.1		)
Net proceeds from issuance of stock to employees	43.0			31.4			33.9			43.0
Purchase of common stock	(150.0		)	(256.0		)	(300.0		)	(150.0		)
Net cash (used for) provided by financing activities	(413.0		)	54.9
Net cash provided by (used for) financing activities							311.7			(458.1		)
Effect of exchange rate changes on cash and cash equivalents	(7.9		)	11.8			(1.1		)	(7.9		)
Net (decrease) increase in cash and cash equivalents	(95.2		)	(133.8		)
Net decrease in cash and cash equivalents							(161.4		)	(95.2		)
Cash and cash equivalents at beginning of period	316.6			433.6			426.8			316.6
Cash and cash equivalents included in assets held for sale	—			(0.2		)
Cash and cash equivalents at end of period	$	221.4		$	299.6		$	265.4		$	221.4

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

INDEX

LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollars and shares in millions, except per share data)


1.	BASIS OF FINANCIAL STATEMENT PRESENTATION

Laboratory Corporation of America^® Holdings together with its subsidiaries (the Company) is a leading global life sciences company that is deeply integrated in guiding patient care, providing comprehensive clinical laboratory and end-to-end drug development services. The Company’s mission is to improve health and improve lives by delivering world-class diagnostic solutions, bringing innovative medicines to patients faster and using technology to provide better care. The Company serves a broad range of customers, including managed care organizations (MCOs), biopharmaceutical companies, medical device companies, governmental agencies, physicians and other healthcare providers (e.g., physician assistants and nurse practitioners, generally referred to herein as physicians), hospitals and health systems, employers, patients and consumers, contract research organizations ~~food and nutritional companies~~(CROs) and independent clinical laboratories. The Company believes that it generated more revenue from laboratory testing than any other company in the world in ~~2017.~~2018.

The Company reports its business in two segments, LabCorp Diagnostics (LCD) and Covance Drug Development (CDD). For further financial information about these segments, see Note 1516 (Business Segment Information). During the three months ended June 30, ~~2018,~~2019, LCD and CDD contributed approximately ~~63%~~61% and ~~37%~~39%, respectively, of ~~net~~ revenues to the ~~Company, and for~~Company. During the six months ended June 30, ~~2018,~~2019, LCD and CDD contributed approximately ~~63%~~61% and ~~37%~~39%, ~~respectively.~~respectively, of revenues to the Company.

The condensed consolidated financial statements include the accounts of the Company and its majority-owned subsidiaries for which it exercises control. Long-term investments in affiliated companies in which the Company exercises significant influence, but which it does not control, are accounted for using the equity method. Investments in which the Company does not exercise significant influence (generally, when the Company has an investment of less than 20.0% ~~and no representation on the investee's board of directors)~~) are accounted for at fair value or at cost minus impairment for those investments that do not have readily determinable fair values. All significant inter-company transactions and accounts have been eliminated. The Company does not have any significant variable interest entities or special purpose entities whose financial results are not included in the condensed consolidated financial statements.

The financial statements of the Company's operating foreign subsidiaries are measured using the local currency as the functional currency. Assets and liabilities are translated at exchange rates as of the balance sheet date. Revenues and expenses are translated at average monthly exchange rates prevailing during the period. Resulting translation adjustments are included in “Accumulated other comprehensive income.”

The accompanying condensed consolidated financial statements of the Company are unaudited. In the opinion of management, all adjustments necessary for a fair statement of results of operations, cash flows and financial position have been made. Except as otherwise disclosed, all such adjustments are of a normal recurring nature. Interim results are not necessarily indicative of results for a full year. The year-end condensed consolidated balance sheet data was derived from audited financial statements but does not include all disclosures required by generally accepted accounting principles.

The condensed consolidated financial statements and notes are presented in accordance with the rules and regulations of the United States (U.S.) Securities and Exchange Commission (SEC) and do not contain certain information included in the Company’s ~~2017~~2018 Annual Report on Form 10-K. Therefore, ~~the~~these interim statements should be read in conjunction with the consolidated financial statements and notes thereto contained in the Company’s Annual Report.

Recently Adopted Guidance~~Revenue from Contracts with Customers~~

Leases

In ~~May 2014,~~February 2016, the Financial Accounting Standards Board (FASB) issued the converged standard on revenue recognition with the objective of providing a single, comprehensive model for all contracts with customers to improve comparability in the financial statements of companies reporting using International Financial Reporting Standards (IFRS) and U.S. Generally Accepted Accounting Principles (GAAP). The standard contains principles that an entity must apply to determine the measurement of revenue and timing of when it is recognized. The underlying principle is that an entity must recognize revenue to depict the transfer of goods or services to customers at an amount that the entity expects to be entitled to in exchange for those goods or services.

The standard was effective for the Company beginning January 1, 2018. The Company elected to adopt the standard using the full retrospective approach, which resulted in a recasting of revenue and the related financial statement items for 2016 and 2017. During transition to the new standard, the Company also elected several practical expedients, as provided by the standard. Contracts that began and ended within the same annual reporting period were not restated. Contracts that were completed by December 31, 2017 that had variable consideration were estimated using the transaction price at the date the contract was completed. The amount of the transaction price allocated to the remaining performance obligations will not be disclosed for prior reporting periods. Contracts that were modified prior to the earliest reporting period will be reflected in the earliest reporting period with an aggregate adjustment for prior modifications.

~~INDEX~~

~~LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(dollars and shares in millions, except per share data)~~

As a result of the new standard, the Company has changed its accounting policies for revenue recognition. The significant changes under the new standard, and the quantitative impact of these changes, are detailed below.

~~LCD~~

The primary impact of the new standard to the LCD segment was classifying bad debt expense of $78.0 and $156.2 for the three and six months ended June 30, 2017, respectively, as a reduction in revenue rather than as a selling, general and administrative expense.

~~CDD~~

~~The primary impact of the new standard to the CDD segment was as follows:~~

~~Investigator fees~~: Prior to the new standard, reimbursements of investigator fees by clients were netted against the amounts paid to investigators in net revenues, on the basis that CDD was acting as the agent in arranging the investigator services. Under the new standard, revenue for investigator services and other reimbursable activities is recognized gross of fees paid to the investigators and other vendors, on the basis that a clinical study is considered a single, combined performance obligation for which CDD acts as a principal. Where CDD assumes the obligations by contract in studies involving patients, CDD is the principal because CDD may contract directly with third party clinical trial sites and investigators for investigator services and other reimbursable activities, which are combined with other CDD services in the management of a clinical study. Where CDD has assumed certain clinical trial sponsor obligations by contract in studies involving patients, CDD has primary responsibility for fulfilling its obligations associated with the full management of a clinical study, has inventory risk since it may be obligated to compensate investigators and other vendors for reimbursable activities regardless of payment by the customer, and has discretion within the framework agreed upon with the customer in setting the price of the study, including the budget for all pass-through costs, including investigator grants.

The financial impact of this change on revenue for the three and six months ended June 30, 2017 was an increase of $69.0 and $126.5, respectively. Revenue and expenses from reimbursable out-of-pocket costs were previously recognized gross as separate line items from Net revenues and Net cost of revenue in the Consolidated Statement of Operations. Under the new standard, reimbursable out-of-pocket costs continue to be recognized gross, but are no longer presented separately (i.e., expenses are included in Cost of revenues and reimbursements are included in Revenues). In the statement of financial position, unbilled investigator fees and reimbursable out of pocket costs were reclassified from “Prepaid expenses and other” to “Unbilled services” and billed investigator grants and reimbursable out-of-pocket costs were reclassified from “Prepaid expenses and other” to “Accounts receivable, net.”

~~Measure of progress~~: Prior to the new standard, service fee revenue in clinical studies was recognized on a proportional-performance basis, generally using output measures that are specific to the service provided (e.g., number of investigators enrolled, number of sites initiated, number of trial subjects enrolled and number of monitoring visits completed), while reimbursable out-of-pocket revenue was recognized when the associated expense was incurred. Changes in contract value from changes in scope were reflected once the customer agreed to the changes in scope and renegotiated pricing terms. Under the new standard, revenue in a clinical study (inclusive of budgeted reimbursable pass-through costs) is recognized using an input-based measure of progress based on costs incurred (including pass-through costs such as investigator services and reimbursable out-of-pocket expenses). If a customer’s approval of a work scope change creates an enforceable right to payment, the related revenue will be estimated and included in the measure of progress before a formal change order is executed, which results in recognition of revenue as services are provided. The financial impact of this change on revenue for the three and six months ended June 30, 2017 was a decrease of $5.7 and $18.3, respectively.

~~Sales commissions~~: Prior to the new standard, sales commissions were recorded as an expense each quarter when incurred. Under the new standard, CDD amortizes sales commissions according to the expected service period to which the commissions relate on the basis that they are recoverable through the margin inherent in the contracts and recognizes the unamortized commissions as current and long-term assets.

CDD applied the portfolio practical expedient in the new standard to determine the amortization period for assets recognized from sales commissions. Under the portfolio approach, CDD determined the weighted average contract term for groups of contracts with similar characteristics, and then amortized the capitalized sales commissions for that group over that term. CDD believes that any difference between the amortization patterns under the specific identification approach and the portfolio approach are not significant to CDD’s consolidated financial statements. The financial impact of this change on selling, general, and administrative expenses for the three and six months ended June 30, 2017 was a decrease of $0.1 and an increase of $1.2, respectively.

~~The total quantitative impact of the new standard on retained earnings as of January 1, 2017 was an increase of $13.2.~~

~~INDEX~~

~~LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(dollars and shares in millions, except per share data)~~

~~New Accounting Pronouncements~~

In January 2016, the FASB issued a new accounting standard that addresses certain aspects of recognition, measurement, presentation and disclosure of financial instruments. A financial instrument is defined as cash, evidence of ownership interest in a company or other entity, or a contract that both: (i) imposes on one entity a contractual obligation either to deliver cash or another financial instrument to a second entity or to exchange other financial instruments on potentially unfavorable terms with the second entity, and (ii) conveys to that second entity a contractual right either to receive cash or another financial instrument from the first entity or to exchange other financial instruments on potentially favorable terms with the first entity. The Company adopted this standard effective January 1, 2018. As a result of adoption, investments in which the Company does not exercise significant influence (generally, when the Company has an investment of less than 20.0% and no representation on the investee's board of directors) are accounted for at fair value or at cost minus impairment for those investments that do not have readily determinable fair values. The adoption of this standard did not have a material impact on the consolidated financial statements.

~~In February 2016, the FASB~~ issued a new accounting standard that sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e., lessees and lessors). The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. ~~Leases~~The Company has elected to utilize the short-term lease exemption and not record leases with ~~a term~~initial terms of 12 months or less ~~will be accounted for based~~ on ~~guidance similar to current guidance for operating leases.~~the balance sheet. The new standard requires lessors to account for leases using an approach that is substantially equivalent to existing guidance for sales-type leases and direct financing ~~leases and operating~~ leases.

The Company adopted the standard ~~is effective~~ on January 1, 2019, using the modified retrospective method. Comparative periods were not adjusted and are presented in accordance with ~~early adoption permitted.~~lease guidance in effect for that period. The Company ~~will implement~~elected the package of practical expedients, which includes not reassessing whether existing contracts contain leases under the new definition of a lease, reassessing the classification of existing leases, and reassessing whether previously capitalized initial direct costs qualify for

INDEX

LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollars and shares in millions, except per share data)

capitalization under the new ~~module~~standard. Leases with an initial term of 12 months or less are not recorded on the Condensed Consolidated Balance Sheets. Operating lease expense is recognized on a straight-line basis over the lease term.

Operating lease assets and liabilities are recognized at the commencement date, based on the present value of the future minimum lease payments over the lease term. A certain number of these leases contain rent escalation clauses either fixed or adjusted periodically for inflation or market rates that are factored into the ~~current leasing software solution~~Company's determination of lease payments. The Company also has variable lease payments that do not depend on a rate or index, for items such as volume purchase commitments, which ~~will facilitate compliance with~~are recorded as variable cost when incurred. As most of the ~~new standard and is currently evaluating~~Company's leases do not provide an implicit rate, the ~~impact that this new standard will have~~Company uses its incremental borrowing rate based on the information available at the lease commencement date to discount payments to the present value. Some operating leases contain renewal options, some of which also include options to early terminate the leases. The exercise of these options is at the Company's discretion. The Company determined that all renewal options within leases for main laboratories, STAT laboratories, branches or combination sites were reasonably possible to be exercised and therefore are included in the accounting lease term.

The standard had a material impact in the consolidated ~~financial~~balance sheets, but no material impact in the consolidated income statements. The most significant impact was the recognition of right-of-use (ROU) assets and lease liabilities for operating leases, while the accounting for finance leases remained unchanged.

New Accounting Pronouncements

In June 2016, the FASB issued a new accounting standard intended to provide financial statement users with more decision-useful information about expected credit losses and other commitments to extend credit held by the reporting entity. The standard replaces the incurred loss impairment methodology in current GAAP with one that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The update is effective on January 1, 2020, with early adoption permitted. The Company is currently evaluating the impact this new standard will have on the consolidated financial statements.

In August ~~2016,~~2018, the FASB issued a new accounting standard ~~that makes eight targeted changes~~ to ~~how cash receipts~~reduce, modify, and ~~cash payments are presented and classified in~~add to the ~~statement of cash flows.~~disclosure requirements on fair value measurements. The standard is effective on January 1, 2020, with early adoption permitted. The Company ~~adopted~~is currently evaluating the impact this new standard will have on ~~a retrospective basis effective January 1, 2018. As a result,~~ the ~~Company reclassified accreted interest paid upon conversion of its zero-coupon subordinated notes from a financing activity to an operating activity.~~consolidated financial statements.

In ~~January 2017,~~August 2018, the FASB issued a new accounting standard ~~that changes~~to reduce, modify, and add to the ~~definition of a business to assist entities~~disclosure requirements on defined benefit pension and other postretirement plans. The standard is effective on January 1, 2021, with ~~evaluating when a set of transferred assets and activities is a business.~~early adoption permitted. The Company ~~adopted~~is currently evaluating the impact this new standard ~~effective January 1, 2018. The adoption of this standard did not~~will have ~~a material impact~~ on the consolidated financial ~~statements as of June 30, 2018.~~statements.

In ~~March 2017,~~August 2018, the FASB issued a new accounting standard to align the requirements for capitalizing implementation costs incurred in a hosting arrangement that ~~requires employers that present~~is a ~~measure of operating income in their statement of income~~service contract with the requirements for capitalizing implementation costs incurred to ~~include only the service cost component of net periodic pension cost and net periodic post-retirement benefit cost in operating expenses~~develop or obtain internal-use software. The standard is effective on January 1, 2020, with other employee compensation costs. The other components of net benefit cost, including amortization of prior service cost/credit and settlement and curtailment effects are to be included in other, net non-operating expenses.early adoption permitted. The Company ~~adopted~~is currently evaluating the impact this new standard effective January 1, 2018. The adoption of this standard reduced operating margin due to the service cost remaining in operating expenses with no offset from the other components of net pension cost and has been applied retrospectively. The adoption of this standard had no impact on net earnings.

In May 2017, the FASB issued a new accounting standard that amends the scope of modification accounting for share-based payment arrangements and provides guidance on the types of changes to the terms or conditions of share-based payment awards to which an entity would be required to apply modification accounting. Specifically, an entity would not apply modification accounting if the fair value, vesting conditions, and classification of the awards are the same immediately before and after the modification. The Company adopted this standard effective January 1, 2018. The adoption of this standard did notwill have ~~a material impact~~ on the consolidated financial statements.

Reclassifications and Revisions

The Company adopted Accounting Standard Update 2016-09 Compensation - Stock Compensation (Topic 718) during 2016 and incorrectly classified payments made to tax authorities for withheld shares from an employee’s equity award as cash flows from operating activities versus cash flows from financing activities. As a result, the Company has revised the consolidated statement of cash flows for these tax payments of $45.1 for the six months ended June 30, 2018, from operating activities to financing activities. The Company concluded that these errors were not material individually or in the aggregate to any of the periods impacted.

In ~~July 2017, the FASB issued a new accounting standard intended to reduce the complexity associated~~conjunction with the ~~issuer's accounting for certain financial instruments with characteristics~~adoption of ~~liabilities~~the new lease standard, the Company reclassified the capital lease asset balance of $44.4 at December 31, 2018, from Property, plant and ~~equity. Specifically, a down round feature would no longer cause a free-standing equity-linked financial instrument (or embedded conversion option)~~equipment, net to ~~be accounted for as a~~Other assets.

INDEX

LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollars and shares in millions, except per share data)


2.	REVENUES

~~derivative liability at fair value with changes in fair value recognized in current earnings. This update is effective on January 1,~~The Company's revenues by segment payers/customer groups for the three and six months ended June 30, 2019, ~~with early adoption permitted~~ and ~~the option to use the retrospective or modified retrospective adoption method. The Company~~2018, is ~~currently evaluating the impact this new standard will have on the consolidated financial statements.~~

In August 2017, the FASB issued a new accounting standard intended to more closely align hedge accounting with companies' risk management strategies, simplify the application of hedge accounting and increase transparency as to the scope and results of hedging programs. As a result, more hedging strategies are eligible for hedge accounting. The Company early adopted this standard effective January 1, 2018, and as allowed by the standard, elected to change the methodology for assessing hedge effectiveness of net investment hedges from a method based on changes in forward exchange rates to a method based on changes in spot exchange rates. The spot methodology under this standard allows the interest accrual components of hedge instruments to be reported directly in earnings while the changes in the fair value of hedge instruments attributable to changes in the spot rate are reported in the cumulative translation adjustment section of other comprehensive income.

~~Reclassifications~~

~~Adoption of the standards related to revenue recognition, pension accounting and cash receipts and payments impacted previously reported results~~ as follows:



	For the Three Months Ended June 30, 2019
	U.S.		Canada		U.K.		Switzerland		Other Europe		Other		Total
Payer/Customer
LCD
Clients	16	%	1	%	—	%	—	%	—	%	—	%	17	%
Patients	8	%	—	%	—	%	—	%	—	%	—	%	8	%
Medicare and Medicaid	8	%	—	%	—	%	—	%	—	%	—	%	8	%
Third-party	26	%	2	%	—	%	—	%	—	%	—	%	28	%
Total LCD revenues by payer	58	%	3	%	—	%	—	%	—	%	—	%	61	%

CDD
Biopharmaceutical and medical device companies	20	%	—	%	4	%	5	%	3	%	7	%	39	%

Total revenues	78	%	3	%	4	%	5	%	3	%	7	%	100	%

Condensed Consolidated Statement of Operations
For the Three Months Ended June 30, 2017
As Previously Reported ASC 606 Revenue Adjustments Pension Adjustments As Adjusted
Total revenues $ 2,542.9
$ (14.7 ) $ —
$ 2,528.2
Total cost of revenue 1,681.1
68.9
0.2
1,750.2
Gross profit 861.8
(83.6 ) (0.2 ) 778.0
Selling, general and administrative expenses 435.3
(78.1 ) 0.5
357.7
Other operating and non-operating expenses, net 141.4
0.4
(0.7 ) 141.1
Provision for income taxes 96.2
(2.1 ) —
94.1
Net earnings 188.9
(3.8 ) —
185.1
Less: Net earnings attributable to noncontrolling interest (0.3 ) —
—
(0.3 )
Net earnings attributable to Laboratory Corporation of America Holdings $ 188.6
$ (3.8 ) $ —
$ 184.8

Basic earnings per share $ 1.84
$ 1.80
Diluted earnings per share $ 1.82
$ 1.78



	For the Three Months Ended June 30, 2018
	U.S.		Canada		U.K.		Switzerland		Other Europe		Other		Total
Payer/Customer
LCD
Clients	18	%	1	%	—	%	—	%	—	%	—	%	19	%
Patients	7	%	—	%	—	%	—	%	—	%	—	%	7	%
Medicare and Medicaid	10	%	—	%	—	%	—	%	—	%	—	%	10	%
Third-party	25	%	2	%	—	%	—	%	—	%	—	%	27	%
Total LCD revenues by payer	60	%	3	%	—	%	—	%	—	%	—	%	63	%

CDD
Biopharmaceutical and medical device companies	20	%	—	%	2	%	5	%	3	%	7	%	37	%

Total revenues	80	%	3	%	2	%	5	%	3	%	7	%	100	%

Condensed Consolidated Statement of Operations
For the Six Months Ended June 30, 2017
As previously reported ASC 606 Revenue Adjustments Pension Adjustments As Adjusted
Total revenues $ 4,989.9
$ (48.0 ) $ —
$ 4,941.9
Total cost of revenue 3,324.5
126.7
0.2
3,451.4
Gross profit 1,665.4
(174.7 ) (0.2 ) 1,490.5
Selling, general and administrative expenses 854.7
(154.9 ) 0.8
700.6
Other operating and non-operating expenses, net 245.9
0.6
(1.0 ) 245.5
Provision for income taxes 183.4
(7.4 ) —
176.0
Net earnings 381.4
(13.0 ) —
368.4
Less: Net earnings attributable to noncontrolling interest (0.6 ) —
—
(0.6 )
Net earnings attributable to Laboratory Corporation of America Holdings $ 380.8
$ (13.0 ) $ —
$ 367.8

Basic earnings per share $ 3.71

$ 3.59
Diluted earnings per share $ 3.66

$ 3.54



	For the Six Months Ended June 30, 2019
	U.S.		Canada		U.K.		Switzerland		Other Europe		Other		Total
Payer/Customer
LCD
Clients	16	%	1	%	—	%	—	%	—	%	—	%	17	%
Patients	8	%	—	%	—	%	—	%	—	%	—	%	8	%
Medicare and Medicaid	8	%	—	%	—	%	—	%	—	%	—	%	8	%
Third-party	26	%	2	%	—	%	—	%	—	%	—	%	28	%
Total LCD revenues by payer	58	%	3	%	—	%	—	%	—	%	—	%	61	%

CDD
Biopharmaceutical and medical device companies	20	%	—	%	4	%	5	%	3	%	7	%	39	%

Total revenues	78	%	3	%	4	%	5	%	3	%	7	%	100	%

INDEX

LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollars and shares in millions, except per share data)



	For the Six Months Ended June 30, 2018
	U.S.		Canada		U.K.		Switzerland		Other Europe		Other		Total
Payer/Customer
LCD
Clients	18	%	1	%	—	%	—	%	—	%	—	%	19	%
Patients	7	%	—	%	—	%	—	%	—	%	—	%	7	%
Medicare and Medicaid	9	%	—	%	—	%	—	%	—	%	—	%	9	%
Third-party	25	%	2	%	—	%	—	%	—	%	—	%	27	%
Total LCD revenues by payer	59	%	3	%	—	%	—	%	—	%	—	%	62	%

CDD
Biopharmaceutical and medical device companies	20	%	—	%	2	%	5	%	4	%	7	%	38	%

Total revenues	79	%	3	%	2	%	5	%	4	%	7	%	100	%

Condensed Consolidated Statement of Cash Flows
For the Six Months Ended June 30, 2017
As Previously Reported Zero-Coupon Notes Adjustments As Adjusted
Net cash provided by operating activities $ 544.4
$ (8.0 ) $ 536.4
Net cash used for investing activities (736.9 ) —
(736.9 )
Net cash provided by financing activities 46.9
8.0
54.9
Effect of exchange rate changes on cash and cash equivalents 11.8
—
11.8
Net decrease in cash and cash equivalents $ (133.8 ) $ (133.8 )

The below adjustments have been made to the December 31, 2017 balance sheet and are all the result of the implementation of ASC 606. The adjustments include a cumulative catch-up adjustment, reclassification of unbilled services, and the capitalization of contract acquisition costs.

Condensed Consolidated Balance Sheets
December 31, 2017
As Previously Reported ASC 606 Revenue Adjustments As Adjusted
Current assets $ 2,682.6
$ 51.2
$ 2,733.8
Long-term assets 13,885.4
53.8
13,939.2
Total assets $ 16,568.0
$ 105.0
$ 16,673.0

Current liabilities $ 2,046.1
$ 139.6
$ 2,185.7
Long-term liabilities 7,671.1
(8.7 ) 7,662.4
Noncontrolling interest 20.8
—
20.8
Shareholders' equity 6,830.0
(25.9 ) 6,804.1
Total liabilities and shareholders' equity $ 16,568.0
$ 105.0
$ 16,673.0


2.	~~REVENUE~~

~~Description of Revenue~~

~~The Company's revenue by segment payers/customer groups for the three and six months ended June 30, 2018 and 2017 is as follows:~~

For the Three Months Ended June, 2018
U.S. Canada United Kingdom Switzerland Other Europe Other Total
Payer/Customer
LCD
   Clients 18 % 1 % — % — % — % — % 19 %
   Patients 9 % — % — % — % — % — % 9 %
   Medicare and Medicaid 10 % — % — % — % — % — % 10 %
   Third-party 23 % 2 % — % — % — % — % 25 %
Total LCD revenues by payer 60 % 3 % — % — % — % — % 63 %

CDD
   Biopharmaceutical and medical
device companies 16 % — % 5 % 5 % 4 % 7 % 37 %

Total revenues 76 % 3 % 5 % 5 % 4 % 7 % 100 %

~~INDEX~~

~~LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(dollars and shares in millions, except per share data)~~

For the Three Months Ended June 30, 2017
U.S. Canada United Kingdom Switzerland Other Europe Other Total
Payer/Customer
LCD
   Clients 19 % 1 % 1 % — % — % — % 21 %
   Patients 10 % — % — % — % — % — % 10 %
   Medicare and Medicaid 10 % — % — % — % — % — % 10 %
   Third-party 25 % 2 % — % — % — % — % 27 %
Total LCD revenues by payer 64 % 3 % 1 % — % — % — % 68 %

CDD
   Biopharmaceutical and medical
device companies 15 % — % 3 % 5 % 3 % 6 % 32 %

Total revenues 79 % 3 % 4 % 5 % 3 % 6 % 100 %

For the Six Months Ended June, 2018
U.S. Canada United Kingdom Switzerland Other Europe Other Total
Payer/Customer
LCD
   Clients 18 % 1 % — % — % — % — % 19 %
   Patients 9 % — % — % — % — % — % 9 %
   Medicare and Medicaid 10 % — % — % — % — % — % 10 %
   Third-party 23 % 2 % — % — % — % — % 25 %
Total LCD revenues by payer 60 % 3 % — % — % — % — % 63 %

CDD
   Biopharmaceutical and medical
device companies 18 % — % 4 % 5 % 4 % 6 % 37 %

Total revenues 78 % 3 % 4 % 5 % 4 % 6 % 100 %

For the Six Months Ended June 30, 2017
U.S. Canada United Kingdom Switzerland Other Europe Other Total
Payer/Customer
LCD
   Clients 19 % 1 % — % — % — % — % 20 %
   Patients 10 % — % — % — % — % — % 10 %
   Medicare and Medicaid 10 % — % — % — % — % — % 10 %
   Third-party 26 % 2 % — % — % — % — % 28 %
Total LCD revenues by payer 65 % 3 % — % — % — % — % 68 %

CDD
   Biopharmaceutical and medical
device companies 15 % — % 3 % 5 % 3 % 6 % 32 %

Total revenues 80 % 3 % 3 % 5 % 3 % 6 % 100 %

~~The following is a description of the current revenue recognition policies of the Company:~~

~~LCD~~

LCD is an independent clinical laboratory business. It offers a comprehensive menu of frequently requested and specialty diagnostic tests through an integrated network of primary and specialty laboratories across the U.S. In addition to diagnostic testing, LCD also offers a range of other testing services, including forensic DNA analysis, food safety and integrity services, as well as occupational and wellness testing for employers.

Within the LCD segment, with the exception of nutritional chemistry testing, a revenue transaction is initiated when LCD receives a requisition order to perform a diagnostic test. The information provided on the requisition form is used to determine the

~~INDEX~~

~~LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(dollars and shares in millions, except per share data)~~

party that will be billed for the testing performed and the expected reimbursement. LCD recognizes revenue and satisfies its performance obligation for services rendered when the testing process is complete and the associated results are reported. Sales are distributed among four payer portfolios - clients, patients, Medicare and Medicaid and third-party. LCD considers negotiated discounts and anticipated adjustments, including historical collection experience for the payer portfolio, when sales are recorded.

~~The following are descriptions of the LCD payer portfolios:~~

~~Clients~~

Client payers represent the portion of LCD’s revenue related to physicians, hospitals, health systems, accountable care organizations (ACOs), employers and other entities where payment is received exclusively from the entity ordering the testing service. Generally, client sales are recorded on a fee-for-service basis at LCD’s client list price, less any negotiated discount. A portion of client billing is for laboratory management services, collection kits and other non-testing services or products. In these cases, revenue is recognized when services are rendered or delivered.

This portfolio also includes LCD's nutritional chemistry services. LCD offers a broad range of services to the food and nutraceutical and animal feed industries. Revenue is recognized using an output-based measure of progress based on the volume of activities in each period.

~~Patients~~

This portfolio includes revenue from uninsured patients and member cost-share for insured patients (e.g., coinsurance, deductibles and non-covered services). Uninsured patients are billed based upon LCD’s patient fee schedules, net of any discounts negotiated with physicians on behalf of their patients. LCD bills insured patients as directed by their health plan and after consideration of the fees and terms associated with an established health plan contract.

~~Medicare and Medicaid~~

This portfolio relates to fee-for-service revenue from traditional Medicare and Medicaid programs. Net revenue from these programs is based on the fee schedule established by the related government authority. In addition to contractual discounts, other adjustments including anticipated payer denials are considered when determining net revenue. Any remaining adjustments to revenue are recorded at the time of final collection and settlement. These adjustments are not material to LCD’s results of operations in any period presented.

~~Third-Party~~

Third-party includes revenue related to MCOs. The majority of LCD's third-party revenue is reimbursed on a fee-for-service basis. These payers are billed at LCD's established list price and revenue is recorded net of contractual discounts. The majority of LCD’s MCO sales are recorded based upon contractually negotiated fee schedules with sales for non-contracted MCOs recorded based on historical reimbursement experience.

In addition to contractual discounts, other adjustments including anticipated payer denials are considered when determining revenue. Any remaining adjustments to revenue are recorded at the time of final collection and settlement. These adjustments are not material to LCD’s results of operations in any period presented.

Third-party reimbursement is also received through capitation agreements with MCOs and independent physician associations (IPAs). Under capitated agreements, revenue is recognized based on a negotiated per-member, per-month payment for an agreed upon menu of tests, or based upon the proportionate share earned by LCD from a capitation pool. When the agreed upon reimbursement is based solely on an established rate per member, revenue is not impacted by the volume of testing performed. Under a capitation pool arrangement, the aggregate value of an established rate per member is distributed based on the volume and complexity of the procedures performed by laboratories participating in the agreement. LCD recognizes revenue monthly, based upon the established capitation rate or anticipated distribution from a capitated pool.

~~CDD~~

CDD is a contract research organization (CRO) business that provides end-to-end drug development services from early-stage research to clinical trial management and beyond. CDD provides these services predominantly to biopharmaceutical and medical device companies across the world. Because the CDD client base generally consumes these drug development services across the entire portfolio of CDD pre-clinical and clinical services offerings, there is little variability in the customer base of any particular CDD service offering. The nature of CDD’s obligations include agreements to manage a full clinical trial, provide services for a specific phase of a trial, or provide research products to the customer. Generally, the amount of the transaction price estimated at the beginning of the contract is equal to the amount expected to be billed to the customer. Other payments may also factor into the calculation of transaction price, such as volume-based rebates that are retroactively applied to prior transactions in the period.

~~INDEX~~

~~LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(dollars and shares in millions, except per share data)~~

Historically, a majority of CDD’s net revenues have been earned under contracts that range in duration from a few months to a few years, but can extend in duration up to five years or longer. Occasionally, CDD also has entered into minimum volume arrangements with certain customers. Under these types of arrangements, if the annual minimum dollar value of a service commitment is not reached, the customer is required to pay CDD for the shortfall. Annual minimum commitment shortfalls are not recognized until the end of the period when the amount has been determined and agreed to by the customer.

CDD recognizes revenue either as services are performed or as products are delivered, depending on the nature of the work contracted. If performance is completed at a specific point in time, the Company evaluates the nature of the agreement to determine when the good or service is transferred into the customer’s control.

Service contracts generally take the form of fee-for-service or fixed-price arrangements subject to pricing adjustments based on changes in scope. In cases where performance spans multiple accounting periods, revenue is recognized as services are performed, measured on a proportional-performance basis, using either input or output methods that are specific to the service provided. In an output method, revenue is determined by dividing the actual units of output achieved by the total units of output required under the contract and multiplying that percentage by the total contract value. The total contract value, or total contractual payments, represents the aggregate contracted price for each of the agreed upon services to be provided. When using an input method, revenue is recognized by dividing the actual units of input incurred by the total units of input budgeted in the contract, and multiplying that percentage by the total contract value. In each situation, the Company believes that the methods used most accurately depict the progress of the Company towards completing its obligations. Billing schedules and payment terms are generally negotiated on a contract-by-contract basis. In some cases, CDD bills the customer for the total contract value in progress-based installments as certain non-contingent billing milestones are reached over the contract duration. These milestones include, but are not limited to, contract signing, initial dosing, investigator site initiation, patient enrollment and/or database lock. The term “billing milestone” relates only to a billing trigger in a contract whereby amounts become billable and payable in accordance with a negotiated predetermined billing schedule throughout the term of a project. These billing milestones are generally not performance-based (i.e., there is no potential additional consideration tied to specific deliverables or performance). In other cases, billing and payment terms are tied to the passage of time (e.g., monthly billings). In either case, the total contract value and aggregate amounts billed to the customer would be the same at the end of the project.

Proportional performance contracts typically contain a single service (e.g., management of a clinical study) and therefore no allocation of the contract price is required. Fee-for-service contracts are typically priced based on transaction volume. Since the volume of activities in a fee-for-service contract is unspecified, the contract price is entirely variable and is allocated to the time period in which it is earned. For contracts that include multiple distinct goods and services, CDD allocates the contract price to the goods and services based on a customer price list, if available. If a price list is not available, CDD will estimate the transaction price using either market prices or an “expected cost plus margin” approach.

While CDD attempts to negotiate terms that provide for billing and payment of services prior or within close proximity to the provision of services, this is not always possible. While a project is ongoing, cash payments are not necessarily representative of aggregate revenue earned at any particular point in time, as revenues are recognized when services are provided, while amounts billed and paid are in accordance with the negotiated billing and payment terms.

In some cases, payments received are in excess of revenue recognized. For example, a contract invoicing schedule may provide for an upfront payment of 10% of the full contract value upon contract signing, but at the time of signing performance of services has not yet begun. Payments received in advance of services being provided are deferred as contract liabilities on the balance sheet. As the contracted services are subsequently performed and the associated revenue is recognized, the contract liability balance is reduced by the amount of revenue recognized during the period.

In other cases, services may be provided and revenue recognized before the customer is invoiced. In these cases, revenue recognized will exceed amounts billed, and the difference, representing a contract asset, is recorded for the amount that is currently not billable to the customer pursuant to contractual terms. Once the customer is invoiced, the contract asset is reduced for the amount billed, and a corresponding account receivable is recorded. All contract assets are billable to customers within one year from the respective balance sheet date.

Most contracts are terminable with or without cause by the customer, either immediately or upon notice. These contracts often require payment to CDD of expenses to wind-down the study or project, fees earned to date and, in some cases, a termination fee or a payment to CDD of some portion of the fees or profits that could have been earned by CDD under the contract if it had not been terminated early. Termination fees are included in net revenues when services are performed and realization is assured.

~~The following are descriptions of the full range of drug development services provided by CDD:~~

~~INDEX~~

~~LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(dollars and shares in millions, except per share data)~~

Preclinical services include the sale of research models, fee-for-service activities such as bioanalytical testing services, and proportional performance activities such as toxicology studies. Revenue for sale of research models is recognized at a point in time, typically upon shipment, when control transfers to the customer. Revenue for bioanalytical testing services is recognized at a point in time upon communication of results to the customer. Revenue for proportional performance activities, including toxicology studies, is recognized using an input-based measure of progress in which revenue is recognized as expenses are incurred for the research models, labor hours, and other costs attributable to the study.

Through its central laboratory, CDD produces and supplies specimen collection kits that are utilized in clinical studies, and provides transportation, project management, data management, and laboratory testing services on an as-needed basis throughout the duration of its customers’ clinical studies. Revenue for central laboratory services is recognized using an output-based measure of progress based on volume of activities in each period. CDD also provides long-term specimen storage services, for which revenue is recognized using an input-based measure of progress based on costs incurred.

CDD provides clinical development and commercialization services, including clinical pharmacology services, full management of Phase II through IV clinical studies, and market access solutions. Revenue for clinical pharmacology services, which includes first-in-human trials, is recognized using an output-based measure of progress based on bed nights. Revenue for full service clinical studies is recognized using an input-based measure of progress based on costs incurred (including pass-through costs such as investigator grants and reimbursable out-of-pocket expenses). Revenue for market access solutions is recognized using various methods. Revenue for fee-for-service arrangements, such as reimbursement consulting hotlines and patient assistance programs, is recognized using an output method based on transaction volume which corresponds to the amount charged to the customer. For consulting services billed based on time and materials, revenue is recognized using the right to invoice practical expedient.

Contract costs

~~The Company~~CDD incurs sales commissions in the process of obtaining contracts with customers, which are recoverable through the service fees in the contract. Sales commissions that are payable upon contract award are recognized as assets and amortized over the expected contract term, along with related payroll tax expense. The amortization of commission expense is based on the weighted average contract duration for all commissionable awards in the respective business in which the commission expense is paid, which approximates the period over which goods and services are transferred to the customer. The amortization period of sales commissions ranges from approximately 12 months to 57 months, depending on the business. For businesses that enter into primarily short-term contracts, the Company applies the practical expedient which allows costs to obtain a contract to be expensed when incurred if the amortization period of the assets that would otherwise have been recognized is one year or less. Amortization of assets from sales commissions is included in selling, general, and administrative expense.

~~The Company~~CDD incurs costs to fulfill contracts with customers, which are recoverable through the service fees in the contract. Contract fulfillment costs include software implementation costs and setup costs for certain endpoint and market access solutions. These costs are recognized as assets and amortized over the expected term of the contract to which the implementation relates, which is the period over which services are expected to be provided to the customer. This period typically ranges from 24-60 months. Amortization of deferred contract fulfillment costs is included in cost of goods sold.



	June 30, 2019		December 31, 2018
Sales commission assets	$	27.4	$	24.2
Deferred contract fulfillment costs	14.2		12.9
Total	$	41.6	$	37.1

June 30, 2018 December 31, 2017
Sales commission assets $ 23.1
$ 24.0
Deferred contract fulfillment costs 10.7
1.7
Total $ 33.8
$ 25.7

Amortization related to sales commission assets and associated payroll taxes for the three-month periods ended June 30, 2019, and 2018, was $5.1 and ~~2017 was~~ $4.4, ~~and $3.4,~~ respectively, and for the six-month periods ended June 30, 2019, and 2018, was $9.5 and ~~2017 was~~ $8.6, ~~and $7.1,~~ respectively. Amortization related to deferred contract fulfillment costs for the three-month periods ended June 30, ~~2018~~2019, and ~~2017~~2018, was $1.9 and ~~$0.1,~~$1.9, respectively, and was $3.8 and $2.5, respectively, for the six-month periods ended June 30, ~~2018~~2019, and ~~2017 was $2.5 and $0.2, respectively.~~2018. Impairment expense related to contract costs was immaterial to the Company’s consolidated statement of operations. ~~The Company applies the practical expedient to not recognize the effect of financing in its contracts with customers, when the difference in timing of payment~~

Receivables, Unbilled Services and ~~performance is one year or less.~~

~~Contract Assets and Liabilities~~Unearned Revenue

The following table provides information about receivables, ~~contract assets (unbilled services),~~unbilled services, and ~~contract liabilities (unearned revenue)~~unearned revenue (contract liabilities) from contracts with ~~customers.~~customers for the CDD segment. Unbilled services are comprised primarily of unbilled receivables, but also include contract assets. A contract asset is recorded when a right to payment has been earned for work performed, but billing and payment for that work is determined by certain contractual milestones, whereas unbilled receivables are billable upon the passage of time. While CDD attempts to negotiate terms that provide for billing and payment of services prior or in close proximity to the provision of services, this is not always possible and there are fluctuations in the level of unbilled services and unearned revenue from period to period.



	June 30, 2019		December 31, 2018
Receivables, which are included in Accounts Receivable, net	$	735.4	$	693.6
Unbilled services	491.5		396.9
Unearned revenue	402.2		354.1

INDEX

LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollars and shares in millions, except per share data)

June 30, 2018 December 31, 2017
Receivables, which are included in Accounts Receivable, net $ 674.6
$ 694.4
Unbilled services 354.0
318.2
Unearned revenue 389.8
377.4

~~Revenue~~Revenues recognized during the period, ~~that~~which was included in the unearned revenue balance at the beginning of the period for the six-month ~~period~~periods ended June 30, 2019, and June 30, 2018, was ~~$135.6.~~$161.6 and $135.6, respectively. Bad debt expense on receivables for the six-month ~~period~~periods ended June 30, 2019, and 2018, was immaterial to the Company’s consolidated statement of operations.

Performance Obligations Under Long-Term Contracts

Long-term contracts at the Company consist primarily of fully managed clinical studies within the CDD segment. The amount of existing performance obligations under such long-term contracts unsatisfied as of June 30, ~~2018~~2019, was ~~$4,071.7.~~$4,138.0. The Company expects to recognize approximately ~~41%~~34% of the remaining performance obligations as ~~revenue~~revenues over the next 12 months, and the balance thereafter.

The Company applied the practical expedient and does not disclose information about remaining performance obligations that have original expected durations of one year or less. The Company also did not disclose information about remaining performance obligations when the variable consideration was relatedCompany's long-term contracts generally range from 1 to ~~a wholly unsatisfied performance obligation within a series of obligations.~~8 years.

Within CDD, revenue of ~~$(12.5)~~$48.4 and ~~$9.6~~$(12.5) was recognized during the ~~three and~~ six months ended June 30, 2019, and 2018, respectively, from performance obligations that were satisfied in previous periods. This revenue comes from adjustments related to changes in scope and estimates in full service clinical studies.


3.	BUSINESS ACQUISITIONS AND DISPOSITIONS

On ~~September 1, 2017,~~June 3, 2019, the ~~Company~~Company's CDD segment completed the acquisition of ~~Chiltern International Group Limited (Chiltern), a specialty CRO, pursuant to a definitive agreement to acquire all~~Envigo's nonclinical contract research services business, expanding CDD's global nonclinical drug development capabilities with additional locations and resources. Envigo also completed the acquisition of the ~~share capital~~Covance Research Products (CRP) business, which was part of ~~Chiltern, in an all-cash transaction valued at approximately $1,224.5.~~the CDD segment. The two companies will continue to collaborate through a multi-year, renewable supply agreement. The Company paid cash consideration of $601.0, received a floating rate secured note of $110.0, and recorded a loss on sale of CRP of $8.8. The Company funded the ~~acquisition~~transaction through a ~~combination of bank financing and the issuance of bonds. Chiltern is part of the Company's CDD segment.~~new term loan facility.

The preliminary valuation of acquired assets and assumed liabilities as of ~~September 1, 2017,~~June 3, 2019, include the following:


Consideration Transferred
Cash consideration						$	1,224.5	$	601.0
Fair value of CRP								110.0
Total								$	711.0

	Preliminary		Measurement Period Adjustments			As of June 30, 2018		Preliminary
Net Assets Acquired
Cash and cash equivalents	$	30.7	$	—		$	30.7	$	15.1
Accounts receivable	116.9		(13.3		)	103.6		16.5
Unbilled services	32.6		—			32.6		26.5
Inventories								4.5
Prepaid expenses and other	57.9		—			57.9		3.5
Property, plant and equipment	12.1		—			12.1
Property, plant and equipment (including ROU operating lease assets)								99.1
Deferred tax asset								25.5
Goodwill	676.6		85.9			762.5		432.2
Customer relationships	629.0		(27.0		)	602.0		125.8
Trade names and trademarks	24.1		(13.5		)	10.6
Technology	47.0		(21.0		)	26.0
Trade name and trademarks								0.6
Other assets								9.9
Total assets acquired	1,626.9		12.0			1,638.9		759.2
Accounts payable	18.1		27.0			45.1		15.4
Accrued expenses and other	51.0		(27.6		)	23.4		11.6
Unearned revenue	124.2		—			124.2		49.9
Deferred income taxes	208.0		12.6			220.6
Operating lease liabilities								15.0
Other liabilities	1.1		—			1.1		66.3
Total liabilities acquired	402.4		12.0			414.4		158.2
Net assets acquired	$	1,224.5	$	—		$	1,224.5
Net Envigo assets acquired								601.0
Floating rate secured note receivable due 2022								110.0
Total								$	711.0

The amortization periods for intangible assets acquired are 2111 years for customer ~~relationships, 7 years for trade names and trademarks, and 9 years for technology.~~relationships.

The ~~purchase price allocation for~~Envigo transaction contributed $16.5 and $0.7 of revenues and operating income, respectively, during the ~~Chiltern acquisition is still preliminary~~three and ~~subject to change. The areas of the purchase price allocation that are not yet finalized relate primarily to intangible assets, goodwill and the impact of finalizing deferred taxes.~~six months ended June 30, 2019.

INDEX

LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollars and shares in millions, except per share data)

The purchase price allocation for the Envigo transaction is still preliminary and subject to change. The areas of the purchase price allocation that are not yet finalized relate primarily to intangible assets, goodwill, fixed assets and the impact of finalizing deferred taxes. Accordingly, adjustments may be made as additional information is obtained about the facts and circumstances that existed as of the valuation date. The Company expects these purchase price allocations to be finalized ~~during~~by the ~~third~~second quarter of ~~2018.~~2020. Any adjustments will be recorded in the period in which they are identified.

~~Unaudited Pro Forma Information~~

~~The Company completed the Chiltern acquisition on September 1, 2017. Had the Chiltern acquisition been completed as of January 1, 2016, the Company's pro forma results would have been as follows:~~

Three Months Ended
June 30, 2017
Six Months Ended
June 30, 2017
Net revenues $ 2,728.1
$ 5,339.4
Operating income 321.5
662.2
Net income 172.5
363.2
Earnings per share:
Basic $ 1.68
$ 3.54
Diluted $ 1.66
$ 3.49

The unaudited pro forma results reflect certain adjustments related to past operating performance and acquisition accounting adjustments, such as increased amortization expense and decreased depreciation expense based on the estimated fair value of assets acquired, the impact of the Company’s new financing arrangements, and the related tax effects. The pro forma results do not include any anticipated synergies which may be achievable subsequent to the Chiltern acquisition. To produce the unaudited pro forma financial information, the Company adjusted Chiltern’s assets and liabilities to their estimated fair value based on a valuation as of September 1, 2017. These pro forma results of operations have been prepared for comparative purposes only, and they do not purport to be indicative of the results of operations that actually would have resulted had the acquisition of Chiltern occurred on the date indicated or that may result in the future.

During the six months ended June 30, ~~2018,~~2019, the Company also acquired various businesses and related assets for approximately ~~$79.1~~$117.7 in cash (net of cash acquired). The purchase consideration for all acquisitions year to date has been allocated to the estimated fair market value of the net assets acquired, including approximately ~~$48.5~~$90.7 in identifiable intangible assets and a residual amount of non-tax deductible goodwill of approximately ~~$54.9.~~$53.8. The amortization periods for intangible assets acquired from these businesses range from 11 to 15 years for customer relationships. These acquisitions were made primarily to extend the Company's geographic reach in important market areas, ~~and/or~~ enhance the Company's scientific ~~differentiation.~~differentiation and to expand the breadth and scope of the Company's CRO services. The excess of the fair value of the consideration conveyed over the fair value of the net assets acquired was recorded as goodwill.The goodwill reflects the Company's expectations to utilize the acquired businesses’ workforce and established relationships and the benefits of being able to leverage operational efficiencies with favorable growth opportunities in these markets.

~~On April 30, 2018,~~Additionally, the Company ~~entered into a definitive agreement to sell~~divested its food solutions and forensic testing services business in the Covance Food Solutions business, a global provider of innovative product design and product integrity services for end-user segments that span the global food supply chain, for an all-cash purchase price of $670.0. The Company believes that the opportunities for creating lasting value from the 2015 Covance Inc. (Covance) acquisition come from its laboratory diagnostic business, the CRO business,United Kingdom (U.K) and the ~~enterprise-wide combination of~~U.S. in 2018. Total operating income for the two. In addition, the Company concluded that, given the competitive dynamics of the food testing market, Covance Food Solutions would be unlikely to achieve sufficient scale to be a top global business. The sale of Covance Food Solutions allows the Company to focus on its primary growth opportunitiesthree divested businesses was $3.4 and ~~at the same time better positions Covance Food Solutions to serve the global food supply industry. The transaction is expected to close in the third quarter of 2018. For~~$5.4 for the three and six months ended June 30, 2018, ~~Covance Food Solutions recorded operating income of $5.0 and $8.4,~~ respectively. Operating income for the three and six months ended June 30, 2017, was $5.6 and $11.0, respectively. Total assets and total liabilities held for sale for the Covance Food Solutions business as of June 30, 2018, and December 31, 2017, include the following:

~~INDEX~~

~~LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(dollars and shares in millions, except per share data)~~

June 30, 2018 December 31, 2017
Assets:
Cash and cash equivalents $ —
$ 0.1
Accounts receivable 20.9
24.4
Unbilled services 9.5
7.6
Supplies inventories 0.4
0.4
Prepaid expenses and other 1.1
1.2
Property, plant and equipment, net 39.1
42.3
Goodwill, net 170.5
170.5
Intangible assets, net 169.7
174.7
Other assets, net 0.2
0.3
Total assets held for sale $ 411.4
$ 421.5

Liabilities:
Accounts Payable $ 1.1
$ 2.4
Accrued expenses and other 13.0
15.2
Unearned revenue 2.0
2.6
Deferred income taxes and other tax liabilities 64.1
64.1
Other liabilities 2.2
2.2
Total liabilities held for sale $ 82.4
$ 86.5

Net assets held for sale $ 329.0
$ 335.0


4.	EARNINGS PER SHARE

Basic earnings per share is computed by dividing net earnings attributable to Laboratory Corporation of America Holdings by the weighted average number of common shares outstanding. Diluted earnings 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, restricted stock units, 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:



	Three Months Ended June 30,										Six Months Ended June 30,
	2019					2018					2019					2018
	Earnings		Shares	Per Share Amount		Earnings		Shares	Per Share Amount		Earnings		Shares	Per Share Amount		Earnings		Shares	Per Share Amount
Basic earnings per share:
Net earnings	$	190.4	98.1	$	1.94	$	233.8	101.9	$	2.29	$	376.0	98.4	$	3.82	$	407.0	101.9	$	3.99
Dilutive effect of employee stock options and awards	—		0.7			—		1.0			—		0.7			—		1.3
Net earnings including impact of dilutive adjustments	$	190.4	98.8	$	1.93	$	233.8	103.0	$	2.27	$	376.0	99.1	$	3.79	$	407.0	103.3	$	3.94

Three Months Ended June 30, Six Months Ended June 30,
2018 2017 2018 2017
Earnings Shares
Per
Share
Amount
Earnings Shares
Per
Share
Amount
Earnings Shares
Per
Share
Amount
Earnings Shares
Per
Share
Amount
Basic earnings per share:
Net earnings $ 233.8
101.9
$ 2.29
$ 184.8
102.4
$ 1.80
$ 407.0
101.9
$ 3.99
$ 367.8
102.5
$ 3.59
Dilutive effect of employee stock options and awards —
1.0

—
1.2

—
1.3

—
1.4

Effect of convertible debt —
0.1

—
0.1

—
0.1

—
0.1

Diluted earnings per share:

Net earnings including impact of dilutive adjustments $ 233.8
103.0
$ 2.27
$ 184.8
103.7
$ 1.78
$ 407.0
$ 103.3
$ 3.94
$ 367.8
$ 104.0
$ 3.54

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:



	Three Months Ended June 30,		Six Months Ended June 30,
	2019	2018	2019	2018
Stock options	0.2	0.1	0.2	0.1

Three Months Ended June 30, Six Months Ended June 30,
2018 2017 2018 2017
Stock options 0.1
0.1
0.1
0.1


5.	RESTRUCTURING AND OTHER SPECIAL CHARGES

During the six months ended June 30, 2019, the Company recorded net restructuring and other special charges of $34.2: $16.1 within LCD and $18.1 within CDD. The charges were comprised of $20.3 related to severance and other personnel costs and $13.5 in costs associated with facility closures, impairment of operating lease right-of-use assets and general integration initiatives. The charges were increased by the adjustment of previously established reserves of $0.4 in severance reserves.

INDEX

LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollars and shares in millions, except per share data)

During the six months ended June 30, 2018, the Company recorded net restructuring and other special charges of $26.5: $9.1 within LCD and $17.4 within CDD. The charges were comprised of $23.1 related to severance and other personnel costs, $2.5 in costs associated with facility closures and general integration initiatives, and $2.3 in impairment to land held for sale. The ~~charges~~Company reversed previously established reserves of $0.9 and $0.5 in unused facility reserves and unused severance reserves, respectively.

The following represents the Company’s restructuring reserve activities for the period indicated:



	LCD						CDD
	Severance and Other Employee Costs			Facility Costs			Severance and Other Employee Costs			Facility Costs			Total
Balance as of December 31, 2018	$	2.1		$	7.4		$	6.5		$	27.6		$	43.6
Reclassification for ASC 842 adoption	—			(5.7		)	—			(27.1		)	(32.8		)
Restructuring charges	11.9			1.0			8.4			1.7			23.0
Adjustments to prior restructuring accruals	(0.1		)	—			0.5			—			0.4
Impairment of operating lease right-of-use asset	—			3.3			—			7.5			10.8
Cash payments and other adjustments	(13.6		)	(3.1		)	(8.5		)	(7.2		)	(32.4		)
Balance as of June 30, 2019	$	0.3		$	2.9		$	6.9		$	2.5		$	12.6
Current													$	10.4
Non-current													2.2
													$	12.6


6.	GOODWILL AND INTANGIBLE ASSETS

The changes in the carrying amount of goodwill for the three-month period ended June 30, 2019, are as follows:



	LCD		CDD			Total
Balance as of January 1, 2019	$	3,638.8	$	3,721.5		$	7,360.3
Goodwill acquired during the period	22.3		468.2			490.5
Dispositions	—		(12.6		)	(12.6		)
Adjustments to goodwill	1.9		3.6			5.5
Balance at June 30, 2019	$	3,663.0	$	4,180.7		$	7,843.7

The components of identifiable intangible assets are as follows:



	June 30, 2019							December 31, 2018
	Gross Carrying Amount		Accumulated Amortization			Net		Gross Carrying Amount		Accumulated Amortization			Net
Customer relationships	$	4,307.9	$	(1,233.0	)	$	3,074.9	$	4,119.4	$	(1,146.7	)	$	2,972.7
Patents, licenses and technology	452.3		(224.1		)	228.2		447.3		(211.2		)	236.1
Non-compete agreements	82.5		(57.2		)	25.3		76.8		(53.7		)	23.1
Trade names	407.7		(202.9		)	204.8		404.0		(189.1		)	214.9
Land use right	11.1		(4.9		)	6.2		10.8		(4.1		)	6.7
Canadian licenses	476.5		—			476.5		457.6		—			457.6
	$	5,738.0	$	(1,722.1	)	$	4,015.9	$	5,515.9	$	(1,604.8	)	$	3,911.1

Amortization of intangible assets for the three-month periods ended June 30, 2019, and 2018, was $60.2 and $58.5, respectively and for the six-month periods ended June 30, 2019, and 2018, was $117.3 and $120.8, respectively. Amortization expense for the net carrying amount of intangible assets is estimated to be $119.1 for the remainder of fiscal 2019, $232.0 in fiscal 2020, $225.2 in fiscal 2021, $219.3 in fiscal 2022, $215.6 in fiscal 2023 and $2,528.2 thereafter.

7. LEASES

The Company has operating and finance leases for patient service centers, laboratories and testing facilities, general office spaces, vehicles, and certain equipment. Leases have remaining lease terms of less than a year to 15 years, some of which include options to extend the leases for up to 15 years.

INDEX

LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollars and shares in millions, except per share data)

~~were offset by the reversal of previously established reserves of $0.9 and $0.5 in unused facility reserves and unused severance reserves, respectively.~~

The ~~Company incurred integration and other costs~~components of $37.6 primarily relating to the Chiltern acquisition and planned sale of the Company's Covance Food Solutions business. The Company also recorded $4.5 in consulting expenses relating to the Chiltern integration and management integration costs along with a special one-time bonus of $31.0 to its non-bonus eligible employees in recognition of the benefits the Company is receiving from the passage of the Tax Cuts and Jobs Act of 2017 (TCJA). In addition, the Company incurred $4.2 of non-capitalized costs associated with the implementation of a major systemlease expense were as ~~part of its LaunchPad business process improvement initiative.~~follows:

~~During the six months ended June 30, 2017, the Company recorded net restructuring and other special charges of $43.0: $8.9 within LCD and $34.1 within CDD. The charges were comprised of $22.5~~



	Three Months Ended June 30, 2019		Six Months Ended June 30, 2019
Operating lease cost	$	59.9	$	110.8

Finance lease cost:
Amortization of ROU assets	$	1.5	$	2.9
Interest on lease liabilities	0.4		1.2
Total finance lease cost	$	1.9	$	4.1

Supplemental cash flow information related to severance and other personnel costs along with $5.9 in costs associated with facility closures and general integration initiatives. The Company reversed previously established reserves of $0.4 in unused severance reserves and $0.1 in unused facility reserves. Also included in the net restructuring and other special charges is an impairment loss of $15.1leases was as follows:



	Six Months Ended June 30, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	(115.2	)
Operating cash flows from finance leases	(0.9		)
Financing cash flows from finance leases	(4.8		)

ROU assets obtained in exchange for lease obligations:
Operating leases	$	43.7
Finance leases	0.2

Supplemental balance sheet information related to ~~the termination of a software development project.~~

The Company incurred legal and other costs of $6.6 relating to the recently completed acquisitions. The Company also recorded $4.9 in consulting expenses relating to fees incurred as part of its integration and compensation analysis, along with $0.9 in short-term equity retention arrangements relating to the Covance Inc. acquisition. In addition, the Company incurred $5.5 of non-capitalized costs associated with the implementation of a major system as part of LaunchPad (all recorded in selling, general and administrative expenses).

~~The following represents the Company’s restructuring reserve activities for the period indicated:~~

LCD CDD

Severance and Other
Employee Costs
Lease and Other
Facility Costs

Severance and Other
Employee Costs
Lease and Other
Facility Costs
Total
Balance as of December 31, 2017 $ 1.7
$ 10.1
$ 8.3
$ 34.6
$ 54.7
Restructuring charges 7.4
2.2
15.7
2.6
27.9
Reduction of prior restructuring accruals —
(0.5 ) (0.9 ) —
(1.4 )
Cash payments and other adjustments (7.1 ) (4.1 ) (11.2 ) (5.7 ) (28.1 )
Balance as of June 30, 2018 $ 2.0
$ 7.7
$ 11.9
$ 31.5
$ 53.1
Current

$ 25.5
Non-current

27.6

$ 53.1


6.	~~GOODWILL AND INTANGIBLE ASSETS~~

~~The changes in the carrying amount of goodwill for the six-month period ended June 30, 2018 and for the year ended December 31, 2017 are~~leases was as follows:

LCD CDD Total
June 30,
2018 December 31, 2017 June 30,
2018 December 31, 2017 June 30,
2018 December 31, 2017
Balance as of January 1 $ 3,673.9
$ 3,644.8
$ 3,727.0
$ 2,779.6
$ 7,400.9
$ 6,424.4
Goodwill acquired during the period 3.9
198.5
51.0
811.3
54.9
1,009.8
Reclassification of goodwill as held for sale —
(170.5 ) —
—
—
(170.5 )
Adjustments to goodwill (3.4 ) 1.1
(29.1 ) 136.1
(32.5 ) 137.2
Balance at end of period $ 3,674.4
$ 3,673.9
$ 3,748.9
$ 3,727.0
$ 7,423.3
$ 7,400.9



	June 30, 2019
Operating Leases
Operating lease ROU assets (included in Property, plant and equipment, net)	$	770.3

Short-term operating lease liabilities	229.2
Operating lease liabilities	586.1
Total operating lease liabilities	$	815.3

~~The components of identifiable intangible assets are as follows:~~



	June 30, 2019
Finance Leases
Finance lease ROU assets (included in Other assets)	$	85.4

Short-term finance lease liabilities	$	8.2
Finance lease liabilities	46.2
Total finance lease liabilities	$	54.4

Weighted Average Remaining Lease Term
Operating leases	5.8
Finance leases	6.5

Weighted Average Discount Rate
Operating leases	4.2		%
Finance leases	4.8		%

INDEX

LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollars and shares in millions, except per share data)

Maturities of lease liabilities are as follows:



Six Months Ended June 30, 2019	Operating Leases			Finance Leases

2019	$	254.1		$	7.1
2020	274.7			13.8
2021	174.6			12.0
2022	69.3			10.8
2023	45.1			10.7
Thereafter	153.1			34.5
Total lease payments	970.9			88.9
Less imputed interest	(155.6		)	(34.5		)
Total	$	815.3		$	54.4

June 30, 2018 December 31, 2017

Gross
Carrying
Amount

Accumulated
Amortization
Net
Gross
Carrying
Amount

Accumulated
Amortization
Net
Customer relationships $ 4,138.5
$ (1,075.5 ) $ 3,063.0
$ 4,118.1
$ (992.8 ) $ 3,125.3
Patents, licenses and technology 452.2
(202.1 ) 250.1
457.9
(188.6 ) 269.3
Non-compete agreements 75.7
(51.5 ) 24.2
75.8
(48.3 ) 27.5
Trade names 410.0
(180.3 ) 229.7
407.9
(167.9 ) 240.0
Land use right 10.8
(3.4 ) 7.4
10.8
(2.5 ) 8.3
Canadian licenses 475.1
—
475.1
495.7
—
495.7
$ 5,562.3
$ (1,512.8 ) $ 4,049.5
$ 5,566.2
$ (1,400.1 ) $ 4,166.1

~~Amortization of intangible assets~~Rental expense for short term leases with a term less than one year for the ~~three-month periods~~three and six months ended June 30, ~~2018~~2019, amounted to $2.6 and ~~2017 was $58.5 and $51.4, respectively, and $120.8 and $99.0~~$5.9, respectively. The Company has variable lease payments that do not depend on a rate or index, primarily for purchase volume commitments, which are recorded as variable cost when incurred. Total variable payments for the ~~six-month periods~~three and six months ended June 30, 2019, were $4.7 and $9.2, respectively. As of June 30, 2019, the Company has entered into approximately 50 additional operating leases, primarily for patient service centers, that have not yet commenced and are not significant to the overall lease portfolio. These operating leases will commence later in 2019 with lease terms ranging from less than a year to 11 years.

The Company leases various facilities and equipment under non-cancelable lease arrangements. Future minimum rental commitments for leases with non-cancelable terms of one year or more at December 31, 2018, under Accounting Standards Codification 840 are as follows:



Year Ended December 31,	Operating Leases		Finance Leases

2019	$	191.1	$	8.6
2020	145.4		8.0
2021	107.0		6.7
2022	80.9		6.0
2023	61.5		6.5
Thereafter	155.6		23.1

Rental expense, which includes rent for real estate, equipment and ~~2017. Amortization expense~~automobiles under operating leases, amounted to $85.1 and $167.5, respectively, for the ~~net carrying amount of intangible assets is estimated to be $109.6 for the remainder of fiscal 2018, $225.0 in fiscal 2019, $216.9 in fiscal 2020, $210.6 in fiscal 2021, $204.5 in fiscal 2022~~three and ~~$2,526.9 thereafter.~~six months ended June 30, 2019.


7.8.	DEBT

Short-term borrowings and the current portion of long-term debt at June 30, ~~2018~~2019, and December 31, ~~2017~~2018, consisted of the following:



	June 30, 2019			December 31, 2018
Zero-coupon convertible subordinated notes	$	1.4		$	8.7
2.625% senior notes due 2020	500.0			—
Debt issuance costs	(1.0		)	(0.5		)
Current portion of note payable	1.9			1.8
Total short-term borrowings and current portion of long-term debt	$	502.3		$	10.0

INDEX

LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollars and shares in millions, except per share data)

June 30,
2018 December 31, 2017
Zero-coupon convertible subordinated notes $ 8.9
$ 8.8
2.50% senior notes due 2018 400.0
400.0
Debt issuance costs (0.9 ) (1.4 )
Current portion of capital leases 8.0
8.3
Current portion of note payable 1.8
1.8
Total short-term borrowings and current portion of long-term debt $ 417.8
$ 417.5

Long-term debt at June 30, ~~2018~~2019, and December 31, ~~2017~~2018, consisted of the following:



	June 30, 2019			December 31, 2018
2.625% senior notes due 2020	$	—		$	500.0
4.625% senior notes due 2020	603.7			596.9
3.20% senior notes due 2022	500.0			500.0
3.75% senior notes due 2022	500.0			500.0
4.00% senior notes due 2023	300.0			300.0
3.25% senior notes due 2024	600.0			600.0
3.60% senior notes due 2025	1,000.0			1,000.0
3.60% senior notes due 2027	600.0			600.0
4.70% senior notes due 2045	900.0			900.0
Revolving credit facility	35.0			—
2019 Term loan	850.0			—
2017 Term loan	277.0			527.0
Debt issuance costs	(37.1		)	(40.2		)
Note payable	6.4			7.2
Total long-term debt	$	6,135.0		$	5,990.9

June 30,
2018 December 31, 2017
2.625% senior notes due 2020 500.0
500.0
4.625% senior notes due 2020 594.4
604.1
3.20% senior notes due 2022 500.0
500.0
3.75% senior notes due 2022 500.0
500.0
4.00% senior notes due 2023 300.0
300.0
3.25% senior notes due 2024 600.0
600.0
3.60% senior notes due 2025 1,000.0
1,000.0
3.60% senior notes due 2027 600.0
600.0
4.70% senior notes due 2045 900.0
900.0
2014 Term loan —
72.0
2017 Term loan 527.0
750.0
Debt issuance costs (43.9 ) (48.2 )
Capital leases 53.9
57.8
Note payable 8.0
8.9
Total long-term debt $ 6,039.4
$ 6,344.6

Senior Notes

On August 22, 2017, the Company issued new senior notes representing $1,200.0 in debt securities and consisting of a $600.0 aggregate principal amount of 3.25% senior notes due 2024 and a $600.0 aggregate principal amount of 3.60% senior notes due 2027. Interest on these notes is payable semi-annually on March 1 and September 1 of each year, commencing on March 1, 2018. Net proceeds from the offering of these notes were $1,190.1 after deducting underwriting discounts and other expenses of the offering. Net proceeds were used to pay off the 2.20% senior notes due August 23, 2017, as well as a portion of the cash consideration and the fees and expenses in connection with the Chiltern acquisition.

During the third quarter of 2013, the Company entered into two fixed-to-variable interest rate swap agreements for its 4.625% senior notes due 2020 with an aggregate notional amount of $600.0 and variable interest rates based on one-month LIBOR plus

~~INDEX~~

~~LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(dollars and shares in millions, except per share data)~~

2.298% to hedge against changes in the fair value of a portion of the Company's long-term debt. These derivative financial instruments are accounted for as fair value hedges of the senior notes due 2020. These interest rate swaps are included in other long-term assets or other long-term liabilities, as applicable, and added to or subtracted from the value of the senior notes, with an aggregate fair value asset of $~~(5.6)~~3.7 at June 30, ~~2018~~2019, and~~$4.1~~ at ~~December 31, 2017~~.

During the first quarter of 2018, the Company entered into six USD to Swiss Franc cross-currency swap agreements with an aggregate notional value of $600.0 and which are accounted for as a hedge against its net investment in a Swiss subsidiary. Of the notional value, $300.0 matures in 2022 and $300.0 matures in 2025. The cross currency swaps maturing in 2022 and 2025 are included in other long-term assets with an aggregate fair value liability of $14.2 and $10.0, respectively, as of June 30, 2018. Changes in the fair value of the cross-currency swaps are charged or credited through accumulated other comprehensive income in the Consolidated Balance Sheet until the hedged item is recognized in earnings.$3.1 at December 31, 2018.

Zero-Coupon Subordinated Notes

On March ~~12, 2018,~~11, 2019, the Company announced that for the period from March ~~12, 2018~~11, 2019, to September ~~7, 2018,~~10, 2019, the zero-coupon subordinated notes will accrue contingent cash interest at a rate of no less than 0.125% of the average market price of a zero-coupon subordinated note for the five trading days ended ~~March 9, 2018,~~August 27, 2019, in addition to the continued accrual of the original issue discount.

During the six months ended June 30, ~~2018,~~2019, the Company ~~did not settle any~~settled notices to convert $7.7 aggregate principal amount of its zero-coupon subordinated ~~notes.~~notes with a conversion value of $14.5. The total cash used for these settlements was $7.3. As a result of these conversions, the Company also reversed deferred tax liabilities of $1.7.

On July ~~2, 2018,~~1, 2019, the Company announced that its zero-coupon subordinated notes may be converted into cash and common stock at the conversion rate of 13.4108 per $1,000.0 principal amount at maturity of the notes, subject to the terms of the zero-coupon subordinated notes and the Indenture, dated as of October 24, 2006, between the Company and The Bank of New York Mellon, as trustee and the conversion agent. In order to exercise the option to convert all or a portion of the zero-coupon subordinated notes, holders are required to validly surrender their zero-coupon subordinated notes at any time during the calendar quarter beginning July ~~2, 2018~~1, 2019, through the close of business on the last business day of the calendar quarter, which is 5:00 p.m., New York City time, on ~~Friday,~~Monday, September ~~28, 2018.~~30, 2019. If notices of conversion are received, the Company plans to settle the cash portion of the conversion obligation with cash on hand and/or borrowings under ~~the~~its revolving credit facility.

Credit Facilities

On June 3, 2019, the Company entered into a new $850.0 term loan facility in addition to its $750.02017 term loan facility.The 2019 term loan facility will mature on June 3, 2021. Proceeds of the 2019 term loan facility were used for general corporate purposes, including to repay approximately $250.0 of the 2017 term loan facility and in connection with the acquisition of Envigo's nonclinical research services business. This net change of $600.0 represents the only contractual obligation as of June 30, 2019, that materially changed from December 31, 2018.

The 2019 term loan facility accrues interest at a per annum rate equal toat the Company's election, either a LIBOR rate plus a margin ranging from 0.55% to 1.175%, or a base rate determined according to a prime rate or federal funds rate plus a margin ranging from 0.0% to 0.175%. The 2019 term loan balance at June 30, 2019, was $850.0. As of June 30, 2019, the effective interest rate on the 2019 term loan was 3.24%.

INDEX

LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollars and shares in millions, except per share data)

On September 15, 2017, the Company entered into a ~~new~~ $750.0 term ~~loan.~~loan facility in addition to its then existing $1,000.0 term loan entered into in December 2014. The 2017 term loan facility will mature on September 15, 2022. The Company paid off the 2014 term loan ~~balance~~during the second quarter of 2018.

The 2017 term loan facility accrues interest at ~~June 30, 2018 was $0.0 and~~a per annum rate equal to, at ~~December 31, 2017 was $72.0.~~the Company's election, either a LIBOR rate plus a margin ranging from 0.875% to 1.50%, or a base rate determined according to a prime rate or federal funds rate plus a margin ranging from 0.0% to 0.50%. The 2017 term loan balance at June 30, ~~2018~~2019, was ~~$527.0~~$277.0 and at December 31, 2018, was $527.0. As of June 30, 2019, the effective interest rate on the 2017 term loan was ~~$750.0.~~3.56%.

The Company entered into a senior unsecured revolving credit facility on December 21, 2011, which was amended and restated on December 19, 2014, further amended on July 13, 2016, and further amended and restated on September 15, 2017. The ~~senior~~ revolving credit facility consists of a five-year revolving facility in the principal amount of up to $1,000.0, with the option of increasing the facility by up to an additional $350.0, subject to the agreement of one or more new or existing lenders to provide such additional amounts and certain other customary conditions. The revolving credit facility also provides for a subfacility of up to $100.0 for swing line borrowings and a subfacility of up to $150.0 for issuances of letters of credit. The revolving credit facility is permitted to be used for general corporate purposes, including working capital, capital expenditures, funding of share repurchases and certain other payments, and acquisitions and other investments. The Company had $35.0 outstanding ~~balance~~ on ~~the Company's revolving credit facility was $0.0 at June 30, 2018 and December 31, 2017.~~

Under the term loan facilities and the revolving credit facility, the Company is subject to negative covenants limiting subsidiary indebtedness and certain other covenants typical for investment grade-rated borrowers, and the Company is required to maintain certain leverage ratios. The Company was in compliance with all covenants in the term loan facilities and theits revolving credit facility at June 30, ~~2018. As of June 30, 2018, the ratio of total debt to consolidated proforma trailing 12 month EBITDA was 3.1 to 1.0.~~

The 2014 term loan credit facility accrued interest at a per annum rate equal to, at the Company’s election, either a LIBOR rate plus a margin ranging from 1.125% to 2.00%, or a base rate determined according to a prime rate or federal funds rate plus a margin ranging from 0.125% to 1.00%. The 2017 term loan credit facility accrues interest at a per annum rate equal to, at the Company’s election, either a LIBOR rate plus a margin ranging from 0.875% to 1.50%, or a base rate determined according to a prime rate or federal funds rate plus a margin ranging from 0.0% to 0.50%. The Company paid off the 2014 term loan during the second quarter of2019, and no outstanding balance on December 31, 2018.

Advances under the revolving credit facility will accrue interest at a per annum rate equal to, at the Company’s election, either

~~INDEX~~

~~LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(dollars and shares in millions, except per share data)~~

a LIBOR rate plus a margin ranging from 0.775% to 1.25%, or a base rate determined according to a prime rate or federal funds rate plus a margin ranging from 0.00% to 0.25%. Fees are payable on outstanding letters of credit under the revolving credit facility at a per annum rate equal to the applicable margin for LIBOR loans, and the Company is required to pay a facility fee on the aggregate commitments under the revolving credit facility, at a per annum rate ranging from 0.10% to 0.25%.

The interest margin applicable to the term loan and credit facilities, and the facility fee and letter of credit fees payable under the revolving credit facility, are based on the Company’s senior credit ratings as determined by Standard & Poor’s and Moody’s.

Under the term loan facilities and the revolving credit facility, the Company is subject to negative covenants limiting subsidiary indebtedness and certain other covenants typical for investment grade-rated borrowers, and the Company is required to maintain certain leverage ratios. The Company was in compliance with all covenants in the term loan facilities and the revolving credit facility at June 30, 2019. As of June 30, ~~2018,~~2019, the ~~effective interest rate on~~ratio of total debt to consolidated proforma trailing 12 month EBITDA was 3.4 to 1.0.

As of June 30, 2019, the ~~2017 term loan was 3.22%.~~Company had provided letters of credit aggregating approximately $72.2, primarily in connection with certain insurance programs. The Company's availability of $892.8 at June 30, 2019, under its revolving credit facility is reduced by the amount of these letters of credit.

8.9. PREFERRED STOCK AND COMMON SHAREHOLDERS’ EQUITY

The Company is authorized to issue up to 265.0 shares of common stock, par value $0.10 per share. The Company’s treasury shares ~~are~~were recorded at aggregate ~~cost.~~cost and were retired during the second quarter of 2019. The Company is authorized to issue up to 30.0 shares of preferred stock, par value $0.10 per share. There were no preferred shares outstanding as of June 30, ~~2018~~2019, and December 31, ~~2017.~~2018.

The changes in common shares issued and held in treasury are summarized below:



	Issued		Held in Treasury		Outstanding
Common shares at December 31, 2018	122.4		(23.5	)	98.9
Common stock issued under employee stock plans	1.0		—		1.0
Surrender of restricted stock and performance share awards	—		(0.1	)	(0.1	)
Retirement of common stock	(2.0	)	—		(2.0	)
Retirement of treasury stock	(23.6	)	23.6		—
Common shares at June 30, 2019	97.8		—		97.8

Issued Held in Treasury Outstanding
Common shares at December 31, 2017 125.1
(23.2 ) 101.9
Common stock issued under employee stock plans 1.0
—
1.0
Retirement of common stock (0.9 ) —
(0.9 )
Common shares at June 30, 2018 125.2
(23.2 ) 102.0

Share Repurchase Program

At the end of 2017, the Company had outstanding authorization from the board of directors to purchase up to $401.4 of Company common stock. During the six months ended June 30, 2018, the Company purchased 0.9 shares of its common stock at a total cost of $150.0. On April 24, 2018, the board authorized an increase in the Company’s share repurchase program to a total of $1,000.0. As of June 30, 2018, the Company had outstanding authorization from the board of directors to purchase up to ~~$993.5~~$443.5 of Company common stock. During January 2019, the Company purchased 0.8 shares of its common stock at an average price of $131.71 for a total cost of $100.1 under this plan. On February 6, 2019, the board of directors replaced the Company's existing share repurchase plan with a new plan authorizing repurchase of up to $1.25 billion of the Company's common stock. The repurchase authorization

INDEX

LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollars and shares in millions, except per share data)

has no expiration. During the three months ended June 30, 2019, the Company purchased 1.3 shares of its common stock at an average price of $159.13 for a total cost of $199.9. As of June 30, 2019, the Company had outstanding authorization from the board of directors to purchase up to $1.05 billion of the Company's common stock.

Accumulated Other Comprehensive Earnings

The components of accumulated other comprehensive earnings are as follows:



	Foreign Currency Translation Adjustments			Net Benefit Plan Adjustments			Accumulated Other Comprehensive Earnings (Loss)
Balance at December 31, 2018	$	(389.8	)	$	(73.3	)	$	(463.1	)
Other comprehensive earnings before reclassifications	47.2			5.5			52.7
Tax effect of adjustments	—			(1.5		)	(1.5		)
Balance at June 30, 2019	$	(342.6	)	$	(69.3	)	$	(411.9	)

Foreign Currency
Translation
Adjustments

Net Benefit
Plan Adjustments

Accumulated Other
Comprehensive
Earnings (Loss)
Balance at December 31, 2017 $ (240.7 ) $ (93.0 ) $ (333.7 )
Other comprehensive earnings (loss) before reclassifications (82.6 ) 6.2
(76.4 )
Tax effect of adjustments 5.5
(2.4 ) 3.1
Balance at June 30, 2018 $ (317.8 ) $ (89.2 ) $ (407.0 )


9.10.	INCOME TAXES

The Company does not recognize a tax benefit unless the Company concludes that it is more likely than not that the benefit will be sustained on audit by the taxing authority based solely on the technical merits of the associated tax position. If the recognition threshold is met, the Company recognizes a tax benefit measured at the largest amount of the tax benefit that the Company believes is greater than 50% likely to be realized.

The gross unrecognized income tax benefits were ~~$25.3~~$25.6 and ~~$19.5~~$18.0 at June 30, ~~2018~~2019, and December 31, ~~2017,~~2018, respectively. It is anticipated that the amount of the unrecognized income tax benefits will change within the next 12 months; however, these changes are not expected to have a significant impact on the results of operations, cash flows or the financial position of the Company.

As of June 30, ~~2018~~2019, and December 31, ~~2017, $25.3~~2018, $25.6 and ~~$19.5,~~$18.0, respectively, are the approximate amounts of gross unrecognized income tax benefits that, if recognized, would favorably affect the effective income tax rate in future periods.

The Company recognizes interest and penalties related to unrecognized income tax benefits in income tax expense. Accrued interest and penalties related to uncertain tax positions totaled ~~$7.2~~$10.3 and ~~$7.9~~$8.7 as of June 30, ~~2018~~2019, and December 31, ~~2017,~~2018, respectively.

~~INDEX~~

~~LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(dollars and shares in millions, except per share data)~~

The Company has substantially concluded all U.S. federal income tax matters for years through ~~2012.~~2014. Substantially all material state and local, and foreign income tax matters have been concluded through ~~2012~~2013 and ~~2009,~~2014, respectively.

The ~~Internal Revenue Service concluded the~~IRS has not initiated a new examination of any of the Company's ~~2014~~ federal ~~consolidated~~ income tax return, which did not include Covance, in 2016. Covance's 2013 federal consolidated income tax return is currently under examination by the Internal Revenue Service. The Canada Revenue Agency is currently examining the Company's Canadian subsidiaries' 2013, 2014, and 2015 tax returns. The Company has various state and foreign income tax examinations ongoing throughout the year. The Company believes adequate provisions have been recorded related to all open tax years.

On December 22, 2017 the SEC issued Staff Accounting Bulletin No. 118 (SAB 118), which provides companies with additional guidance on how to account for the TCJA in its financial statements, allowing companies to use a measurement period. At June 30, 2018, the Company had not completed the accounting for the tax effects of enactment of the TCJA; however, a reasonable estimate on the re-measurement of the Company's existing deferred tax balances, the deferred tax revaluation for unremitted foreign earnings, and the one-time repatriation tax has been made. For these items, in accordance with SAB 118, a provisional net benefit of $519.0 was recognized in the fourth quarter of 2017. In the six months ended June 30, 2018, the Company continued its review and recorded net additional provisional expense of $16.0.

The TCJA includes provisions relating to global intangible low-taxed income (GILTI). Relevant to the current consolidated financial statements is the Company's selection of an accounting policy with respect to the new GILTI tax rules, and whether to account for GILTI as a periodic charge in the period it arises or to record deferred taxes associated with the basis in the Company's foreign subsidiaries. Due to the intricacy of this topic, the Company is still in the process of investigating the implications of accounting for the GILTI tax and intends to make an accounting policy decision once additional guidance is available for assessment. During the six months ended June 30, 2018, the Company recorded its estimated GILTI tax as a periodic charge.


~~10.~~11.	COMMITMENTS AND CONTINGENCIES

The Company is involved from time to time in various claims and legal actions, including arbitrations, class actions, and other litigation (including those described in more detail below), arising in the ordinary course of business. Some of these actions involve claims that are substantial in amount. These matters include, but are not limited to, intellectual property disputes; commercial and contract disputes; professional ~~liability;~~liability claims; employee-related matters; and inquiries, including subpoenas and other civil investigative demands, from governmental agencies, Medicare or Medicaid payers and MCOs reviewing billing practices or requesting comment on allegations of billing irregularities that are brought to their attention through billing audits or third parties. The Company receives civil investigative demands or other inquiries from various governmental bodies in the ordinary course of its business. Such inquiries can relate to the Company or other parties, including physicians and other ~~healthcare providers (e.g., physician assistants and nurse practitioners, generally referred to herein as physicians).~~health care providers. The Company works cooperatively to respond to appropriate requests for information.

The Company also is named from time to time in suits brought under the qui tam provisions of the False Claims Act and comparable state laws. These suits typically allege that the Company has made false statements and/or certifications in connection with claims for payment from U.S. federal or state healthcare programs. The suits may remain under seal (hence, unknown to the Company) for some time while the government decides whether to intervene on behalf of the qui tam plaintiff. Such claims are an inevitable part of doing business in the healthcare field today.

INDEX

LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollars and shares in millions, except per share data)

The Company believes that it is in compliance in all material respects with all statutes, regulations and other requirements applicable to its commercial laboratory operations and drug development support services. The healthcare diagnostics and drug development industries are, however, subject to extensive regulation, and the courts have not interpreted many of the applicable statutes and regulations. Therefore, the applicable statutes and regulations could be interpreted or applied by a prosecutorial, regulatory or judicial authority in a manner that would adversely affect the Company. Potential sanctions for violation of these statutes and regulations include significant civil and criminal penalties, fines, the loss of various licenses, certificates and authorizations, additional liabilities from third-party claims, and/or exclusion from participation in government programs.

Many of the current claims and legal actions against the Company are in preliminary stages, and many of these cases seek an indeterminate amount of damages. The Company records an aggregate legal reserve, which is determined using calculations based on historical loss rates and assessment of trends experienced in settlements and defense costs. In accordance with FASB Accounting Standards Codification Topic 450 “Contingencies,” the Company establishes reserves for judicial, regulatory, and arbitration matters outside the aggregate legal reserve if and when those matters present loss contingencies that are both probable and estimable and would exceed the aggregate legal reserve. When loss contingencies are not both probable and estimable, the Company does not establish separate reserves.

~~INDEX~~

~~LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(dollars and shares in millions, except per share data)~~

The Company is unable to estimate a range of reasonably probable loss for the proceedings described in more detail below in which damages either have not been specified or, in the Company's judgment, are unsupported and/or exaggerated and (i) the proceedings are in early stages; (ii) there is uncertainty as to the outcome of pending appeals or motions; (iii) there are significant factual issues to be resolved; and/or (iv) there are novel legal issues to be presented. For these proceedings, however, the Company does not believe, based on currently available information, that the outcomes will have a material adverse effect on the Company's financial condition, though the outcomes could be material to the Company's operating results for any particular period, depending, in part, upon the operating results for such period.

As previously reported, the Company responded to an October 2007 subpoena from the U.S. Department of Health & Human Services Office of Inspector General's regional office in New York. On August 17, 2011, the U.S. District Court for the Southern District of New York unsealed a False Claims Act lawsuit, United States of America ex rel. NPT Associates v. Laboratory Corporation of America Holdings, which alleges that the Company offered UnitedHealthcare kickbacks in the form of discounts in return for Medicare business. The Plaintiff's Third Amended Complaint further alleges that the Company's billing practices violated the False Claims Acts of 14 states and the District of Columbia. The lawsuit seeks actual and treble damages and civil penalties for each alleged false claim, as well as recovery of costs, attorney's fees, and legal expenses. Neither the U.S. government nor any state government has intervened in the lawsuit. The Company's Motion to Dismiss was granted in October 2014 and Plaintiff was granted the right to replead. On January 11, 2016, Plaintiff filed a motion requesting leave to file an amended complaint under seal and to vacate the briefing schedule for the Company's ~~motion~~Motion to ~~dismiss,~~Dismiss, while the government reviews the amended complaint. The Court granted the motion and vacated the briefing dates. Plaintiff then filed ~~an amended complaint~~the Amended Complaint under seal. The Company will vigorously defend the lawsuit.

In addition, the Company has received various other subpoenas since 2007 related to Medicaid billing. In October 2009, the Company received a subpoena from the State of Michigan Department of Attorney General seeking documents related to its billing to Michigan Medicaid. The Company cooperated with this request. In October 2013, the Company received a Civil Investigative Demand from the State of Texas Office of the Attorney General requesting documents related to its billing to Texas Medicaid. The Company cooperated with this request. On October 5, 2018, the Company received a second Civil Investigative Demand from the State of Texas Office of the Attorney General requesting documents related to its billing to Texas Medicaid. The Company is cooperating with this request.

On May 2, 2013, the Company was served with a False Claims Act lawsuit, State of Georgia ex rel. Hunter Laboratories, LLC and Chris Riedel v. Quest Diagnostics Incorporated, et al., filed in the State Court of Fulton County, Georgia. The lawsuit, filed by a competitor laboratory, alleges that the Company overcharged Georgia's Medicaid program. The State of Georgia filed a Notice of Declination on August 13, 2012, before the Company was served with the ~~Complaint.~~complaint. The case was removed to the U.S. District Court for the Northern District of Georgia. The lawsuit ~~seeks~~sought actual and treble damages and civil penalties for each alleged false claim, as well as recovery of costs, attorney's fees, and legal expenses. On March 14, 2014, the Company's Motion to Dismiss was granted. The Plaintiffs repled their complaint, and the Company filed a Motion to Dismiss the First Amended Complaint. In May 2015, the Court dismissed the Plaintiffs' anti-kickback claim and remanded the remaining state law claims to the State Court of Fulton County. In July 2015, the Company filed a Motion to Dismiss these remaining claims. The Plaintiffs filed an opposition to the Company's Motion to Dismiss in August 2015. Also, the State of Georgia filed a brief as amicus curiae. ~~The Company will vigorously defend~~In May, 2019, the parties settled the lawsuit.

~~On August 24, 2012, the Company was served with a putative class action lawsuit,~~ ~~Sandusky Wellness Center, LLC, et al. v. MEDTOX Scientific, Inc., et al.~~, filed in the U.S. District Court for the District of Minnesota. The lawsuit alleges that on or about February 21, 2012, the defendants violated the U.S. Telephone Consumer Protection Act (TCPA) by sending unsolicited facsimiles to Plaintiff and more than 39 other recipients without the recipients' prior express invitation or permission. The lawsuit seeks the greater of actual damages or the sum of $0.0005 for each violation, subject to trebling under the TCPA, and injunctive relief. In September of 2014, Plaintiff’s Motion for Class Certification was denied. In January of 2015, the Company’s Motion for Summary Judgment on the remaining individual claim was granted. Plaintiff filed a notice of appeal. On May 3, 2016, the U.S. Court of Appeals for the Eighth Circuit issued its decision and order reversing the District Court’s denial of class certification. The Eighth Circuit remanded the matter for further proceedings. On December 7, 2016, the District Court granted the Plaintiff’s renewed Motion for Class Certification. The parties have reached a settlement in principle, which will require Court approval.

On August 31, 2015, the Company was served with a putative class action lawsuit, Patty Davis v. Laboratory Corporation of America, et al., filed in the Circuit Court of the Thirteenth Judicial Circuit for Hillsborough County, Florida. The complaint alleges

INDEX

LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollars and shares in millions, except per share data)

that the Company violated the Florida Consumer Collection Practices Act by billing patients who were collecting benefits under the ~~Workers’~~Workers' Compensation Statutes. The lawsuit seeks injunctive relief and actual and statutory damages, as well as recovery of attorney's fees and legal expenses. In April 2017, the Circuit Court granted the Company’s Motion for Judgment on the Pleadings. The Plaintiff has appealed the Circuit Court’s ruling to the Florida Second District Court of Appeal. The Company will vigorously defend the lawsuit.

~~INDEX~~

~~LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(dollars and shares in millions, except per share data)~~

In December 2014, the Company received a Civil Investigative Demand issued pursuant to the U.S. False Claims Act from the U.S. ~~Attorney’s~~Attorney's Office for South Carolina, which requested information regarding alleged remuneration and services provided by the Company to physicians who also received draw and processing/handling fees from competitor laboratories Health Diagnostic Laboratory, Inc. (HDL) and Singulex, Inc. (Singulex). The Company cooperated with the request. On April 4, 2018, the U.S. District Court for the District of South Carolina, Beaufort Division, unsealed a False Claims Act lawsuit, United States of America ex rel. Scarlett Lutz, et al. v. Laboratory Corporation of America Holdings, which alleges that the Company's financial relationships with referring physicians violate federal and state anti-kickback statutes. The ~~Plaintiffs’~~Plaintiffs' Fourth Amended Complaint further alleges that the Company conspired with HDL and Singulex in violation of the Federal False Claims Act and the California and Illinois insurance fraud prevention acts by facilitating ~~HDL’s~~HDL's and ~~Singulex’s~~Singulex's offers of illegal inducements to physicians and the referral of patients to HDL and Singulex for laboratory testing. The lawsuit seeks actual and treble damages and civil penalties for each alleged false claim, as well as recovery of costs, attorney's fees, and legal expenses. Neither the U.S. government nor any state government has intervened in the lawsuit. The Company ~~will vigorously defend~~filed a Motion to Dismiss seeking the ~~lawsuit.~~

~~Prior to~~dismissal of the ~~Company’s acquisition of Sequenom, Inc. (Sequenom) between August 15, 2016,~~claims asserted under the California and ~~August 24, 2016, six putative class-action lawsuits were filed~~Illinois insurance fraud prevention statutes, the conspiracy claim, the reverse False Claims Act claim, and all claims based on ~~behalf of purported Sequenom stockholders (captioned~~ ~~Malkoff v. Sequenom, Inc., et al.,~~ ~~No. 16-cv-02054- JAH-BLM, Gupta v. Sequenom, Inc., et al., No. 16-cv-02084-JAH-KSC,~~ ~~Fruchter v. Sequenom, Inc., et al., No. 16-cv-02101- WQH-KSC,~~ ~~Asiatrade Development Ltd. v. Sequenom, Inc., et al., No. 16-cv-02113-AJB-JMA,~~ ~~Nunes v. Sequenom, Inc., et al., No. 16-cv-02128-AJB-MDD, and~~ ~~Cusumano v. Sequenom, Inc., et al., No. 16-cv-02134-LAB-JMA) in~~ the U.S. District Court for the Southern District of California challenging the acquisition transaction. The complaints asserted claims against Sequenom and members of its Board of Directors (the Individual Defendants). The ~~Nunes~~ ~~action also named~~theory that the Company and Savoy Acquisition Corp. (Savoy), a wholly owned subsidiary of the Company, as defendants. The complaints alleged that the defendants violated Sections 14(e), 14(d)(4) and 20 of the Securities Exchange Act of 1934 by failing to disclose certain allegedly material information. In addition, the complaints in the ~~Malkoff~~ ~~action,~~ ~~Asiatrade~~ ~~action, and the~~ ~~Cusumano~~ ~~action alleged that the Individual Defendants breached their fiduciary duties to Sequenom shareholders. The actions sought, among other things, injunctive relief enjoining the merger.~~performed medically unnecessary testing. On ~~August 30, 2016, the parties entered into a Memorandum of Understanding (MOU) in each of the above-referenced actions. On September 6, 2016,~~January 16, 2019, the Court entered an order ~~consolidating for all pre-trial purposes~~granting in part and denying in part the ~~six individual actions described above~~Motion to Dismiss. The Court dismissed the Plaintiffs' claims based on the theory that the Company performed medically unnecessary testing, the claims asserted under the ~~caption~~ ~~In re Sequenom, Inc. Shareholder Litig., Lead Case No. 16-cv-02054-JAH-BLM,~~California and ~~designating the complaint from the~~ ~~Malkoff~~ action as the operative complaint for the consolidated action. On November 11, 2016, two competing motions were filed by two separate stockholders (James Reilly and Shikha Gupta) seeking appointment as lead plaintiff under the terms of the Private Securities Litigation Reform Act of 1995. On June 7, 2017, the Court entered an order declaring Mr. Reilly as the lead plaintiff and approving Mr. Reilly’s selection of lead counsel. The parties agree that the MOU has been terminated. The Plaintiffs filed a Consolidated Amended Class Action Complaint on July 24, 2017,Illinois insurance fraud prevention statutes, and the ~~Defendants filed a~~reverse False Claims Act claim. The Court denied the Motion to Dismiss ~~which remains pending.~~as to the conspiracy claim. The Company will vigorously defend the lawsuit.

On August 3, 2016, the Company was served with a putative class action lawsuit, Daniel L. Bloomquist v. Covance Inc., et al., filed in the Superior Court of California, County of San Diego. The ~~complaint~~Complaint alleges that Covance Inc. violated the California Labor Code and California Business & Professions Code by failing to provide overtime wages, failing to provide meal and rest periods, failing to pay for all hours worked, failing to pay for all wages owed upon termination, and failing to provide accurate itemized wage statements to Clinical Research Associates and Senior Clinical Research Associates employed by Covance in California. The lawsuit seeks monetary damages, civil penalties, injunctive relief, and recovery of attorney's fees and costs. On October 13, 2016, the case was removed to the U.S. District Court for the Southern District of California. On May 3, 2017, the U.S. District Court for the Southern District of California remanded the case ~~back~~ to the Superior Court. The Company will vigorously defend the lawsuit.

Prior to the Company's acquisition of Sequenom, Inc. (Sequenom) between August 15, 2016, and August 24, 2016, six putative class-action lawsuits were filed on behalf of purported Sequenom stockholders (captioned Malkoff v. Sequenom, Inc., et al., No. 16-cv-02054- JAH-BLM, Gupta v. Sequenom, Inc., et al., No. 16-cv-02084-JAH-KSC, Fruchter v. Sequenom, Inc., et al., No. 16-cv-02101- WQH-KSC, Asiatrade Development Ltd. v. Sequenom, Inc., et al., No. 16-cv-02113-AJB-JMA, Nunes v. Sequenom, Inc., et al., No. 16-cv-02128-AJB-MDD, and Cusumano v. Sequenom, Inc., et al., No. 16-cv-02134-LAB-JMA) in the U.S. District Court for the Southern District of California challenging the acquisition transaction. The complaints asserted claims against Sequenom and members of its board of directors (the Individual Defendants). The Nunes action also named the Company and Savoy Acquisition Corp. (Savoy), a wholly owned subsidiary of the Company, as defendants. The complaints alleged that the defendants violated Sections 14(e), 14(d)(4) and 20 of the Securities Exchange Act of 1934 by failing to disclose certain allegedly material information. In addition, the complaints in the Malkoff action, Asiatrade action, and the Cusumano action alleged that the Individual Defendants breached their fiduciary duties to Sequenom shareholders. The actions sought, among other things, injunctive relief enjoining the merger. On ~~February 7, 2017,~~August 30, 2016, the parties entered into a Memorandum of Understanding (MOU) in each of the above-referenced actions. On September 6, 2016, the Court entered an order consolidating for all pre-trial purposes the six individual actions described above under the caption In re Sequenom, ~~received a subpoena~~Inc. Shareholder Litig., Lead Case No. 16-cv-02054-JAH-BLM, and designating the complaint from the ~~SEC relating to an SEC investigation into~~Malkoff action as the ~~trading activity~~operative complaint for the consolidated action. On November 11, 2016, two competing motions were filed by two separate stockholders (James Reilly and Shikha Gupta) seeking appointment as lead plaintiff under the terms of ~~Sequenom shares in connection with~~ the ~~Company’s July 2016 announcement regarding the Sequenom merger.~~Private Securities Litigation Reform Act of 1995. On ~~March~~June 7, 2017, the ~~Company received~~Court entered an order declaring Mr. Reilly as the lead plaintiff and approving Mr. Reilly's selection of lead counsel. The parties agree that the MOU has been terminated. The Plaintiffs filed a ~~similar subpoena.~~Consolidated Amended Class Action Complaint on July 24, 2017, and the Defendants filed a Motion to Dismiss, which remains pending. On March 13, 2019, the Court stayed the action in its entirety pending the U.S. Supreme Court's anticipated decision in Emulex Corp. v. Varjabedian. On April 23, 2019, however, the U.S.

INDEX

LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollars and shares in millions, except per share data)

Supreme Court dismissed the writ of certiorari in Emulex as improvidently granted. The Company ~~is cooperating with these requests.~~will vigorously defend the lawsuit.

On March 10, 2017, the Company was served with a putative class action lawsuit, Victoria Bouffard, et al. v. Laboratory Corporation of America Holdings, filed in the U.S. District Court for the Middle District of North Carolina. The complaint alleges that the ~~Company’s~~Company's patient list prices unlawfully exceed the rates negotiated for the same services with private and public health insurers in violation of various state consumer protection laws. The lawsuit also alleges breach of implied contract or quasi-contract, unjust enrichment, and fraud. The lawsuit seeks statutory, exemplary, and punitive damages, injunctive relief, and recovery of attorney's fees and costs. In May 2017, the Company filed a Motion to Dismiss ~~Plaintiffs’~~Plaintiffs' Complaint and Strike Class Allegations; ~~this motion~~the Motion to Dismiss was granted in March 2018 without prejudice. On October 10, 2017, a second putative class action lawsuit, Sheryl Anderson, et al. v. Laboratory Corporation of America Holdings, was filed in the U.S. District Court for the Middle District of North Carolina. The complaint ~~contains~~contained similar allegations and ~~seeks~~sought similar relief to the Bouffard complaint, and ~~adds~~added additional counts regarding state consumer protection laws. On ~~May 11,~~August 10, 2018, the Plaintiffs filed an Amended Complaint, which consolidated the Bouffard and Anderson actions. On September 10, 2018, the Company filed a ~~motion for leave~~Motion to ~~file an amended~~

~~INDEX~~

~~LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(dollars~~Dismiss Plaintiffs' Amended Complaint and ~~shares in millions, except per share data)~~

~~complaint,~~Strike Class Allegations, which ~~would consolidate the~~ ~~Bouffard~~ ~~and~~ ~~Anderson~~ ~~actions if granted.~~remains pending. The Company will vigorously defend the ~~lawsuits.~~lawsuit.

~~On August 1, 2017, the Company was served with a putative class action lawsuit,~~ ~~Maria T. Gonzalez, et al. v. Examination Management Services, Inc. and Laboratory Corporation of America Holdings,~~ filed against the Company in the U.S. District Court for the Southern District of California. The complaint alleges that the Company misclassified phlebotomists as independent contractors through an arrangement with the co-Defendant temporary staffing agency. The complaint further alleges that the Company violated the California Labor Code and California Business and Professions Code by failing to pay minimum wage, failing to pay for all hours worked, failing to pay for all wages owed upon termination, and failing to provide accurate itemized wage statements. The lawsuit seeks monetary damages, civil penalties, injunctive relief, and recovery of attorney's fees and costs. The Company will vigorously defend the lawsuit.

On September 7, 2017, the Company was served with a putative class action lawsuit, John Sealock, et al. v. Covance Market Access Services, Inc., filed in the U.S. District Court for the Southern District of New York. The complaint ~~alleges~~alleged that Covance Market Access Services, Inc. violated the Fair Labor Standards Act and New York labor laws by failing to provide overtime wages, failing to pay for all hours worked, and failing to provide accurate wage statements. The lawsuit ~~seeks~~sought monetary damages, civil penalties, injunctive relief, and recovery of ~~attorney’s~~attorney's fees and costs. In November 2017, the Company filed a Motion to Strike Class Allegations, which was denied. In December 2017, the Plaintiff filed a Motion for Conditional Certification of a Collective Action, which was granted in May 2018. ~~The Company will vigorously defend the lawsuit.~~

~~On November 6, 2017, Covance was served with two False Claims Act lawsuits,~~ ~~Health Choice Alliance, LLC on behalf of the United States of America, et al. v. Eli Lilly and Company, Inc. et al., and~~ ~~Health Choice Advocates, LLC, on behalf of the United States of America v. Gilead Sciences, Inc., et al., both~~In December 2018, Plaintiff filed, ~~in the U.S. District Court for the Eastern District of Texas. The complaints allege that under the Federal False Claims Act and various state analogues Covance~~ and the ~~co-defendants unlawfully provided in-kind remuneration~~Court granted, a second motion to ~~medical providers~~conditionally certify an expanded class to a nationwide class action. This matter has been settled in principle and the form of reimbursement support services in order to induce providers to prescribe certain drugs. Neither the U.S. government nor any state government intervened in the lawsuits. The lawsuits seek actual and treble damages and civil penalties for each alleged false claim, as well as recovery of costs. The Company’s Motion to Dismiss was filed in both cases in February 2018. The Company will vigorously defend the lawsuits.

~~On March 6, 2018, the Company was served with a lawsuit arising under the California Labor Code Private Attorney General Act (LCPAGA),~~ ~~Agnes Austria and Josephine Hoelscher v. Laboratory Corporation of America Holdings, et al.~~, filed in the Superior Court of California, County of San Diego. Plaintiffs allege that they were improperly classified as exempt employees and, therefore, allege that they were not properly paid overtime compensation, meal and rest break premiums, did not receive compliant wage statements, and were not properly paid wages upon termination of employment. Plaintiffs assert these actions violate various Labor Code provisions and constitute an unfair competition practice under California law. The Company will vigorously defend the lawsuit.

~~On April 2, 2018, the Company was served with a putative class action lawsuit,~~ ~~Craig Cunningham, et al. v. Laboratory Corporation of America Holdings d/b/a LabCorp~~, filed in the U.S. District Court for the Middle District of North Carolina. The lawsuit alleges that the Company violated the TCPA by contacting Plaintiff at least twice on his cell phone without his prior consent using a prerecorded or artificial voice. The lawsuit seeks actual damages for each violation,settlement is subject to ~~trebling under the TCPA,~~judicial review and ~~injunctive relief. The Company will vigorously defend the lawsuit.~~approval.

On July 16, 2018, the Company reported that it had detected suspicious activity on its information technology network and was taking steps to respond to and contain the activity. The activity was subsequently determined to be a new variant of ransomware affecting certain LCD information technology systems. InAs part of its response, the Company took certain systems offline, which temporarily affected test processing and customer access to test results, and also affected certain other information technology systems involved in conducting Company-wide operations. ~~To date,~~Operations were returned to normal within a few days of the incident. As part of its in-depth investigation into this incident, the Company engaged outside security experts and worked with authorities, including law enforcement. The investigation determined that the ransomware did not and could not transfer patient or client data outside of Company systems and that there was no theft or misuse of patient or client data. The Company cooperated with law enforcement and regulatory authorities with respect to the incident.

The Company has insurance coverage for costs resulting from cyber-attacks and has filed a claim for recovery of its losses resulting from this incident. However, disputes over the extent of insurance coverage for claims are not uncommon and the Company has not recognized any estimated proceeds resulting from this claim. Furthermore, while the Company has not been the subject of any legal proceedings involving this incident, ~~but~~ it is possible that the Company could be the subject of claims from persons alleging they suffered damages from the incident, or actions by governmental authorities.

On September 10, 2018, the Company was served with a Labor Code Private Attorneys General Act (LCPAGA) lawsuit, Terri Wilson v. Laboratory Corporation of America Holdings, which was filed in the U.S. District Court for the Northern District of California. Plaintiff alleged claims for failure to pay meal and rest break premiums, failure to provide compliant wage statements, failure to compensate employees for all hours worked, and failure to pay wages upon termination of employment. Plaintiff asserted these actions violated various California Labor Code provisions and constituted an unfair competition practice under California law. The lawsuit sought monetary damages, civil penalties, injunctive relief, and recovery of attorney's fees and costs. In June, 2019, the parties settled the lawsuit.

On September 21, 2018, the Company was served with a putative class action lawsuit, Alma Haro v. Laboratory Corporation of America, et al., which was filed in the Superior Court of California, County of Los Angeles. Plaintiff alleges that employees were not properly paid overtime compensation, minimum wages, meal and rest break premiums, did not receive compliant wage statements, and were not properly paid wages upon termination of employment. Plaintiff asserts these actions violate various California Labor Code provisions and constitute an unfair competition practice under California law. The lawsuit seeks monetary damages, civil penalties, and recovery of attorney's fees and costs. The Company will vigorously defend the lawsuit.

On December 20, 2018, the Company was served with a putative class action lawsuit, Feckley v. Covance Inc., et al., filed in the Superior Court of California, County of Orange. The complaint alleges that Covance Inc. violated the California Labor Code and California Business & Professions Code by failing to properly pay commissions to employees under a sales incentive

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LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollars and shares in millions, except per share data)

compensation plan upon their termination of employment. The lawsuit seeks monetary damages, civil penalties, punitive damages, and recovery of attorney’s fees and costs. On January 22, 2018, the case was removed to the U.S. District Court for the Central District of California. The Company will vigorously defend the lawsuit.

On April 1, 2019, Covance Research Products was served with a Grand Jury Subpoena issued by the Department of Justice (DOJ) in Miami, Florida requiring the production of documents related to the importation into the United States of live non-human primate shipments originating from or transiting through China, Cambodia, and/or Vietnam from April 1, 2014 through March 28, 2019. The Company is cooperating with ~~law enforcement~~the DOJ.

On April 4, 2019, Tri-Cities Laboratory (a joint venture that was acquired as part of the Pathology Associates Medical Laboratories transaction in May 2017) was served with a subpoena issued by the DOJ in Newark, New Jersey requiring the production of documents related to test orders and ~~regulatory authorities~~payments to various third party companies and individuals. The Company cooperated with ~~respect~~the DOJ.

On April 22, 2019, the Company was served with a putative class action lawsuit, Kawa Orthodontics LLP, et al. v. Laboratory Corporation of America Holdings, et al., filed in the U.S. District Court for the Middle District of Florida. The lawsuit alleges that on or about February 6, 2019, the defendants violated the U.S. Telephone Consumer Protection Act (TCPA) by sending unsolicited facsimiles to Plaintiff and at least 40 other recipients without the recipients' prior express invitation or permission. The lawsuit seeks the greater of actual damages or the sum of $0.0005 for each violation, subject to trebling under the TCPA, and injunctive relief. The Company filed a motion to dismiss the case on May 28, 2019. In response to the ~~incident.~~Motion to Dismiss, the Plaintiff filed an amended complaint, which contains additional allegations, including allegations related to another facsimile. The Company filed a Motion to Dismiss the amended complaint. The Company will vigorously defend the lawsuit.

On May 14, 2019, Retrieval-Masters Creditors Bureau, Inc. d/b/a American Medical Collection Agency (AMCA), an external collection agency, notified the Company about a security incident AMCA experienced that may have involved certain personal information about some of the Company’s patients (the AMCA Incident). The Company referred patient balances to AMCA only when direct collection efforts were unsuccessful. The Company’s systems were not impacted by the AMCA Incident. Upon learning of the AMCA Incident, the Company promptly stopped sending new collection requests to AMCA and stopped AMCA from continuing to work on any pending collection requests from the Company. AMCA informed the Company that it appeared that an unauthorized user had access to AMCA’s system between August 1, 2018 and March 30, 2019, and that AMCA could not rule out the possibility that personal information on AMCA’s system was at risk during that time period. Information on AMCA’s affected system from the Company may have included name, address, and balance information for the patient and person responsible for payment, along with the patient’s phone number, date of birth, referring physician, and date of service. The Company was later informed by AMCA that health insurance information may have been included for some individuals, and because some insurance carriers utilize the Social Security Number as a subscriber identification number, the Social Security Number for some individuals may also have been affected. No ordered tests, laboratory test results, or diagnostic information from the Company were in the AMCA affected system. The Company notified individuals for whom it had a valid mailing address. For the individuals whose Social Security Number was affected, the notice included an offer to enroll in credit monitoring and identity protection services that will be provided free of charge for 24 months.

Eighteen putative class action lawsuits were filed against the Company related to the AMCA Incident. Numerous similar lawsuits have been filed against other health care providers who used AMCA. The lawsuits against the Company were filed in various United States District Courts. The lawsuits generally allege that the Company did not adequately protect its patients’ data, and assert various causes of action, including but not limited to negligence, breach of implied contract, unjust enrichment, and the violation of state data protection statutes. The lawsuits seek damages on behalf of a class of all affected Company consumers. The attorneys for certain of the Plaintiffs filed a motion with the Judicial Panel on Multi-District Litigation (JPML) seeking to have all cases related to the AMCA Incident consolidated for pre-trial proceedings in a multi-district litigation. The JPML ordered the transfer of the cases to the District of New Jersey. The Company will vigorously defend the multi-district litigation.

Certain governmental entities and individuals have requested information from the Company related to the AMCA Incident. The Company has received requests for information from United States Senators Robert Menendez and Cory A. Booker and from the Attorneys General of Colorado, Connecticut, Illinois, Florida, New York, and Indiana. The request from Indiana includes a Civil Investigative Demand, which requests certain documents from the Company. The Company also provided notice of the AMCA Incident to state and federal regulators where appropriate. The Company is cooperating with these requests.

On June 10, 2019, the Company was served with a class action lawsuit, Ignacio v. Laboratory Corporation of America, filed in Superior Court of the State of California for the County of Los Angeles. Plaintiff alleges that non-exempt employees based in California were not properly paid overtime compensation, minimum wages, meal and rest break premiums, were not indemnified for business expenses, did not receive compliant wage statements, and were not properly paid wages upon termination of

INDEX

LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollars and shares in millions, except per share data)

employment. Plaintiff asserts these actions violate various California Labor Code provisions and constitute an unfair competition practice under California law. The lawsuit seeks monetary damages, liquidated damages, injunctive relief, and recovery of attorney's fees and costs. The Company will vigorously defend the lawsuit.

On June 26, 2019, a class action lawsuit, Jan v. Laboratory Corporation of America, was filed in the Superior Court for the State of California for the County of Sacramento. Plaintiff alleges that non-exempt employees based in California were not properly paid meal and rest break premiums, did not receive compliant wage statements, and were not properly paid wages upon termination of employment. Plaintiff asserts these actions violate various California Labor Code provisions and constitute an unfair competition practice under California law. The lawsuit seeks monetary damages, liquidated damages, injunctive relief, and recovery of attorney's fees and costs. The Company will vigorously defend the lawsuit.

On July 1, 2019, a class action lawsuit, Mitchell v. Covance, Inc. et al., was filed in the United States District Court for the Eastern District of Pennsylvania. Plaintiff alleges that certain individuals employed by Covance Inc. and Chiltern International Inc. were misclassified as exempt employees under the Fair Labor Standards Act and the Pennsylvania Minimum Wage Act and were thereby not properly paid overtime compensation. The lawsuit seeks monetary damages, liquidated damages, and recovery of attorneys’ fees and costs. The Company will vigorously defend the lawsuit.

Under the Company's present insurance programs, coverage is obtained for catastrophic exposure as well as those risks required to be insured by law or contract. The Company is responsible for the uninsured portion of losses related primarily to general, professional and vehicle liability, certain medical costs and workers' compensation. The self-insured retentions are on a per-occurrence basis without any aggregate annual limit. Provisions for losses expected under these programs are recorded based upon the Company's estimates of the aggregated liability of claims incurred. As of June 30, 2018, the Company had provided letters of credit aggregating approximately $72.2, primarily in connection with certain insurance programs. The Company’s availability under its revolving credit facility is reduced by the amount of these letters of credit.

~~INDEX~~

~~LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(dollars and shares in millions, except per share data)~~


~~11.~~	12. PENSION AND POST-RETIREMENT PLANS

The ~~Company’s~~Company has two defined contribution retirement ~~plan~~plans (401K ~~Plan) covers~~Plans) which cover substantially all ~~legacy LabCorp~~U.S. employees. All employees eligible for the LabCorp 401K Plan receive a minimum 3% non-elective contribution concurrent with each payroll period. The 401K Plan also permits discretionary contributions by the Company of up to 1% and up to 3% of pay for eligible employees based on years of service with the Company. The cost of this plan was ~~$15.8~~$12.9 and ~~$14.1~~$15.8 for the three months ended June 30, ~~2018~~2019, and ~~2017,~~2018, respectively, and was $37.1 and $31.8 ~~and $28.7 during~~for the six months ended June 30, ~~2018~~2019, and ~~2017, respectively. As a result of the Covance acquisition, the Company also incurred expense of $16.5 and $13.6 for the Covance 401K plan during the three months ended June 30,~~ 2018, ~~and 2017, respectively, and $35.3 and $28.6 during the six months ended June 30, 2018 and 2017,~~ respectively. All of the Covance U.S. employees, ~~excluding~~including legacy Chiltern employees, are eligible to participate in the Covance 401K plan, which features a maximum 4.5% Company match, based upon a percentage of the employee’s contributions. Chiltern employees ~~are~~were previously eligible to participate in the Chiltern 401K plan, which ~~features~~featured a maximum 3.0% Company match, based upon a percentage of the employee's contributions. The Chiltern 401K plan merged into the Covance Plan effective January, 7, 2019. The Company incurred expense of $17.9 and $16.5 for the Covance 401K plan during the three months ended June 30, 2019, and 2018, respectively, and $37.8 and $35.3 during the six months ended June 30, 2019, and 2018, respectively. The Company also maintains several other immaterial 401K plans associated with companies acquired over the last several years.

The Company also maintains a frozen defined benefit retirement plan (Company Plan), which as of December 31, 2009, covered substantially all employees. The benefits to be paid under the Company Plan are based on years of credited service through December 31, 2009, and ongoing interest credits. Effective January 1, 2010, the Company Plan was closed to new participants. The Company’s policy is to fund the Company Plan with at least the minimum amount required by applicable regulations.

The Company maintains a second, unfunded, non-contributory, non-qualified defined benefit retirement plan (PEP), which as of December 31, 2009, covered substantially all of its senior management group. The PEP supplements the Company Plan and was closed to new participants effective January 1, 2010.

The effect on operations for the Company Plan and the PEP is summarized as follows:



	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
Service cost for administrative expenses	$	1.0		$	1.2		$	2.0		$	2.6
Interest cost on benefit obligation	3.5			3.2			7.0			6.5
Expected return on plan assets	(3.8		)	(4.1		)	(7.6		)	(8.2		)
Net amortization and deferral	2.6			3.1			5.2			5.9
Defined benefit plan costs	$	3.3		$	3.4		$	6.6		$	6.8

Three Months Ended June 30, Six Months Ended June 30,
2018 2017 2018 2017
Service cost for administrative expenses $ 1.2
$ 1.4
$ 2.6
$ 2.8
Interest cost on benefit obligation 3.2
3.5
6.5
7.2
Expected return on plan assets (4.1 ) (4.1 ) (8.2 ) (8.2 )
Net amortization and deferral 3.1
2.7
5.9
5.5
Defined benefit plan costs $ 3.4
$ 3.5
$ 6.8
$ 7.3

During the ~~three and~~ six months ended June 30, ~~2018~~2019, the Company ~~contributed $1.8 and $1.8, respectively,~~made no contributions to the Company Plan.

As a result of the Covance acquisition, the Company also has a frozen non-qualified Supplemental Executive Retirement Plan (SERP). The SERP, which is not funded, is intended to provide retirement benefits for certain executive officers of the Company who were formerly employees of Covance. Benefit amounts are based upon years of service and compensation of the participating employees. The components of the net periodicsponsors two defined benefit pension ~~cost~~plans for the ~~three~~benefit of its employees at two U.K. subsidiaries (U.K. Plans) and ~~six months ended June 30, 2018 and June 30, 2017 are as follows:~~

Three Months Ended June 30, Six Months Ended June 30,
2018 2017 2018 2017
Interest cost $ —
$ 0.1
$ —
$ 0.1
Settlement gain —
(0.1 ) —
(0.2 )
Net periodic pension cost $ —
$ —
$ —
$ (0.1 )

The Company has assumed the obligations under a subsidiary’s post-retirement medical plan. Coverage under this plan is restricted to a limited number of employees/retirees of the subsidiary. The Company funds the plan through monthly contributions to a Health Reimbursement Arrangement, which can be used by eligible participants to purchase health care insurance through insurance exchanges. Effective January 1, 2017, Health Reimbursement Arrangement contributions for Medicare eligible participants ceased. The effect on operations of the post-retirement medical plan is shown in the following table:

Three Months Ended June 30, Six Months Ended June 30,
2018 2017 2018 2017
Interest cost on benefit obligation $ —
$ 0.1
0.1
0.2
Net amortization and deferral (0.3 ) (1.7 ) (0.6 ) (3.4 )
Post-retirement medical plan benefits $ (0.3 ) $ (1.6 ) $ (0.5 ) $ (3.2 )

~~Also as a result of the Covance acquisition, the Company sponsors a post-employment retiree health and welfare~~one defined benefit pension plan for the benefit of ~~eligible retirees~~its employees at ~~certain U.S. subsidiaries who retire after satisfying service and age requirements. Effective January~~a German subsidiary

INDEX

LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollars and shares in millions, except per share data)

1, 2017, this plan ceased directly providing medical, prescription drug and dental coverage options previously available to eligible participants. Instead, the Company will fund the plan through monthly contributions to a Health Reimbursement Arrangement, which can be used by non-Medicare eligible participants to purchase health care insurance through insurance exchanges. The net periodic post-retirement benefit cost for the three months ended June 30, 2018 and 2017 was $(0.1) and $0.5, respectively, and was $(0.2) and $1.0 for the six months ended June 30, 2018 and 2017, respectively.

As a result of the Covance acquisition, the Company sponsors two defined benefit pension plans for the benefit of its employees at two United Kingdom (U.K.) subsidiaries and one defined benefit pension plan for the benefit of its employees at a (German ~~subsidiary,~~Plan), all of which are legacy plans of previously acquired companies. Benefit amounts for all three plans are based upon years of service and compensation. The German plan is unfunded while the U.K. pension plans are funded. The Company’s funding policy has been to contribute annually amounts at least equal to the local statutory funding requirements.

U.K. Plans
Three Months Ended June 30, Six Months Ended June 30,
2018 2017 2018 2017
Service cost for administrative expenses $ 0.9
$ 0.9
$ 1.8
$ 1.8
Interest cost on benefit obligation 1.9
1.9
3.8
3.7
Expected return on plan assets (3.2 ) (2.9 ) (6.5 ) (5.6 )
Net (gain) from prior periods —
0.2
—
0.4
Defined benefit plan costs $ (0.4 ) $ 0.1
$ (0.9 ) $ 0.3

Assumptions used to determine defined benefit plan cost
Discount rate 2.5 % 2.7 % 2.5 % 2.7 %
Expected return on assets 4.5 % 4.7 % 4.5 % 4.7 %
Salary increases 3.6 % 3.8 % 3.6 % 3.8 %



	U.K. Plans
	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
Service cost for administrative expenses	$	0.8		$	0.9		$	1.6		$	1.8
Interest cost on benefit obligation	1.9			1.9			3.8			3.8
Expected return on plan assets	(2.8		)	(3.2		)	(5.7		)	(6.5		)
Defined benefit plan costs	$	(0.1	)	$	(0.4	)	$	(0.3	)	$	(0.9	)


	German Plan												U.K. Plans
	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended June 30,				Six Months Ended June 30,
	2018			2017			2018			2017			2019		2018		2019		2018
Service cost for administrative expenses	$	0.3		$	0.3		$	0.6		$	0.5
Interest cost on benefit obligation	0.2			0.1			0.3			0.3
Defined benefit plan costs	$	0.5		$	0.4		$	0.9		$	0.8

Assumptions used to determine defined benefit plan cost
Discount rate	1.7		%	1.7		%	1.7		%	1.7		%	2.9	%	2.5	%	2.9	%	2.5	%
Expected return on assets	N/A			N/A			N/A			N/A			4.5	%	4.5	%	4.5	%	4.5	%
Salary increases	2.0		%	2.0		%	2.0		%	2.0		%	3.6	%	3.6	%	3.6	%	3.6	%



	German Plan
	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
Service cost for administrative expenses	$	0.3		$	0.3		$	0.6		$	0.6
Interest cost on benefit obligation	0.2			0.2			0.3			0.3
Defined benefit plan costs	$	0.5		$	0.5		$	0.9		$	0.9

Assumptions used to determine defined benefit plan cost
Discount rate	1.9		%	1.7		%	1.9		%	1.7		%
Expected return on assets	N/A			N/A			N/A			N/A
Salary increases	2.0		%	2.0		%	2.0		%	2.0		%

As a result of the Envigo acquisition, the Company assumed a defined benefit pension plan for the benefit of Envigo's U.K. employees (the Envigo plan), which is a legacy plan of a company previously acquired by Envigo. The Envigo plan is a funded plan that is closed to future accrual. The related net pension obligation of $56.8, based on the preliminary valuation of acquired assets and assumed liabilities, is reported under Other liabilities in the Condensed Consolidated Balance Sheet as of June 30, 2019. The Company’s funding policy has been to make annual contributions to the plan of amounts that are at least equal to the local statutory funding requirements.


~~12.~~13.	FAIR VALUE MEASUREMENTS

The Company’s population of financial assets and liabilities subject to fair value measurements as of June 30, ~~2018~~2019, and December 31, ~~2017~~2018, is as follows:


						Fair Value Measurements as of													Fair Value Measurements as of
		Fair Value as of				June 30, 2018										Fair Value as of			June 30, 2019
	Balance Sheet				Using Fair Value Hierarchy								Balance Sheet					Using Fair Value Hierarchy
	Classification		June 30, 2018				Level 1		Level 2			Level 3			Classification		June 30, 2019			Level 1		Level 2		Level 3
Noncontrolling interest put	Noncontrolling interest	$	15.7			$	—	$	15.7		$	—		Noncontrolling interest		$	15.7		$	—	$	15.7	$	—
Cross currency swap asset														Other assets, net		1.2			—		1.2		—
Interest rate swap	Other liabilities	(5.6		)		—		(5.6		)	—			Other assets, net		3.7			—		3.7		—
Cross currency swap asset	Other assets, net	24.3				—		24.3			—
Cash surrender value of life insurance policies	Other assets, net	67.0				—		67.0			—			Other assets, net		75.3			—		75.3		—
Deferred compensation liability	Other liabilities	68.0				—		68.0			—			Other liabilities		74.3			—		74.3		—
Contingent consideration	Other liabilities	16.5				—		—			16.5			Other liabilities		20.1			—		—		20.1
Investment in equity securities														Prepaid expenses and other		29.8			29.8		—		—

INDEX

LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollars and shares in millions, except per share data)



				Fair Value Measurements as of
		Fair Value as of		December 31, 2018
	Balance Sheet	Fair Value as of		Using Fair Value Hierarchy
	Classification	December 31, 2018		Level 1		Level 2		Level 3
Noncontrolling interest put	Noncontrolling interest	$	15.0	$	—	$	15.0	$	—
Cross currency swap liability	Other liabilities	2.8		—		2.8		—
Interest rate swap	Other liabilities	3.1		—		3.1		—
Cash surrender value of life insurance policies	Other assets, net	63.5		—		63.5		—
Deferred compensation liability	Other liabilities	64.2		—		64.2		—
Contingent consideration	Other liabilities	18.6		—		—		18.6

Fair Value Measurements as of

Fair Value
as of
December 31, 2017
Balance Sheet Using Fair Value Hierarchy
Classification December 31, 2017 Level 1 Level 2 Level 3
Noncontrolling interest put Noncontrolling interest $ 16.7
$ —
$ 16.7
$ —
Interest rate swap Other assets, net 4.1
—
4.1
—
Cash surrender value of life insurance policies Other assets, net 64.0
—
64.0
—
Deferred compensation liability Other liabilities 64.5
—
64.5
—
Contingent consideration Other liabilities 16.5
—
—
16.5



Fair Value Measurement of Level 3 Assets	Contingent Consideration
Balance at December 31, 2018	18.6
Addition	1.5
Balance at June 30, 2019	$	20.1

The Company has a noncontrolling interest put related to its Ontario subsidiary that has been classified as mezzanine equity in the Company’s condensed consolidated balance sheets. The noncontrolling interest put is valued at its contractually determined value, which approximates fair value.

The Company offers certain employees the opportunity to participate in an employee-funded deferred compensation plan (DCP). A participant's deferrals are allocated by the participant to one or more of 22 measurement funds, which are indexed to externally managed funds. From time to time, to offset the cost of the growth in the participant's investment accounts, the Company purchases life insurance policies, with the Company named as beneficiary of the policies. Changes in the cash surrender value of these policies are based upon earnings and changes in the value of the underlying investments, which are typically invested in a manner similar to the participants' allocations. Changes in the fair value of the DCP obligation are derived using quoted prices in active markets based on the market price per unit multiplied by the number of units. The cash surrender value and the DCP obligations are classified within Level 2 because their inputs are derived principally from observable market data by correlation to the hypothetical investments.

The Company has contingent accrued earn-out business acquisition consideration liabilities which were recorded at fair value on the acquisition date and are remeasured quarterly based on the then assessed fair value and adjusted if necessary. The increases or decreases in the fair value of contingent consideration payable can result from changes in anticipated revenue levels and changes in assumed discount periods and rates. As the fair value measure is based on significant inputs that are not observable in the market, they are categorized as Level 3.

The carrying amounts of cash and cash equivalents, accounts receivable, income taxes receivable, and accounts payable are considered to be representative of their respective fair values due to their short-term nature. The fair market value of the zero-coupon subordinated notes, based on market pricing, was approximately $~~18.8~~1.8 and $~~18.8~~16.9 as of June 30, ~~2018~~2019, and December 31, ~~2017~~2018, respectively. The fair market value of all of the senior notes, based on market pricing, was approximately $~~5,908.4~~5,658.5 and $~~6,078.9~~5,318.0 as of June 30, ~~2018~~2019, and December 31, ~~2017~~2018, respectively. The fair market value of the floating rate secured note due 2022 received for the sale of CRP was $110.0 as of June 30, 2019. The effective interest rate on the floating rate secured note receivable was 7.79% as of June 30, 2019. The Company's note and debt instruments are classified as Level 2 instruments, as the fair market values of these instruments are determined using other observable inputs.


~~13.~~14.	DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

The Company addresses its exposure to market risks, principally the market risk associated with changes in interest rates and foreign currency exchange rates, through a controlled program of risk management that includes, from time to time, the use of derivative financial instruments such as interest rate and cross currency swap agreements (see Interest Rate Swap and Cross Currency Swap sections below). Although the Company’s zero-coupon subordinated notes contain features that are considered to be embedded derivative instruments (see Embedded Derivatives Related to the Zero-Coupon Subordinated Notes section below), the Company does not hold or issue derivative financial instruments for trading purposes. The derivative financial instrument contracts are with major investment grade financial institutions and the Company does not anticipate any material non-performance by any of the counterparties. The Company does not believe that its exposure to market risk is material to the Company’s financial position or results of operations.

INDEX

LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollars and shares in millions, except per share data)

Interest Rate Swap

The Company is party to two fixed-to-variable interest rate swap agreements for its 4.625% senior notes due 2020 with an aggregate notional amount of $600.0 and variable interest rates based on one-month LIBOR plus 2.298% to hedge against changes in the fair value of a portion of the Company's long term debt. These derivative financial instruments are accounted for as fair value hedges of the senior notes due 2020. These interest rate swaps are included in other long-term assets or other long-term liabilities, as applicable, and added to or subtracted from the value of the senior notes, with an aggregate fair value of $~~(5.6)~~$3.7 (asset) and ~~$4.1~~$3.1 (liability) at June 30, ~~2018~~2019, and December 31, ~~2017,~~2018, respectively. As the specific terms and notional amounts of the derivative financial instruments match those of the fixed-rate debt being hedged, the derivative instruments are assumed to be perfectly effective hedges and accordingly, there is no impact to the Company's ~~consolidated statements~~Condensed Consolidated Statements of ~~operations.~~Operations.



	Carrying amount of hedged liabilities as of				Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Liabilities as of
	June 30, 2019		December 31, 2018		June 30, 2019		December 31, 2018
Balance Sheet Line Item in which Hedged Items are Included
Long-term debt, less current portion	$	603.7	$	597.0	$	3.7	$	(3.1	)

~~INDEX~~

~~LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(dollars and shares in millions, except per share data)~~

Cross Currency Swap

During the ~~first~~fourth quarter of 2018, the Company entered into six ~~USD~~U.S. Dollar to Swiss Franc cross-currency swap agreements with an aggregate notional value of $600.0 and which are accounted for as a hedge against its net investment in a Swiss subsidiary. Of the notional value, $300.0 matures in 2022 and $300.0 matures in 2025. These cross currency swaps maturing in 2022 and 2025 are included in other long-term assets with an aggregate fair value of ~~$14.2~~$0.3 and ~~$10.0,~~$0.9, respectively, as of June 30, 2019 and are included in other long-term liabilities with an aggregate fair value of $1.0 and $1.8, respectively, as of December 31, 2018. Changes in the fair value of the cross-currency swaps are charged or credited through accumulated other comprehensive income in the Condensed Consolidated Balance Sheet until the hedged item is recognized in earnings. The cumulative amount of the fair value hedging adjustment included in the current value of the cross currency swaps is ~~$24.3~~$(7.8) and ~~$24.2~~$4.0, respectively, for the three and six months ended June 30, ~~2018, respectively,~~2019, and was recognized as currency translation within the Condensed Consolidated Statement of Comprehensive Earnings. There were no amounts reclassified from the Condensed Consolidated Statement of Comprehensive Earnings to the Condensed Consolidated Statement of Operations during the three months ended June 30, 2019.

The table below presents the fair value of derivatives on a gross basis and the balance sheet classification of those instruments:



		June 30, 2019						December 31, 2018
		Fair Value of Derivative						Fair Value of Derivative
	Balance Sheet Caption	Asset		Liability		U.S. Dollar Notional		Asset		Liability			U.S. Dollar Notional
Derivatives Designated as Hedging Instruments
Interest rate swap	Other assets, net or Other liabilities	$	3.7	$	—	$	600.0	$	—	$	(3.1	)	$	600.0
Cross currency swaps	Other assets, net or Other liabilities	$	1.2	$	—	$	600.0	$	—	$	(2.8	)	$	600.0

The table below provides information regarding the location and amount of pretax (gains) losses of derivatives designated in fair value hedging relationships:



	Amount of pre-tax gain/(loss) included in other comprehensive income						Amounts reclassified to the Statement of Operations				Amount of pre-tax gain/(loss) included in other comprehensive income					Amounts reclassified to the Statement of Operations
	Three Months Ended June 30,						Three Months Ended June 30,				Six Months Ended June 30,					Six Months Ended June 30,
	2019			2018			2019		2018		2019		2018			2019		2018
Interest rate swap contracts	$	4.3		$	(10.0	)	$	—	$	—	$	6.8	$	(9.7	)	$	—	$	—
Cross currency swaps	$	(7.8	)	$	(24.3	)	$	—	$	—	$	4.0	$	(24.2	)	$	—	$	—

No gains or losses from derivative instruments classified as hedging instruments have been recognized into income for the three and six months ended June 30, 2019 and 2018.

INDEX

LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollars and shares in millions, except per share data)

Embedded Derivatives Related to the Zero-Coupon Subordinated Notes

The Company’s zero-coupon subordinated notes contain the following two features that are considered to be embedded derivative instruments under authoritative guidance in connection with accounting for derivative instruments and hedging activities:


1)	The Company will pay contingent cash interest on the zero-coupon subordinated notes after September 11, 2006, if the average market price of the notes equals 120% or more of the sum of the issue price, accrued original issue discount and contingent additional principal, if any, for a specified measurement period.


2)	Holders may surrender zero-coupon subordinated notes for conversion during any period in which the rating assigned to the zero-coupon subordinated notes by Standard & Poor’s Ratings Services is BB- or lower.

The Company believes these embedded derivatives had no fair value at June 30, ~~2018~~2019, and December 31, ~~2017~~2018. These embedded derivatives also had no impact on the ~~condensed consolidated statements~~Condensed Consolidated Statements of ~~operations~~Operations for the six months ended June 30, ~~2018~~2019, and ~~2017, respectively.~~2018.

Other Derivative Instruments

The Company periodically enters into foreign currency forward contracts, which are recognized as assets or liabilities at their fair value. These contracts do not qualify for hedge accounting and the changes in fair value are recorded directly to earnings. The contracts are short-term in nature and the fair value of these contracts is based on market prices for comparable contracts. The fair value of these contracts is not significant as of June 30, ~~2018~~2019, and December 31, ~~2017.~~


~~14.~~	~~SUPPLEMENTAL CASH FLOW INFORMATION~~

Six Months Ended June 30,
2018 2017
Supplemental schedule of cash flow information:
Cash paid during period for:
Interest $ 188.2
$ 102.2
Income taxes, net of refunds 148.6
127.9
Disclosure of non-cash financing and investing activities:

Surrender of restricted stock awards and performance awards $ 45.1
$ 46.2
Conversion of zero-coupon convertible debt —
12.8
Assets acquired under capital leases —
0.9
Increase in accrued property, plant and equipment 4.8
2.8
2018.


15.	SUPPLEMENTAL CASH FLOW INFORMATION



	Six Months Ended June 30,
	2019			2018
Supplemental schedule of cash flow information:
Cash paid during period for:
Interest	$	123.8		$	188.2
Income taxes, net of refunds	119.6			148.6
Disclosure of non-cash financing and investing activities:
Conversion of zero-coupon convertible debt	7.2			—
Change in accrued property, plant and equipment	(12.5		)	4.8
Floating rate secured note receivable due 2022 from the sale of CRP	110.0			—


16.	BUSINESS SEGMENT INFORMATION

The following table is a summary of segment information for the three and six months ended June 30, ~~2018~~2019, and ~~2017.~~2018. The management approach has been used to present the following segment information. This approach is based upon the way the management of the Company organizes its business unit operations for making operating decisions and assessing performance. Financial information is reported on the basis that it is used internally by the chief operating decision maker (CODM) for evaluating segment performance and deciding how to allocate resources to segments. The Company’s chief executive officer has been identified as the CODM.

Segment asset information is not presented because it is not used by the CODM at the segment level. Operating earnings of each segment represents net revenues less directly identifiable expenses to arrive at operating income for the segment. General

~~INDEX~~

~~LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(dollars and shares in millions, except per share data)~~

management and administrative corporate expenses are included in general corporate expenses below. The table below represents information about the Company’s reporting segments for the three and six months ended June 30, ~~2018~~2019, and ~~2017:~~2018:

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LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollars and shares in millions, except per share data)

Three Months Ended Six Months Ended
June 30, June 30,
2018 2017 2018 2017
Revenues:
LCD $ 1,814.0
$ 1,721.1
$ 3,584.2
$ 3,360.8
CDD 1,054.2
807.5
2,132.6
1,581.7
Intercompany eliminations (1.9 ) (0.4 ) (2.2 ) (0.6 )
Revenues 2,866.3
2,528.2
5,714.6
4,941.9

Operating earnings:
LCD 336.3
334.5
639.8
644.0
CDD 68.8
29.6
107.3
71.1
Unallocated corporate expenses (35.9 ) (34.3 ) (72.5 ) (67.2 )
Total operating income 369.2
329.8
674.6
647.9
Other income (expense), net (56.5 ) (50.6 ) (120.4 ) (103.5 )
Earnings before income taxes 312.7
279.2
554.2
544.4
Provision for income taxes 78.6
94.1
147.6
176.0
Net earnings 234.1
185.1
406.6
368.4
Less (earnings) loss attributable to noncontrolling interests (0.3 ) (0.3 ) 0.4
(0.6 )
Net income attributable to Laboratory Corporation of America Holdings $ 233.8
$ 184.8
$ 407.0
$ 367.8



	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2019			2018			2019			2018
Revenues:
LCD	$	1,760.9		$	1,814.0		$	3,482.9		$	3,584.2
CDD	1,126.3			1,054.2			2,201.0			2,132.6
Intercompany eliminations	(5.5		)	(1.9		)	(11.0		)	(2.2		)
Revenues	2,881.7			2,866.3			5,672.9			5,714.6

Operating earnings:
LCD	312.5			336.3			580.8			639.8
CDD	65.8			68.8			153.8			107.3
Unallocated corporate expenses	(42.6		)	(35.9		)	(80.7		)	(72.5		)
Total operating income	335.7			369.2			653.9			674.6
Other income (expense), net	(65.7		)	(56.5		)	(129.2		)	(120.4		)
Earnings before income taxes	270.0			312.7			524.7			554.2
Provision for income taxes	79.3			78.6			148.1			147.6
Net earnings	190.7			234.1			376.6			406.6
Less (earnings) loss attributable to noncontrolling interests	(0.3		)	(0.3		)	(0.6		)	0.4
Net income attributable to Laboratory Corporation of America Holdings	$	190.4		$	233.8		$	376.0		$	407.0

INDEX

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FORWARD-LOOKING STATEMENTS

~~The Company~~Laboratory Corporation of America^® Holdings together with its subsidiaries (the Company) has made in this report, and from time to time may otherwise make in its public filings, press releases and discussions by Company management, forward-looking statements concerning the Company’s operations, performance and financial condition, as well as its strategic objectives. Some of these forward-looking statements can be identified by the use of forward-looking words such as “believes”, “expects”, “may”, “will”, “should”, “seeks”, “approximately”, “intends”, “plans”, “estimates”, or “anticipates” or the negative of those words or other comparable terminology. Such forward-looking statements are subject to various risks and uncertainties and the Company claims the protection afforded by the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. Actual results could differ materially from those currently anticipated due to a number of factors in addition to those discussed elsewhere herein and in the Company’s other public filings, press releases and discussion with Company management, including:

changes in government and third-party payer regulations, reimbursement, or coverage policies or other future reforms in the healthcare system (or in the interpretation of current regulations), new insurance or payment systems, including state, regional or private insurance cooperatives (e.g., health insurance exchanges), affecting governmental and third-party coverage or reimbursement for commercial laboratory testing, including the impact of the Protecting Access to Medicare Act of 2014 (PAMA);

significant monetary damages, fines, penalties, assessments, refunds, repayments, damage to the Company’s reputation, unanticipated compliance expenditures, and/or exclusion or ~~disbarment~~debarment from or ineligibility to participate in government programs, among other adverse consequences, arising from enforcement of anti-fraud and abuse laws and other laws applicable to the Company in jurisdictions in which the Company conducts business;

significant fines, penalties, costs, unanticipated compliance expenditures and/or damage to the Company’s reputation arising from the failure to comply with applicable privacy and security laws and regulations, including the Health Insurance Portability and Accountability Act of 1996, the Health Information Technology for Economic and Clinical Health Act, the European Union's General Data Protection Regulation and similar laws and regulations in jurisdictions in which the Company conducts business;

loss or suspension of a license or imposition of a fine or penalties under, or future changes in, or interpretations of applicable licensing laws or regulations regarding the operation of clinical laboratories and the delivery of clinical laboratory test results, including, but not limited to, the U.S. Clinical Laboratory Improvement Act of 1967 and the Clinical Laboratory Improvement Amendments of 1988 and similar laws and regulations in jurisdictions in which the Company conducts business;


5.	penalties or loss of license arising from the failure to comply with applicable occupational and workplace safety laws and regulations, including the U.S. Occupational Safety and Health Administration requirements and the U.S. Needlestick Safety and Prevention Act and similar laws and regulations in jurisdictions in which the Company conducts business;


6.	fines, unanticipated compliance expenditures, suspension of manufacturing, enforcement actions, damage to the Company’s reputation, injunctions, or criminal prosecution arising from failure to maintain compliance with current good manufacturing practice regulations and similar requirements of various regulatory agencies in jurisdictions in which the Company conducts business;


7.	sanctions or other remedies, including fines, unanticipated compliance expenditures, enforcement actions, injunctions or criminal prosecution arising from failure to comply with the Animal Welfare Act or ~~similar~~ applicable national, state and local laws and regulations in jurisdictions in which the Company conducts business;


8.	changes in testing guidelines or recommendations by government agencies, medical specialty societies and other authoritative bodies affecting the utilization of laboratory tests;

changes in applicable government regulations or policies affecting the approval, availability of, and the selling and marketing of diagnostic tests, drug development, or the conduct of drug development and medical device and diagnostic studies and trials, including regulations and policies of the U.S. Food and Drug Administration, the U.S. Department of Agriculture, the Medicine and Healthcare products Regulatory Agency in the ~~U.K.~~United Kingdom (U.K.), the State Drug Administration in China (formerly the China Food and Drug Administration), the Pharmaceutical and Medical Devices Agency in Japan, the European Medicines Agency and similar regulations and policies of agencies in jurisdictions in which the Company conducts business;

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10.	changes in government regulations or reimbursement pertaining to the biopharmaceutical and medical device and diagnostic industries, changes in reimbursement of biopharmaceutical products or reduced spending on research and development by biopharmaceutical customers;


11.	liabilities that result from the failure to comply with corporate governance requirements;


12.	increased competition, including price competition, potential reduction in rates in response to price transparency and consumerism, competitive bidding and/or changes or reductions to fee schedules and competition from companies that do not comply with existing laws or regulations or otherwise disregard compliance standards in the industry;

13.

changes in payer mix or payment structure, including insurance carrier participation in health insurance exchanges, an increase in capitated reimbursement mechanisms, the impact of a shift to consumer-driven health plans or plans carrying an increased level of member cost-sharing, and adverse changes in payer reimbursement or payer coverage policies (implemented directly or through a third-party utilization management organization) related to specific diagnostic tests, categories of testing or testing methodologies;


14.	failure to retain or attract managed care organization (MCO) business as a result of changes in business models, including new risk-based or network approaches, out-sourced Laboratory Network Management or Utilization Management companies, or other changes in strategy or business models by MCOs;


15.	failure to obtain and retain new customers, an unfavorable change in the mix of testing services ordered, or a reduction in tests ordered, specimens submitted or services requested by existing customers;


16.	difficulty in maintaining relationships with customers or retaining key employees as a result of uncertainty surrounding the integration of acquisitions and the resulting negative effects on the business of the Company;


17.	consolidation and convergence of MCOs, biopharmaceutical companies, health systems, large physician organizations and other customers, potentially causing material shifts in insourcing, utilization, pricing and reimbursement, including full and partial risk-based models;


18.	failure to effectively develop and deploy new systems, system modifications or enhancements required in response to evolving market and business needs;


19.	customers choosing to insource services that are or could be purchased from the Company;


20.	failure to identify, successfully close and effectively integrate and/or manage acquisitions of new businesses;


21.	inability to achieve the expected benefits and synergies of newly-acquired businesses, including due to items not discovered in the due-diligence process, and the impact on the Company's cash position, levels of indebtedness and stock price;


22.	termination, loss, delay, reduction in scope or increased costs of contracts, including large contracts and multiple contracts;


23.	liability arising from errors or omissions in the performance of testing services, contract research services or other contractual arrangements;


24.	changes or disruption in the provision or transportation of services or supplies provided by third parties, ~~including transportation;~~or their termination for failure to follow the Company's performance standards and requirements;


25.	damage or disruption to the Company's facilities;


26.	damage to the Company's reputation, loss of business, or other harm from acts of animal rights ~~extremists~~activists or potential harm and/or liability arising from animal research ~~activities or the provision of animal research products;~~activities;


27.	adverse results in litigation matters;


28.	inability to attract and retain experienced and qualified personnel;


29.	failure to develop or acquire licenses for new or improved technologies, such as point-of-care testing, mobile health technologies, and digital pathology, or potential use of new technologies by customers and/or consumers to perform their own tests;


30.	substantial costs arising from the inability to commercialize newly licensed tests or technologies or to obtain appropriate coverage or reimbursement for such tests;


31.	failure to obtain, maintain and enforce intellectual property rights for protection of the Company's products and ~~services;~~services and defend against challenges to those rights;


32.	scope, validity and enforceability of patents and other proprietary rights held by third parties that may impact the Company's ability to develop, perform, or market the Company's products or services or operate its business;

INDEX


33.	business interruption or other impact on the business due to adverse weather, fires and/or other natural disasters, acts of war, terrorism or other criminal acts, and/or widespread outbreak of influenza or other pandemic illness;


3434.	discontinuation or recalls of existing testing products;

~~INDEX~~

35.

a failure in the Company's information technology systems, including with respect to testing turnaround time and billing processes, or the failure of the Company or its third-party suppliers and vendors to maintain the security of business information or systems or to protect against cybersecurity attacks such as denial of service attacks, malware, ransomware and computer viruses, or delays or failures in the development and implementation of the Company’s automation platforms, any of which could result in a negative effect on the Company’s performance of services, a loss of business or increased costs, damages to the Company’s reputation, significant litigation exposure, an inability to meet required financial reporting deadlines, or the failure to meet future regulatory or customer information technology, data security and connectivity requirements;


36.	business interruption, increased costs, and other adverse effects on the Company's operations due to the unionization of employees, union strikes, work stoppages, general labor unrest or failure to comply with labor or employment laws;


37.	failure to maintain the Company's days sales outstanding levels, cash collections (in light of increasing levels of patient responsibility), profitability and/or reimbursement arising from unfavorable changes in third-party payer policies, payment delays introduced by third party benefit management organizations and increasing levels of patient payment responsibility;


38.	impact on the Company's ~~revenue,~~revenues, cash collections and the availability of credit for general liquidity or other financing needs arising from a significant deterioration in the economy or financial markets or in the Company's credit ratings by Standard &Poor's and/or Moody's;


~~49.~~39.	failure to maintain the expected capital structure for the Company, including failure to maintain the Company's investment grade rating;


40.	changes in reimbursement by foreign governments and foreign currency fluctuations;


41.	inability to obtain certain billing information from physicians, resulting in increased costs and complexity, a temporary disruption in receipts and ongoing reductions in reimbursements and net revenues;


42.	expenses and risks associated with international operations, including, but not limited to, compliance with the U.S. Foreign Corrupt Practices Act, the U.K. Bribery Act, other applicable anti-corruption laws and regulations, trade sanction laws and regulations, and economic, political, legal and other operational risks associated with foreign jurisdictions;


43.	failure to achieve expected efficiencies and savings in connection with the Company's business process improvement initiatives;


44.	changes in tax laws and regulations or changes in their interpretation, including the Tax Cuts and Jobs Act (TCJA); and


45.	global economic conditions and government and regulatory changes, including, but not limited to the ~~United Kingdom's~~U.K.'s announced intention to exit from the European Union.

GENERAL (dollars in millions, except per share data)

During the six months ended June 30, ~~2018,~~2019, revenues were $5,672.9, a decrease of 0.7% from $5,714.6 in the first half of 2018. The decline in revenue was primarily due to the disposition of businesses of 1.9% and foreign currency translation of 0.8%, partially offset by acquisitions of 1.0% and organic growth of 1.0% (which includes the negative impact from PAMA of 1.0%).

Effective January 1, 2019, the Company ~~experienced strong revenue growth, driven~~adopted Accounting Standards Codification (ASC) 842 Leases using the effective date method. The Company elected the package of practical expedients, which includes not reassessing whether existing contracts contain leases under the new definition of a lease, reassessing the classification of existing leases, and reassessing whether previously capitalized initial direct costs qualify for capitalization under the new standard. The Company also elected not to separate lease and non-lease components. The adoption of this standard resulted in the recording of $770.0 of additional operating lease liabilities as of March 31, 2019.

On June 3, 2019, the Company's CDD segment completed the acquisition of Envigo's nonclinical contract research services business, expanding CDD's global nonclinical drug development capabilities with additional locations and resources. Envigo also completed the acquisition of the Covance Research Products (CRP) business, which was part of the CDD segment. The two companies will continue to collaborate through a multi-year, renewable supply agreement. The Company paid cash consideration of $601.0, received a floating rate secured note of $110.0, and recorded a loss on sale of CRP of $8.8. The Company funded the transaction through a new term loan facility.

The Company remains on track to deliver $150.0 of net savings from CDD's three-year LaunchPad initiative by ~~acquisitions, organic growth and~~ the ~~benefit from foreign currency translation. The company defines organic growth as the increase in revenue excluding revenue from acquisitions for the first twelve months after the close~~end of ~~each acquisition.~~ 2020. The Company expects ~~overall revenue growth~~phase II of LCD’s LaunchPad initiative to deliver approximately $200.0 in ~~2018~~net savings over the next

INDEX

three years, while incurring approximately $40.0 in one-time implementation costs. Approximately one-third of ~~10.5%~~the total savings are expected to ~~11.5% over 2017, driven by~~ be realized each year.

On May 14, 2019, Retrieval-Masters Creditors Bureau, Inc. d/b/a ~~combination~~American Medical Collection Agency (AMCA), an external collection agency, notified the Company about a security incident AMCA experienced that may have involved certain personal information about some of ~~acquisitions, strong organic growth and favorable currency translation, offset~~the Company’s patients (the AMCA Incident). The Company referred patient balances to AMCA only when direct collection efforts were unsuccessful. The Company’s systems were not impacted by the ~~previously-announced divestiture~~AMCA Incident. Upon learning of the ~~Food Solutions business (which has a significantly higher average revenue per requisition than~~AMCA Incident, the ~~overall average~~Company promptly stopped sending new collection requests to AMCA and stopped AMCA from continuing to work on any pending collection requests from the Company. AMCA informed the Company that it appeared that an unauthorized user had access to AMCA’s system between August 1, 2018 and March 30, 2019, and that AMCA could not rule out the possibility that personal information on AMCA’s system was at risk during that time period. Information on AMCA’s affected system from the Company may have included name, address, and balance information for the ~~LCD segment).~~patient and person responsible for payment, along with the patient’s phone number, date of birth, referring physician, and date of service. The Company was later informed by AMCA that health insurance information may have been included for some individuals, and because some insurance carriers utilize the Social Security Number as a subscriber identification number, the Social Security Number for some individuals may also have been affected. No ordered tests, laboratory test results, or diagnostic information from the Company were in the AMCA affected system. The Company notified individuals for whom it had a valid mailing address. For the individuals whose Social Security Number was affected, the notice included an offer to enroll in credit monitoring and identity protection services that will be provided free of charge for 24 months.

~~Effective~~PAMA, which went into effect on January 1, 2018, ~~the Company adopted the FASB-issued converged standard on~~resulted in a net reduction of revenue ~~recognition (ASC 606), using the full retrospective method. All financial results and comparisons to financial results~~of approximately $70.0 in 2017 have been restated. This accounting change increases revenue, lowers earnings, and has no impact on cash flow. Upon adoption, bad debt expense within the LCD segment is being classified as a reduction in revenue rather than as a selling, general and administrative expense. Within the CDD segment, the standard impacts the accounting for changes in the scope of work, investigator fees, measures of progress and sales commissions.

~~On May 24,~~ 2018 the Company and UnitedHealthcare announced the renewal of their long-term strategic partnership. The Company will continue to serve as UnitedHealthcare’s exclusive national laboratory provider until January 1, 2019. Thereafter, the Company will continue participating as a national provider of laboratory services tofrom all 48 million UnitedHealthcare plan participants as the two organizations focus on ways to create more personalized care recommendations and a simpler consumer experience. On May 25, 2018, the Company and Aetna announced the extension and expansion of their existing agreement, making the Company a preferred national laboratory for substantially all of Aetna’s members beginning January 1, 2019. The expanded agreement will provide more than 20 million eligible members with in-network access to the Company’s full range of laboratory services. The Company was already an in-network laboratory for several million members of Aetna and Aetna-affiliated health plans in certain markets across the U.S.

~~INDEX~~

On July 16, 2018, the Company reported that it had detected suspicious activity on its information technology network, which was subsequently determined to be a new variant of ransomware impacting certain LCD information technology systems. CDD systems were not directlypayers affected by the ~~ransomware. As part~~Clinical Lab Fee Schedule. A reduction of its response, the Company promptly took certain systems offline to contain and remove the ransomware from its systems. The incident temporarily affected test processing and customer access to test results, and also affected certain other information technology systems involved in conducting Company-wide operations. Operations have now returned to normal. As part of its in-depth and ongoing investigation into this incident, the Companyapproximately $54.0 has engaged outside security experts and is working with authorities, including law enforcement. The investigation has found no evidence of theft or misuse of patient or client data. The Company will incur expenditures related to addressing this attack, including any related remediation efforts, and financial results may be negatively impacted by the costs associated with the incident and the temporary disruption to normal operations.

~~The Company has insurance coverage for costs resulting from cyber-attacks, but disputes over the extent of insurance coverage for claims are not uncommon. Furthermore, while the Company has not~~ been the subject of any legal proceedings involving this incident, it is possible that the Company could be the subject of claims from persons alleging they suffered damages from the incident, or actions by governmental authorities.

~~In its continuing assessment of the impact of the passage of the TCJA in the fourth quarter of 2017, the Company recorded a net increase in its provision for income taxes during~~incurred through the first ~~six months~~half of ~~2018 (and a decrease~~2019. Unless further implementation of ~~its net earnings), primarily relating to the repatriation tax and state tax. Given the significant changes resulting from the TCJA, the estimated financial impact in the quarter~~PAMA is ~~provisional and subject to further clarification, which could result in changes to these estimates during the remainder~~delayed or changed, an additional reduction of ~~2018. The Company expects its consolidated effective tax rate to be~~ approximately ~~25.0% in 2018, which will benefit earnings per share and cash flow compared to the effective tax rate in 2017.~~$61.0 is expected for 2019.

RESULTS OF OPERATIONS (dollars in millions)

Three months ended June 30, ~~2018~~2019, compared with three months ended June 30, ~~2017~~2018

Revenues


	Three Months Ended June 30,								Three Months Ended June 30,
	2018			2017			Change		2019			2018			Change
LCD	$	1,814.0		$	1,721.1		5.4	%	$	1,760.9		$	1,814.0		(2.9	)%
CDD	1,054.2			807.5			30.5	%	1,126.3			1,054.2			6.8	%
Intercompany eliminations	(1.9		)	(0.4		)	375.0	%	(5.5		)	(1.9		)	189.5	%
Total	$	2,866.3		$	2,528.2		13.4	%	$	2,881.7		$	2,866.3		0.5	%

The increase in revenues for the three months ended June 30, ~~2018,~~2019, as compared with the corresponding period in ~~2017~~2018 was ~~due to growth from acquisitions of 10.5%, organic growth of 2.1%, and the benefit from foreign currency translation of approximately 0.8%~~0.5%.

~~LCD revenues for the second quarter were $1,814.0, an increase of 5.4% over revenues of $1,721.1 in the second quarter of 2017.~~ The increase in revenues was primarily ~~driven~~due to acquisitions of 1.4% and organic growth of 1.7% (which includes the negative impact from PAMA of (0.9%)), partially offset by ~~acquisitions, organic volume (measured by requisitions),~~the disposition of businesses of 1.9% and ~~the benefit from~~negative foreign currency translation of 0.7%.

LCD revenues for the quarter were $1,760.9, a decrease of 2.9% compared to revenues of $1,814.0 in the second quarter of 2018. The decrease in revenues was due to the negative impact from disposition of businesses of 2.8%, negative foreign currency translation of 0.2% and a decline in organic revenues versus prior year of 0.3%, partially offset by acquisitions of 0.4%. Organic revenue growth in constant currency of negative 0.3% includes the impact from PAMA of 1.5% and fewer revenue days of 0.6%.

Total LCD volume (measured by requisitions) excluding the ~~implementation~~disposition of ~~PAMA. The increase in revenues was driven~~businesses, decreased by ~~growth in~~0.9%, as acquisition volume ~~measured by requisitions, of 5.8%, of which~~contributed 0.2% and organic volume ~~growth was 2.8% and acquisition~~declined by 1.2%. Organic volume was ~~3.0%. Price and mix, which included~~negatively impacted by approximately 2.5% from the ~~impact~~combination of lower ~~reimbursement~~consumer genetics, managed care contract changes, and fewer revenue days. Excluding the disposition of businesses, revenue per requisition increased by 1.0%, despite the negative impact from ~~the implementation~~PAMA of ~~PAMA, reduced revenues growth by 0.7%~~1.5%.

CDD revenues for the second quarter were ~~$1,054.2,~~$1,126.3, an increase of ~~30.5%~~6.8% over revenues of ~~$807.5~~$1,054.2 in the second quarter of ~~2017.~~2018. The increase was primarily due to ~~acquisitions, as well as~~ organic growth of 5.5% and ~~the benefit from~~acquisitions of 3.3%, partially offset by negative foreign currency translation of ~~1.8%~~1.6% and a business disposition of 0.3%.

INDEX

Cost of Revenues


	Three Months Ended June 30,								Three Months Ended June 30,
	2018			2017			Change		2019			2018			Change
Cost of revenues	$	2,031.2		$	1,750.2		16.1	%	$	2,056.9		$	2,031.2		1.3	%
Cost of revenues as a % of revenues	70.9		%	69.2		%			71.4		%	70.9		%

Cost of revenues increased ~~16.1%~~1.3% during the three months ended June 30, ~~2018~~2019, as compared with the corresponding period in ~~2017.~~2018. Cost of revenues as a percentage of revenues during the three months ended June 30, ~~2018~~2019, increased to ~~70.9%~~71.4% as compared to ~~69.2%~~70.9% in the corresponding period in ~~2017.~~2018. The increase is primarily due to higher personnel costs and rent expense to support the ~~acquisition of Chiltern International Group (Chiltern) during the third quarter of 2017. The cost of revenues was also impacted by a decrease of 0.1% due to currency fluctuations.~~

~~INDEX~~

Company's global growth initiatives.

Selling, General and Administrative Expenses


	Three Months Ended June 30,								Three Months Ended June 30,
	2018			2017			Change		2019			2018			Change
Selling, general and administrative expenses	$	395.2		$	357.7		10.5	%	$	415.3		$	395.2		5.1	%
Selling, general and administrative expenses as a % of revenues	13.8		%	14.1		%			14.4		%	13.8		%

~~Selling, general and administrative expenses as a percentage of revenues decreased to 13.8% during~~During the three months ended June 30, ~~2018~~2019, the Company incurred $33.2 of acquisition and divestiture related costs, $1.5 in management transition cost and $0.1 in costs related to the previous ransomware attack. In addition, the Company recorded $2.6 of non-capitalized costs associated with the implementation of a major system as ~~compared to 14.1% during the corresponding period in 2017.~~part of its LaunchPad business process improvement initiative. These items increased selling, general and administrative expenses by $37.4.

During the three months ended June 30, 2018, the Company incurred integration and other related costs of ~~$19.7~~$19.6 primarily relating to the Chiltern acquisition and the planned sale of the Covance Food Solutions business. In addition, the Company incurred $1.4 in consulting expenses relating to fees incurred as part of its integration and management transition costs, $0.1 in costs related to a ransomware attack and ~~$2.6~~$2.5 of non-capitalized costs associated with the implementation of a major system as part of its LaunchPad business process improvement initiative.

During the three months ended June 30, 2017, the Company incurred legal and other costs of $5.7 relating to acquisition activity. The Company also recorded $2.3 in consulting expenses relating to fees incurred as part of its integration and compensation analysis. In addition, the Company incurred $2.8 of non-capitalized costs associated with the implementation of a major system as part of its LaunchPad business process improvement initiative (all recorded in These items increased selling, general and administrative ~~expenses).~~ expenses by $23.6.

Excluding these charges, selling, general and administrative expenses as a percentage of revenues were ~~13.0%~~13.1% and ~~13.7%~~13.0% during the three months ended June 30, 2019, and 2018, ~~and 2017, respectively.~~

~~The decrease in selling, general and administrative expenses as a percentage of revenues, excluding these charges, is primarily~~respectively, due to the ~~impact~~decreased revenue from the implementation of ~~LaunchPad. The decrease in selling, general and administrative expenses was offset by a net increase of 0.4% due to currency fluctuations.~~PAMA.

Amortization of Intangibles and Other Assets


	Three Months Ended June 30,						Three Months Ended June 30,
	2018		2017		Change		2019		2018		Change
LCD	$	26.2	$	29.8	(12.1	)%	$	25.6	$	26.2	(2.3	)%
CDD	32.3		21.6		49.5	%	34.6		32.3		7.1	%
Total amortization of intangibles and other assets	$	58.5	$	51.4	13.8	%	$	60.2	$	58.5	2.9	%

The ~~increase~~decrease in amortization of intangibles and other assets within the LCD segment primarily reflects the impact of acquisitions occurring after ~~March 31, 2017.~~June 30, 2018, offset by the reduction of amortizable intangible assets pursuant to the divestiture of three LCD businesses in 2018. Amortization of intangible assets within the CDD segment increased primarily due to the impact of acquisitions occurring after June 30, 2018, offset by the reduction of amortizable intangible assets pursuant to the divestiture of one CDD business during the second quarter of 2019.

Restructuring and Other Special Charges

Three Months Ended June 30,
2018 2017 Change
Restructuring and other special charges $ 12.2
$ 39.1
(68.8 )%



	Three Months Ended June 30,
	2019		2018		Change
Restructuring and other special charges	$	13.6	$	12.2	11.5	%

During the three months ended June 30, 2019, the Company recorded net restructuring and other special charges of $13.6: $3.0 within LCD and $10.6 within CDD. The charges were comprised of $3.5 related to severance and other personnel costs along with $10.2 in costs associated with facility closures, impairment of operating lease right-of-use assets and general integration initiatives. The charges were offset by the reversal of previously established reserves of $0.1 in unused facility reserves.

During the three months ended June 30, 2018, the Company recorded net restructuring and other special charges of $12.2: $5.5 within LCD and $6.7 within CDD. The charges were comprised of $11.8 related to severance and other personnel costs along with $1.3 in costs associated with facility closures and general integration initiatives. The charges were offset by the reversal of previously established reserves of $0.7 and $0.2 in unused facility reserves and unused severance reserves, respectively.

During the three months ended June 30, 2017, the Company recorded net restructuring and other special charges of $39.1: $7.4 within LCD and $31.7 within CDD. The charges were comprised of $19.9 related to severance and other personnel costs along with $4.2 in costs associated with facility closures. The Company reversed $0.1 in unused facility-related reserves. Also, included in the net restructuring and other special charges is an impairment loss of $15.1 related to the termination of a software development project.

INDEX

Interest Expense

Three Months Ended June 30,
2018 2017 Change
Interest expense $ (63.1 ) (55.0 ) 14.7 %



	Three Months Ended June 30,
	2019			2018		Change
Interest expense	$	(59.1	)	(63.1	)	(6.3	)%

The ~~increase~~decrease in interest expense for the three months ended June 30, ~~2018~~2019, as compared with the corresponding period in ~~2017~~2018, is primarily due to the ~~issuance~~repayment of the 2.50% senior notes ~~and~~in 2018, the ~~addition~~repayment of the ~~new~~2014 term loan and partial repayment of the 2017 term loan, partially offset by an increased level of borrowing on the ~~repayment of~~revolving credit facility and the ~~2.20% senior notes in August 2017.~~

~~INDEX~~

new 2019 term loan.

Equity Method Income

Three Months Ended June 30,
2018 2017 Change
Equity method income $ 3.0
$ 4.5
(33.3 )%



	Three Months Ended June 30,
	2019		2018		Change
Equity method income	$	2.5	$	3.0	(16.7	)%

Equity method income represents the Company's ownership share in joint venture partnerships along with equity investments in other companies in the health care industry. All of these partnerships and investments reside within LCD. The decrease in income for the three months ended June 30, ~~2018,~~2019, as compared with the corresponding period in ~~2017,~~2018, was primarily due to decreased profitability of the ~~consolidation of a~~Company's joint ~~venture during the second quarter of 2018 related to the acquisition of PAML which was previously recorded as an equity method investment.~~ventures.

Other, net

Three Months Ended June 30,
2018 2017 Change
Other, net $ 2.8
$ (0.5 ) (660.0 )%



	Three Months Ended June 30,
	2019			2018		Change
Other, net	$	(10.5	)	$	2.8	(475.0	)%

The change in other, net for the three months ended June 30, ~~2018,~~2019, is primarily due to ~~larger net investment gains~~the $8.8 loss on disposition of a business incurred during the three months ended June 30, ~~2018, as compared to~~2019 and the ~~three months ended June 30, 2017. The company reported ($0.9)~~$5.3 write-off of two of the Company's cost method investments, partially offset by a net increase in other investment gains of $3.1. In addition, foreign currency transaction ~~gains~~losses of $3.2 were recognized for the three months ended June 30, ~~2018~~2019 and ~~$0.7 for~~gains of $0.9 in the corresponding period ~~in 2017.~~of 2018.

Income Tax Expense


	Three Months Ended June 30,								Three Months Ended June 30,
	2018			2017			Change		2019			2018			Change
Income tax expense	$	78.6		$	94.1		(16.5	)%	$	79.3		$	78.6		0.9	%
Income tax expense as a % of earnings before income taxes	25.1		%	33.7		%			29.4		%	25.1		%

The ~~Company's 2018~~2019 tax rate was ~~favorably impacted by the U.S. federal corporate income tax rate decreasing~~unfavorable to ~~21% from the prior year's 35%. This benefit was partially offset by other provisions of the TCJA,~~2018 primarily ~~global intangible low-taxed income (GILTI)~~due to acquisitions and the first quarter additional provisional expense for the taxes related to the re-measurement of the Company's existing deferred tax balances, the deferred tax revaluation for unremitted foreign earnings,divestitures. While both 2019 and ~~the one-time repatriation tax. The Company's~~ 2018 ~~and 2017 tax rates~~ were favorably impacted by foreign earnings taxed at lower rates than the U.S. statutory ~~tax rate.~~

~~As a result of~~rate, the ~~TCJA, the Company~~benefit was effectively taxed on all of its previously unremitted foreign earnings. The TCJA also enacts a territorial tax system that allows, for the most part, tax-free repatriation of foreign earnings. The Company has previously considered the earnings of its foreign subsidiaries to be indefinitely reinvested outside of the U.S. In light of the new U.S. territorial tax system, the Company is reviewing its prior position on reinvestment of certain foreign subsidiaries, and during the second quarter ofgreater in 2018 provided $0.5 of tax expense primarily related to foreign withholding taxes. The Company continues to maintain an indefinite reinvestment assertion for the earnings in the majority of its foreign jurisdictions.than 2019.

Operating Income by Segment


	Three Months Ended June 30,								Three Months Ended June 30,
	2018			2017			Change		2019			2018			Change
LCD operating income	$	336.3		$	334.5		0.5	%	$	312.5		$	336.3		(7.1	)%
LCD operating margin	18.5		%	19.4		%	(0.9	)%	17.7		%	18.3		%	(0.6	)%
CDD operating income	68.8			29.6			132.4	%	65.8			68.8			(4.4	)%
CDD operating margin	6.5		%	3.7		%	2.8	%	5.9		%	6.5		%	(0.6	)%
General corporate expenses	(35.9		)	(34.3		)	4.7	%	(42.6		)	(35.9		)	18.7	%
Total operating income	$	369.2		$	329.8		11.9	%	$	335.7		$	369.2		(9.1	)%

LCD operating income was ~~$336.3~~$312.5 for the three months ended June 30, ~~2018, an increase~~2019, a decrease of ~~0.5%~~7.1% over operating ~~earnings~~income of ~~$334.5~~$336.3 in the corresponding period of ~~2017,~~2018, and LCD operating margin decreased 9060 basis points year-over-year. The ~~decline~~decrease in operating income and margin ~~was~~were primarily due to the ~~implementation~~impact from PAMA of ~~PAMA.~~approximately $27.0, disposition of businesses, personnel costs, and cybersecurity expenses, partially offset by LaunchPad initiatives. The Company remains on track to deliver approximately $200.0 of net savings from its three-year, phase II of LabCorp Diagnostics’ LaunchPad initiative by the end of 2021.

CDD operating income was ~~$68.8~~$65.8 for the three months ended June 30, ~~2018, an increase~~2019, a decrease of ~~132.4%~~4.4% over operating ~~earnings~~income of ~~$29.6~~$68.8 in the corresponding period of ~~2017,~~2018, and CDD operating margin ~~increased 280~~decreased 60 basis points year-over-year. The ~~improved~~decrease in operating income and margin was primarily due to acquisition-related expenses, higher personnel costs, cybersecurity investments

INDEX

and rent expense to support the Company's global growth initiatives, partially offset by organic demand, LaunchPad savings, acquisitions and ~~organic growth combined with lower restructuring~~currency translation. The Company is on track to deliver $150.0 of net savings from its three-year CDD LaunchPad initiative by the end of 2020, and ~~other special charges due to~~$30.0 of cost synergies from the ~~expansion~~integration of ~~LaunchPad.~~Chiltern by the end of 2019.

~~INDEX~~

June 30, ~~2018,~~2019, an increase of ~~4.7%~~18.7% over corporate expenses of ~~$34.3~~$35.9 in the corresponding period of ~~2017.~~2018. The increase in corporate expenses in ~~2018~~2019 is primarily due to ~~an increase~~the benefit of a favorable legal settlement in ~~professional services.~~2018 offsetting normal corporate expenses.

Six months ended June 30, ~~2018~~2019, compared with six months ended June 30, ~~2017~~2018

Revenues


	Six Months Ended June 30,								Six Months Ended June 30,
	2018			2017			Change		2019			2018			Change
LCD	$	3,584.2		$	3,360.8		6.6	%	$	3,482.9		$	3,584.2		(2.8	)%
CDD	2,132.6			1,581.7			34.8	%	2,201.0			2,132.6			3.2	%
Intercompany eliminations	(2.2		)	(0.6		)	266.7	%	(11.0		)	(2.2		)	400.0	%
Total	$	5,714.6		$	4,941.9		15.6	%	$	5,672.9		$	5,714.6		(0.7	)%

The ~~increase~~decrease in revenues for the six months ended June 30, ~~2018,~~2019, as compared with the corresponding period in ~~2017,~~2018 was 0.7%. The decline in revenues was primarily due to ~~growth from acquisitions~~the disposition of ~~11.9%, organic growth~~businesses of ~~2.6%,~~1.9% and ~~the benefit from~~negative foreign currency translation of ~~approximately 1.1%~~0.8%, partially offset by acquisitions of 1.0% and organic growth of 1.0% (which includes the negative impact from PAMA of 1.0%).

LCD revenues for the six months ended June 30, ~~2018,~~2019, were ~~$3,584.2, an increase~~$3.48 billion, a decrease of ~~6.6%~~2.8% over revenues of ~~$3,360.8 in~~$3.58 billion for the ~~corresponding period of 2017.~~six months ended June 30, 2018. The ~~increase~~decline in revenues was primarily ~~driven~~due to the negative impact from the disposition of businesses of 2.9% and negative currency translation of 0.2%, partially offset by acquisitions ~~organic~~of 0.2%. Organic revenues growth was flat and included the negative impact of 1.5% from PAMA and 0.8% due to fewer revenue days.

Total volume (measured by requisitions), excluding the disposition of businesses was flat as acquisition volume contributed 0.1% and the benefit from foreign currency translation, partially offset by the impact of the implementation of PAMA. The increase in revenues was driven by growth in volume, measured by requisitions, of 6.4%, of which organic volume ~~growth was 2.9% and acquisition~~declined by 0.2%. Organic volume was ~~3.5%. Price and mix, which included~~negatively impacted by approximately 2.0% from the ~~impact~~combination of lower ~~reimbursement~~consumer genetics, managed care contract changes, and fewer revenue days. Excluding the disposition of businesses, revenue per requisition increased by 0.3%, including the negative impact from ~~the implementation~~PAMA of ~~PAMA, reduced revenue growth by 0.1%~~1.5%. ~~The increase in revenues was favorably impacted by 0.3% of foreign currency translation.~~

CDD revenues for the six months ended June 30, ~~2018~~2019 were ~~$2,132.6,~~$2,201.0, an increase of ~~30.5%~~3.2% over revenues of ~~$1,581.7~~$2,132.6 in the ~~first~~ six months ~~of 2017.~~ended June 30, 2018. The increase was primarily due to ~~acquisitions, as well as~~ organic growth of 3.0% and ~~the benefit from~~acquisitions of 2.3%, partially offset by negative foreign currency translation of ~~2.9%~~1.8% and a business disposition of 0.1%.

Cost of Revenues


	Six Months Ended June 30,								Six Months Ended June 30,
	2018			2017			Change		2019			2018			Change
Cost of revenues	$	4,100.5		$	3,451.4		18.8	%	$	4,058.4		$	4,100.5		(1.0	)%
Cost of revenues as a % of revenues	71.8		%	69.8		%			71.5		%	71.8		%

Cost of revenues ~~increased 18.8%~~decreased 1.0% during the six months ended June 30, ~~2018,~~2019, as compared with the corresponding period in ~~2017.~~2018. Cost of revenues as a percentage of revenues remained relatively consistent during the six months ended June 30, ~~2018 increased~~2019, decreasing slightly to ~~71.8%~~71.5% as compared to ~~69.8%~~71.8% in the corresponding period in 2017. During the six months ended June 30, 2018, the Company paid a special one-time bonus of $31.0 ($24.8 of which was recorded in cost of revenues) to its non-bonus eligible employees in recognition of the benefits the Company is receiving from the passage of the TCJA. The remaining increase is due to the acquisition of Chiltern during the third quarter of 2017. The cost of revenues was also impacted by an increase of 0.1% due to currency fluctuations.

2018.

Selling, General and Administrative Expenses


	Six Months Ended June 30,								Six Months Ended June 30,
	2018			2017			Change		2019			2018			Change
Selling, general and administrative expenses	$	792.2		$	700.6		13.1	%	$	809.1		$	792.2		2.1	%
Selling, general and administrative expenses as a % of revenues	13.9		%	14.2		%			14.3		%	13.9		%

~~Selling, general and administrative expenses as a percentage of revenues decreased to 13.9% during~~During the six months ended June 30, ~~2018~~2019, the Company incurred $44.3 of acquisition and divestiture related costs, $2.9 in consulting expenses relating to fees incurred as ~~compared~~part of its integration and management transition cost and $0.7 in costs related to ~~14.2% during~~a ransomware attack. In addition, the ~~corresponding period in 2017.~~Company recorded $5.0 of non-capitalized costs associated with the implementation of a major system as part of its LaunchPad business process improvement initiative. These items increased selling, general and administrative expenses by $52.9.

INDEX

During the six months ended June 30, 2018, the Company incurred integration and other related costs of $37.6 primarily relating to the Chiltern acquisition and planned sale of the Company's Covance Food Solutions business. ~~The~~In addition, the Company ~~also recorded~~incurred $4.5 in consulting expenses relating to ~~the Chiltern~~fees incurred as part of its integration and management ~~integration costs along with~~transition costs. During the quarter, the Company paid a special one-time bonus of ~~$31.0~~$31.1 ($~~24.8~~6.3 of which was recorded in ~~cost of revenues)~~selling, general and administrative expenses) to ~~its~~ non-bonus eligible employees in recognition of the benefits the Company ~~is receiving~~received from the passage of the TCJA. In addition, the Company incurred $4.2 of non-capitalized costs associated with the implementation of a major system as part of its LaunchPad business process improvement initiative. These items increased selling, general and administrative expenses by ~~$52.5~~$50.4 and cost of sales by ~~$23.7.~~

~~INDEX~~

term equity retention arrangements relating to the Covance Inc. acquisition. In addition, the Company incurred $5.5 of non-capitalized costs associated with the implementation of a major system as part of LaunchPad (all recorded in selling, general and administrative expenses).$26.9.

Excluding these charges, selling, general and administrative expenses as a percentage of revenues were ~~13.0%~~13.3% and ~~13.8%~~13.0% during the six months ended June 30, 2019, and 2018, ~~and 2017, respectively.~~

~~The decrease in selling, general and administrative expenses as a percentage of revenues, excluding these charges, is~~respectively, primarily due to ~~the impact of LaunchPad. The decrease in selling, general and administrative expenses was also impacted by a net increase of 0.3%~~ due to ~~currency fluctuations.~~the decreased revenue from the implementation of PAMA.

Amortization of Intangibles and Other Assets


	Six Months Ended June 30,						Six Months Ended June 30,
	2018		2017		Change		2019		2018		Change
LCD	$	56.4	$	56.0	0.7	%	$	50.3	$	56.4	(10.8	)%
CDD	64.4		43.0		49.8	%	67.0		64.4		4.0	%
Total amortization of intangibles and other assets	$	120.8	$	99.0	22.0	%	$	117.3	$	120.8	(2.9	)%

The ~~increase~~decrease in amortization of intangibles and other assets primarily reflects the impact of acquisitions occurring after June 30, ~~2017.~~2018, offset by the reduction of amortizable intangible assets pursuant to the divestiture of three LCD businesses in 2018.

Restructuring and Other Special Charges

Six Months Ended June 30,
2018 2017 Change
Restructuring and other special charges $ 26.5
$ 43.0
(38.4 )%



	Six Months Ended June 30,
	2019		2018		Change
Restructuring and other special charges	$	34.2	$	26.5	29.1	%

During the six months ended June 30, 2019, the Company recorded net restructuring and other special charges of $34.2: $16.1 within LCD and $18.1 within CDD. The charges were comprised of $20.3 related to severance and other personnel costs along with $13.5 in costs associated with facility closures, impairment of operating lease right-of-use assets and general integration initiatives. The charges were increased by the adjustment of previously established reserves of $0.4 in facility reserves.

During the six months ended June 30, 2018, the Company recorded net restructuring and other special charges of $26.5: $9.1 within LCD and $17.4 within CDD. The charges were comprised of $23.1 related to severance and other personnel costs, $2.5 in costs associated with facility closures and general integration initiatives, and $2.3 in impairment to land held for sale. The ~~charges were offset by the reversal of~~Company reversed previously established reserves of $0.9 and $0.5 in unused facility reserves and unused severance reserves, respectively.

During the six months ended June 30, 2017, the Company recorded net restructuring and other special charges of $43.0: $8.9 within LCD and $34.1 within CDD. The charges were comprised of $22.5 related to severance and other personnel costs along with $5.9 in costs associated with facility closures. The Company reversed previously established reserves of $0.4 in unused severance reserves and $0.1 in unused facility reserves. Also, included in the net restructuring and other special charges is an impairment loss of $15.1 related to the termination of a software development project.

Interest Expense

Six Months Ended June 30,
2018 2017 Change
Interest expense $ (126.6 ) (107.4 ) 17.9 %



	Six Months Ended June 30,
	2019			2018		Change
Interest expense	$	(115.8	)	(126.6	)	(8.5	)%

The ~~increase~~decrease in interest expense for the six months ended June 30, ~~2018~~2019, as compared with the corresponding period in ~~2017~~2018, is primarily due to the ~~issuance~~repayment of the 2.50% senior notes ~~and~~in 2018, the ~~addition~~repayment of the ~~new~~2014 term loan, partial repayment of the 2017 term loan and a reduced level of borrowing on the revolving credit facility, partially offset by the ~~repayment of the 2.20% senior notes in August 2017.~~new 2019 term loan.

Equity Method Income

Six Months Ended June 30,
2018 2017 Change
Equity method income $ 5.5
$ 6.8
(19.1 )%



	Six Months Ended June 30,
	2019		2018		Change
Equity method income	$	5.5	$	5.5	—	%

Equity method income represents the Company's ownership share in joint venture partnerships along with equity investments in other companies in the health care industry. All of these partnerships and investments reside within LCD. ~~The decrease in~~Equity income for the six months ended June 30, ~~2018 as compared~~2019, was consistent with the corresponding period in ~~2017 was primarily due to the consolidation of a joint venture during the second quarter of 2018 related to the acquisition of PAML which was previously recorded as an equity method investment.~~2018.

INDEX

Other, net

Six Months Ended June 30,
2018 2017 Change
Other, net $ (0.7 ) $ (3.6 ) (80.6 )%



	Six Months Ended June 30,
	2019			2018			Change
Other, net	$	(20.9	)	$	(0.7	)	2,885.7	%

The change in other, net for the six months ended June 30, ~~2018,~~2019, is primarily due to ~~larger net~~the $8.8 loss on disposition of a business, the $5.3 write-off of two of the Company's cost method investments (as compared to $3.5 of investment ~~gains~~write-offs during the six months ended June 30, ~~2018, as compared to the six months ended June 30, 2017 offset by a larger loss on sale~~2018) and net investment losses of ~~assets during the six months ended June 30, 2017 as compared to 2018.~~$2.8. Foreign currency transaction losses were ~~$1.0~~$7.8 and ~~$3.1,~~$1.0, respectively for the ~~2018~~2019 and ~~2017~~2018 periods presented.

Income Tax Expense


	Six Months Ended June 30,								Six Months Ended June 30,
	2018			2017			Change		2019			2018			Change
Income tax expense	$	147.6		$	176.0		(16.1	)%	$	148.1		$	147.6		0.3	%
Income tax expense as a % of earnings before income taxes	26.6		%	32.3		%			28.2		%	26.6		%

The ~~Company's 2018~~2019 tax rate was ~~favorably impacted by the U.S. federal corporate income tax rate decreasing~~unfavorable to ~~21% from the prior year's 35%.~~2018 primarily due to acquisitions, divestitures and a lower stock-based compensation benefit. This ~~benefit~~ was partially offset by ~~other provisions of the~~ TCJA ~~primarily GILTI and the first quarter additional provisional expense~~taxes for the ~~taxes related to the re-measurement of the Company's existing deferred~~repatriation tax ~~balances, the deferred tax revaluation for unremitted foreign earnings,~~that only impacted 2018. While both 2019 and ~~the one-time repatriation tax. The Company's~~ 2018 ~~and 2017 tax rates~~ were favorably impacted by foreign earnings taxed at lower rates than the U.S. statutory ~~tax rate.~~

Operating Income by Segment


	Six Months Ended June 30,								Six Months Ended June 30,
	2018			2017			Change		2019			2018			Change
LCD operating income	$	639.8		$	644.0		0.7	%	$	580.8		$	639.8		(9.2	)%
LCD operating margin	17.9		%	19.2		%	(1.3	)%	16.7		%	17.9		%	(1.2	)%
CDD operating income	107.3			71.1			50.9	%	153.8			107.3			43.3	%
CDD operating margin	5.0		%	4.5		%	1.5	%	7.0		%	5.0		%	2.0	%
General corporate expenses	(72.5		)	(67.2		)	7.9	%	(80.7		)	(72.5		)	11.3	%
Total operating income	$	674.6		$	647.9		4.1	%	$	653.9		$	674.6		(3.1	)%

LCD operating income was ~~$639.8~~$580.8 for the six months ended June 30, ~~2018, an increase~~2019, a decrease of ~~0.7%~~9.2% over operating ~~earnings~~income of ~~$644.0~~$639.8 in the corresponding period of ~~2017,~~2018, and LCD operating margin decreased ~~180~~120 basis points year-over-year. The ~~decrease~~decline in operating income and margin ~~was~~were primarily due to the ~~implementation~~impact from PAMA of ~~PAMA~~approximately $54.0, disposition of businesses, personnel costs, and ~~the special one-time bonus to its non-bonus eligible employees,~~cybersecurity expenses, partially offset by ~~strong revenue growth.~~LaunchPad initiatives. The Company remains on track to deliver approximately $200.0 of net savings from its three-year, phase II of LabCorp Diagnostics’ LaunchPad initiative by the end of 2021.

CDD operating income was ~~$107.3~~$153.8 for the six months ended June 30, ~~2018,~~2019, an increase of ~~50.9%~~43.3% over operating ~~earnings~~income of ~~$71.1~~$107.3 in the corresponding period of ~~2017,~~2018, and CDD operating margin increased ~~150~~200 basis points year-over-year. The ~~improved~~increase in operating income and margin ~~was~~were primarily due to organic demand, LaunchPad savings, acquisitions and ~~organic growth combined with lower restructuring~~currency translation, partially offset by personnel costs, cybersecurity investments, and ~~other special charges due~~rent expense to support the ~~expansion~~Company's global expansion. The Company is on track to deliver $150.0 of ~~LaunchPad.~~net savings from its three-year CDD LaunchPad initiative by the end of 2020, and $30.0 of cost synergies from the integration of Chiltern by the end of 2019.

General corporate expenses are comprised primarily of administrative services such as executive management, human resources, legal, finance, corporate affairs, and information technology. Corporate expenses were ~~$72.5~~$80.7 for the six months ended June 30, ~~2018,~~2019, an increase of ~~7.9%~~11.3% over corporate expenses of ~~$67.2~~$72.5 in the corresponding period of ~~2017.~~2018. The increase in corporate expenses in ~~2018~~2019 is primarily due to ~~an increase~~higher personnel costs, including executive transition costs and the benefit of a favorable legal settlement in ~~professional services.~~2018 offsetting normal corporate expenses.

LIQUIDITY AND CAPITAL RESOURCES (dollars and shares in millions)

The Company's ability to generate cash and its financial condition typically have provided ready access to capital markets. The Company's principal source of liquidity is operating cash flow, supplemented by proceeds from debt ~~offerings.~~offerings and availability under its senior unsecured revolving credit facility. The Company's senior unsecured revolving credit facility is further discussed in Note 78 (Debt) to the Company's Unaudited Condensed Consolidated Financial Statements.

INDEX

During the six months ended June 30, ~~2018,~~2019, and ~~2017,~~2018, respectively, the Company's cash flows were as follows:


	Six Months Ended June 30,						Six Months Ended June 30,
	2018			2017			2019			2018
Net cash provided by operating activities	$	522.0		$	536.4		$	419.3		$	567.1
Net cash used for investing activities	(196.3		)	(736.9		)	(891.3		)	(196.3		)
Net cash (used for) provided by financing activities	(413.0		)	54.9
Net cash provided by (used for) financing activities							311.7			(458.1		)
Effect of exchange rate on changes in cash and cash equivalents	(7.9		)	11.8			(1.1		)	(7.9		)
Net change in cash and cash equivalents	$	(95.2	)	$	(133.8	)	$	(161.4	)	$	(95.2	)

Cash and Cash Equivalents

Cash and cash equivalents at June 30, 2019 and 2018, totaled $265.4 and ~~2017 totaled~~ $221.4, ~~and $299.9,~~ respectively. Cash and cash equivalents consist of highly liquid instruments, such as time deposits, commercial paper, and other money market investments, substantially all of which have original maturities of three months or less.

Operating Activities

During the six months ended June 30, ~~2018,~~2019, the Company's operations provided ~~$522.0~~$419.3 of cash as compared to ~~$536.4~~$567.1 during the same period in ~~2017.~~2018. The ~~$14.4~~$147.8 decrease in cash provided from operations in ~~2018~~2019 as compared with the corresponding ~~2017~~2018 period is primarily due to ~~the payment of the special $31.0 one-time bonus~~lower cash earnings and increased working capital ~~needs to support the growth in the business.~~needs.

Investing Activities

Net cash used infor investing activities for the six months ended June 30, ~~2018,~~2019, was ~~$196.3~~$891.3 as compared to ~~$736.9~~net cash used for investing activities of $196.3 for the six months ended June 30, ~~2017.~~2018. The ~~$540.6 decrease~~change in cash used infor investing activities was primarily due to ~~fewer~~more business acquisitions during the ~~first~~ six months ~~of 2018.~~ended June 30, 2019. Capital expenditures were ~~$159.7~~$179.4 and ~~$141.5~~$159.7 for the six months ended June 30, ~~2018~~2019, and ~~2017,~~2018, respectively. The Company expects capital expenditures in ~~2018~~2019 to be approximately ~~3.5%~~4.0% of revenues primarily in connection with projects to support growth in the Company's core businesses, including projects related to LaunchPad. The Company intends to continue to pursue acquisitions to fund growth and make important investments in its business, including in information technology, to improve efficiency and enable the execution of the Company's strategic vision. Such expenditures are expected to be funded by cash flow from operations, as well as borrowings under the Company's revolving credit facility or any successor facility, as needed.

Financing Activities

Net cash ~~used for~~provided by financing activities for the six months ended June 30, ~~2018~~2019, was ~~$413.0~~$311.7 compared to net cash ~~provided by~~used for financing activities of ~~$54.9~~$458.1 for the six months ended June 30, ~~2017.~~2018. The change in ~~the~~ cash ~~used for (provided by)~~from financing activities for six months ended June 30, ~~2018,~~2019, as compared to ~~2017,~~2018, was primarily the result of ~~higher repayments of~~ debt ~~in 2018~~proceeds greater than payments during the period partially offset by ~~a decrease in common stock~~increased share repurchases during ~~2018 as compared to 2017.~~the first half of 2019.

~~On December 19, 2014,~~June 3, 2019, the Company entered into a ~~five-year~~new $850.0 term loan ~~credit~~ facility in ~~the principal amount of $1,000.0 for the purpose of financing a portion~~addition to its $750.02017 term loan facility.The 2019 term loan facility will mature on June 3, 2021. Proceeds of the ~~cash consideration~~2019 term loan facility were used for general corporate purposes, including to repay approximately $250.0 of the 2017 term loan facility and ~~the fees and expenses~~ in connection with the ~~transactions contemplated by~~acquisition of Envigo's nonclinical research services business.

The 2019 term facility accrues interest at a per annum rate equal toat the ~~November 2, 2014, Merger Agreement~~Company's election, either a LIBOR rate plus a margin ranging from 0.55% to ~~acquire Covance.~~1.175%, or a base rate determined according to a prime rate or federal funds rate plus a margin ranging from 0.0% to 0.175%. The ~~term loan credit facility was advanced in full on the Covance acquisition date and was amended on July 13, 2016 and further amended on September 15, 2017. The 2014~~2019 term loan balance at ~~December 31, 2017~~June 30, 2019, was ~~$72.0. The Company paid off~~$850.0. As of June 30, 2019, the ~~2014~~effective interest rate on the 2019 term loan ~~during the second quarter of 2018.~~was 3.24%.

On September 15, 2017, the Company entered into a ~~new~~ $750.0 term loan. The 2017 term loan facility will mature on September 15, 2022. The 2017 term loan balance was ~~$527.0~~$277.0 and ~~$750.0~~$527.0 at June 30, ~~2018~~2019, and December 31, 2018, respectively.

As of June 30, 2019, the effective interest rate on the 2017 ~~respectively.~~term loan was 3.56%.

On September 15, 2017, the Company also entered into an amendment and restatement of its existing senior unsecured revolving credit facility, which was originally entered into on December 21, 2011, ~~and~~ amended and restated December ~~15, 2015.~~19, 2014, and further amended on July 13, 2016. The senior revolving credit facility consists of a five-year revolving facility in the principal amount of up to $1,000.0, with the option of increasing the facility by up to an additional $350.0, subject to the agreement of one or more new or existing lenders to provide such additional amounts and certain other customary conditions. The revolving credit facility also provides for a subfacility of up to $100.0 for swing line borrowings and a subfacility of up to $150.0 for issuances of letters of credit. The revolving credit facility is permitted to be used for general corporate purposes, including working capital, capital expenditures, funding of share repurchases

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and certain other payments, and acquisitions and other ~~investments. The~~investments.The Company had $35.0 outstanding on its revolving credit facility at June 30, 2019, and no outstanding balance on ~~the Company's revolving credit facility was $0.0 at June 30, 2018 and~~ December 31, ~~2017.~~2018.

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Under the Company's term loan credit facilities and the revolving credit facility, the Company is subject to negative covenants limiting subsidiary indebtedness and certain other covenants typical for investment grade-rated borrowers and the Company is required to maintain certain leverage ratios. The Company was in compliance with all covenants under the term loan credit facilities and the revolving credit facility at June 30, ~~2018.~~2019. As of June 30, ~~2018,~~2019, the ratio of total debt to consolidated proforma trailing 12 month EBITDA was ~~3.1~~3.4 to 1.0.

As of June 30, ~~2018, the effective interest rate on the 2017 term loan was 3.22%.~~

~~As of June 30, 2018,~~2019, the Company provided letters of credit aggregating $72.2, primarily in connection with certain insurance programs. Letters of credit provided by the Company are issued under the Company's revolving credit facility and are renewed annually.

~~During~~At the ~~six months ended June 30,~~end of 2018, the Company had outstanding authorization from the board of directors to purchase up to $443.5 of Company common stock. During January 2019, the Company purchased ~~0.9~~0.8 shares of its common stock at an average price of $131.71 for a total cost of ~~$150.0.~~$100.1 under this plan. On ~~April 24, 2018,~~February 6, 2019, the board ~~authorized an increase in~~of directors replaced the ~~Company’s~~Company's existing share repurchase ~~program~~plan with a new plan authorizing repurchase of up to ~~a total~~$1.25 billion of ~~1,000.0.~~the Company's common stock. The repurchase authorization has no expiration. During the three months ended June 30, 2019, the Company purchased 1.3 shares of its common stock at an average price of $159.13 for a total cost of $199.9. As of June 30, 2019, the Company had outstanding authorization from the board of directors to purchase up to $1.05 billion of the Company's common stock.

The Company had a ~~$32.5~~$35.9 and ~~$27.4~~$26.7 reserve for unrecognized income tax benefits, including interest and penalties, as of June 30, ~~2018~~2019, and December 31, ~~2017,~~2018, respectively. ~~Substantially all of these tax reserves are~~Approximately $5.1 and $6.0 is classified in accrued expenses and other, ~~long-term~~and approximately $30.8 and $20.7 is classified in deferred income taxes and other tax liabilities in the Company's Condensed Consolidated Balance Sheets.

Zero-coupon Subordinated Notes

Credit Ratings

The Company’s investment grade debt ratings from Moody’s and Standard and Poor’s contribute to its ability to access capital markets.

ITEM 3. Quantitative and Qualitative Disclosures about Market Risk

Market risk is the potential loss arising from adverse changes in market rates and prices, such as foreign currency exchange rates, interest rates and other relevant market rate or price changes. In the ordinary course of business, the Company is exposed to various market risks, including changes in foreign currency exchange and interest rates, and the Company regularly evaluates its exposure to such changes. The Company addresses its exposure to market risks, principally the market risks associated with changes in foreign currency exchange rates and interest rates, through a controlled program of risk management that includes, from time to time, the use of derivative financial instruments such as foreign currency forward contracts and interest rate and cross currency swap agreements. Although, as set forth below, the Company’s zero-coupon subordinated notes contain features that are considered to be embedded derivative instruments, the Company does not hold or issue derivative financial instruments for trading purposes.

Foreign Currency Exchange Rates

Approximately ~~15.3%~~12.5% of the Company's ~~net~~ revenues for the six months ended June 30, ~~2018~~2019, and approximately ~~10.5%~~15.3% of those for the six months ended June 30, ~~2017~~2018, were denominated in currencies other than the U.S. dollar. The Company's financial

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statements are reported in U.S. dollars and, accordingly, fluctuations in exchange rates will affect the translation of revenues and

~~INDEX~~

expenses denominated in foreign currencies into U.S. dollars for purposes of reporting the Company's consolidated financial results. In the first ~~six months~~quarter of ~~2018~~2019 and the year ended December 31, ~~2017,~~2018, the most significant currency exchange rate exposures were to the Canadian dollar, Swiss Franc, Euro and British Pound. Excluding the impacts from any outstanding or future hedging transactions, a hypothetical change of 10% in average exchange rates used to translate all foreign currencies to U.S. dollars would have impacted income before income taxes for the ~~three and~~ six months ended June 30, ~~2018~~2019, by approximately ~~$1.2 and $2.4, respectively.~~$2.2. Gross accumulated currency translation adjustments recorded as a separate component of shareholders’ equity were ~~$(82.6)~~$47.2 and ~~$215.8~~$(82.6) at June 30, ~~2018~~2019, and ~~2017,~~2018, respectively. The Company does not have significant operations in countries in which the economy is considered to be highly-inflationary.

The Company earns revenue from service contracts over a period of several months and, in some cases, over a period of several years. Accordingly, exchange rate fluctuations during this period may affect the Company's profitability with respect to such contracts. The Company is also subject to foreign currency transaction risk for fluctuations in exchange rates during the period of time between the consummation and cash settlement of transactions. The Company limits its foreign currency transaction risk through exchange rate fluctuation provisions stated in some of its contracts with customers, or it may hedge transaction risk with foreign currency forward contracts. At June 30, ~~2018,~~2019, the Company had 3027 open foreign exchange forward contracts relating to service contracts with various amounts maturing monthly through ~~April 2018~~July 2019 with a notional value totaling approximately ~~$376.7.~~$328.1. At December 31, ~~2017,~~2018, the Company had 2634 open foreign exchange forward contracts relating to service contracts with various amounts maturing monthly through January ~~2018~~2019 with a notional value totaling approximately ~~$360.5.~~$487.9.

The Company is party to six ~~USD~~U.S. Dollar to Swiss Franc cross currency swap agreements with an aggregate notional amount of $600.0, maturing in 2022 and 2025, as a hedge against the impact of foreign exchange movements on its net investment in a Swiss Franc functional currency subsidiary.

Interest Rates

Some of the Company's debt is subject to interest at variable rates. As a result, fluctuations in interest rates affect the business. The Company attempts to manage interest rate risk and overall borrowing costs through an appropriate mix of fixed and variable rate debt including by the utilization of derivative financial instruments, primarily interest rate swaps.

Borrowings under the Company's term loan credit facility and revolving credit facility are subject to variable interest rates, unless fixed through interest rate swaps or other agreements. As of June 30, ~~2018,~~2019, the Company had ~~$0.0 and $527.0, respectively,~~$277.0 of unhedged variable rate debt from the ~~2014 and~~ 2017 term loan credit ~~facilities~~facility, $850.0 of unhedged variable debt from the 2019 term loan credit facility and ~~$0.0~~$35.0 outstanding on its revolving credit facility. As of December 31, ~~2017,~~2018, the Company had no$527.0 of unhedged variable rate debt from the 2017 term loan credit facility and $0.0 outstanding ~~balance~~ on its revolving credit ~~facility, $72.0 on its 2014 term loan facility and $750.0 on its 2017 term loan~~ facility.

~~The~~To hedge against changes in the fair value of a portion of the Company's long-term debt, the Company is party to two fixed-to-variable interest rate swap agreements for the 4.625% senior notes due 2020 with an aggregate notional amount of $600.0 and variable interest rates based on one-month LIBOR plus 2.298% ~~to hedge against changes in the fair value of a portion of the Company's long term debt.~~.


1)	The Company will pay contingent cash interest on the zero-coupon subordinated notes after September 11, 2006, if the average market price of the notes equals 120% or more of the sum of the issue price, accrued original issue discount and contingent additional principal, if any, for a specified measurement period.


2)	Holders may surrender zero-coupon subordinated notes for conversion during any period in which the rating assigned to the zero-coupon subordinated notes by Standard & Poor’s Ratings Services is BB- or lower.

Each quarter-point increase or decrease in the variable rate would result in the Company's interest expense changing by approximately ~~$2.1~~$2.9 per year for the Company's unhedged variable rate debt.

ITEM 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this Quarterly Report on Form 10-Q, the Company carried out, under the supervision and with the participation of the Company’s management, including the Company’s principal executive officer and principal financial officer, an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rules13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended). Based upon this evaluation, the Company’s principal executive officer and principal financial officer concluded that the Company’s disclosure controls and procedures were effective as of June 30, ~~2018~~2019.

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Changes in Internal Control Over Financial Reporting

On June 3, 2019, the Company completed the acquisition of Envigo's nonclinical contract research services business. The Company’s management has extended its oversight and monitoring processes that support internal control over financial reporting to include the acquired Envigo operations. The Company’s management is continuing to integrate the acquired operations of Envigo's nonclinical contract research services business into the Company’s overall internal control over financial reporting process. However, management plans to exclude these operations from its annual assessment of internal controls over financial reporting for the year ending December 31, 2019.

There were no other changes in the Company’s internal control over financial reporting (as defined in Rules13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended) that occurred during the quarter ended June 30, ~~2018~~2019, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

See Note 1011 (Commitments and Contingencies) to the Company’s unaudited condensed consolidated financial statements, above, which is incorporated herein by reference.

Item 1A. Risk Factors

There have been no material changes in the risk factors that appear in Part I - Item 1A of the Company's Annual Report on Form 10-K for the year ended December 31, ~~2017.~~2018.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds (dollars in millions)

The following table sets forth information with respect to purchases of shares of the Company’s common stock based on settled trades made during the three months ended June 30, ~~2018,~~2019, by or on behalf of the Company:


	Total Number of Shares Repurchased	Average Price Paid Per Share		Total Number of Shares Repurchased as Part of Publicly Announced Program	Maximum Dollar Value of Shares that May Yet Be Repurchased Under the Program		Total Number of Shares Repurchased	Average Price Paid Per Share		Total Number of Shares Repurchased as Part of Publicly Announced Program	Maximum Dollar Value of Shares that May Yet Be Repurchased Under the Program
April 1 - April 30	0.5	$	165.11	0.5	$	993.5	0.7	$	154.49	0.7	$	1,151.0
May 1 - May 31	—	—		—	993.5		0.6	163.95		0.6	1,050.0
June 1 - June 30	—	—		—	993.5		—	—		—	1,050.0
	0.5	$	165.11	0.5			1.3	$	159.13	1.3	$	1,050.0

~~The~~On February 6, 2019, the board of directors ~~has authorized~~replaced the Company's existing share repurchase plan with a new plan authorizing repurchase of ~~specified amounts~~up to $1.25 billion of the Company's common ~~stock since 2007, including the authorization to repurchase up to $1,000.0 of the Company’s common stock announced by the Company on April 24, 2018.~~stock. The repurchase authorization has no ~~expiration date.~~expiration. During the three months ended June 30, 2019, the Company purchased 1.3 shares of its common stock at at an average price of $159.13 for a total cost of $199.9. As of June 30, 2019, the Company had outstanding authorization from the board of directors to purchase up to $1.05 billion of the Company's common stock.

Item 5. Other Information

On August 6, 2019, the Company and David P. King, Chairman, President and Chief Executive Officer of the Company, entered into a Transition Agreement effective June 30, 2019 (the Transition Agreement), as contemplated by the Term Sheet dated June 4, 2019 (the Term Sheet), which was previously described in the Company’s Form 8-K filed on June 5, 2019. The Transition Agreement supersedes the Term Sheet and confirms that Mr. King will (i) transition from the positions of President and Chief Executive Officer effective November 1, 2019 (the Transition Date); (ii) continue to serve on the Board as Chairman of the Board from the Transition Date until a date mutually agreed with the Board and no later than December 31, 2020; and (iii) serve as Senior Advisor to the Company’s Chief Executive Officer (Senior Advisor) from the Transition Date through at least December 31, 2020.

Pursuant to the Transition Agreement, Mr. King’s current annual base salary of $1,200,000, subject to any ordinary course increases by the Compensation Committee of the Board, will continue until December 31, 2019, after which he will be entitled to a base salary of $1,000,000 per year for the period beginning January 1, 2020 until he ceases serving as Chairman of the Board or as a Senior Advisor to the CEO. Mr. King will continue to be eligible to receive an annual bonus pursuant to LabCorp’s Management Incentive Bonus Plan (the MIB Plan) for fiscal year 2019 reflective of his full 2019 MIB Plan opportunity, with achievement to be based on specific performance objectives determined by the Compensation Committee of the Board. For fiscal year 2020, Mr. King will not be eligible to receive an annual bonus pursuant to the MIB Plan.

In accordance with the terms of the Transition Agreement, all of Mr. King’s equity awards outstanding as of the date of the Transition Agreement will be subject to the Company’s Senior Executive Transition Policy and will continue to be eligible for vesting and continue to become exercisable, payable or eligible for the termination of restrictions, as applicable, on the same terms and conditions as if Mr. King were to remain employed by the Company during the original exercise or vesting period, subject to modifications if necessary to comply with applicable law. On January 1, 2020, Mr. King will receive a grant of restricted stock units with an aggregate grant date fair value of $6,500,000 and a one-year vesting period, which shall be subject to LabCorp’s

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Senior Executive Transition Policy and the terms of the Company’s 2016 Omnibus Incentive Plan (the 2020 Grant). The 2020 Grant will continue to be eligible for vesting and continue to become payable on the same terms and conditions as if Mr. King were to have remained employed by the Company during the one-year vesting period.

Mr. King will continue to receive the perquisites he currently receives and will remain eligible to participate generally in the employee benefit plans in which he currently participates through the period he serves as Senior Advisor. Mr. King will be subject to indefinite confidentiality and non-disparagement restrictions, two-year post-termination non-competition and non-solicitation covenants, and three-year standstill covenants under the Transition Agreement.

The foregoing description does not purport to be complete and is qualified by reference to the full text of the Transition Agreement, a copy of which is filed as Exhibit 10.1 hereto.

Item 6. Exhibits



(a)	Exhibits
12.110.1	~~Ratio~~Transition Agreement David P. King
10..2	Executive Employment Agreement, dated June 4, 2019, by and between Laboratory Corporation of ~~earnings~~America Holdings and Adam H. Schechter (incorporated by reference to ~~fixed charges~~Exhibit 10.1 to the Company's Current Report on Form 8-K filed on June 5, 2019)
10.3	Term Loan Credit Agreement, dated June 3, 2019, by and among Laboratory Corporation of America Holdings, Bank of America, N.A., as administrative agent, and the lenders party thereto (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on June 3, 2019).
31.1*	Certification by the Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a)
31.2*	Certification by the Chief Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a)
32**	Written Statement of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350)
101.INS*	Inline XBRL Instance Document
101.SCH*	Inline XBRL Taxonomy Extension Schema
101.CAL*	Inline XBRL Taxonomy Extension Calculation Linkbase
101.DEF*	Inline XBRL Taxonomy Extension Definition Linkbase
101.LAB*	Inline XBRL Taxonomy Extension Label Linkbase
101.PRE*	Inline XBRL Taxonomy Extension Presentation Linkbase



*		filed herewith
**		furnished herewith

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

LABORATORY CORPORATION OF AMERICA HOLDINGS

Registrant



	By:	/s/ DAVID P. KING
		David P. King
		Chairman of the Board, President
		and Chief Executive Officer



	By:	/s/ GLENN A. EISENBERG
		Glenn A. Eisenberg
		Executive Vice President and
		Chief Financial Officer

~~July 27, 2018~~August 8, 2019

4544



	Condensed Consolidated Statement of Operations
	For the Three Months Ended June 30, 2017
	As Previously Reported			ASC 606 Revenue Adjustments			Pension Adjustments			As Adjusted
Total revenues	$	2,542.9		$	(14.7	)	$	—		$	2,528.2
Total cost of revenue	1,681.1			68.9			0.2			1,750.2
Gross profit	861.8			(83.6		)	(0.2		)	778.0
Selling, general and administrative expenses	435.3			(78.1		)	0.5			357.7
Other operating and non-operating expenses, net	141.4			0.4			(0.7		)	141.1
Provision for income taxes	96.2			(2.1		)	—			94.1
Net earnings	188.9			(3.8		)	—			185.1
Less: Net earnings attributable to noncontrolling interest	(0.3		)	—			—			(0.3		)
Net earnings attributable to Laboratory Corporation of America Holdings	$	188.6		$	(3.8	)	$	—		$	184.8

Basic earnings per share	$	1.84								$	1.80
Diluted earnings per share	$	1.82								$	1.78



	Condensed Consolidated Statement of Operations
	For the Six Months Ended June 30, 2017
	As previously reported			ASC 606 Revenue Adjustments			Pension Adjustments			As Adjusted
Total revenues	$	4,989.9		$	(48.0	)	$	—		$	4,941.9
Total cost of revenue	3,324.5			126.7			0.2			3,451.4
Gross profit	1,665.4			(174.7		)	(0.2		)	1,490.5
Selling, general and administrative expenses	854.7			(154.9		)	0.8			700.6
Other operating and non-operating expenses, net	245.9			0.6			(1.0		)	245.5
Provision for income taxes	183.4			(7.4		)	—			176.0
Net earnings	381.4			(13.0		)	—			368.4
Less: Net earnings attributable to noncontrolling interest	(0.6		)	—			—			(0.6		)
Net earnings attributable to Laboratory Corporation of America Holdings	$	380.8		$	(13.0	)	$	—		$	367.8

Basic earnings per share	$	3.71								$	3.59
Diluted earnings per share	$	3.66								$	3.54



	Condensed Consolidated Balance Sheets
	December 31, 2017
	As Previously Reported		ASC 606 Revenue Adjustments			As Adjusted
Current assets	$	2,682.6	$	51.2		$	2,733.8
Long-term assets	13,885.4		53.8			13,939.2
Total assets	$	16,568.0	$	105.0		$	16,673.0

Current liabilities	$	2,046.1	$	139.6		$	2,185.7
Long-term liabilities	7,671.1		(8.7		)	7,662.4
Noncontrolling interest	20.8		—			20.8
Shareholders' equity	6,830.0		(25.9		)	6,804.1
Total liabilities and shareholders' equity	$	16,568.0	$	105.0		$	16,673.0



	For the Three Months Ended June, 2018
	U.S.		Canada		United Kingdom		Switzerland		Other Europe		Other		Total
Payer/Customer
LCD
Clients	18	%	1	%	—	%	—	%	—	%	—	%	19	%
Patients	9	%	—	%	—	%	—	%	—	%	—	%	9	%
Medicare and Medicaid	10	%	—	%	—	%	—	%	—	%	—	%	10	%
Third-party	23	%	2	%	—	%	—	%	—	%	—	%	25	%
Total LCD revenues by payer	60	%	3	%	—	%	—	%	—	%	—	%	63	%

CDD
Biopharmaceutical and medical device companies	16	%	—	%	5	%	5	%	4	%	7	%	37	%

Total revenues	76	%	3	%	5	%	5	%	4	%	7	%	100	%



	For the Six Months Ended June, 2018
	U.S.		Canada		United Kingdom		Switzerland		Other Europe		Other		Total
Payer/Customer
LCD
Clients	18	%	1	%	—	%	—	%	—	%	—	%	19	%
Patients	9	%	—	%	—	%	—	%	—	%	—	%	9	%
Medicare and Medicaid	10	%	—	%	—	%	—	%	—	%	—	%	10	%
Third-party	23	%	2	%	—	%	—	%	—	%	—	%	25	%
Total LCD revenues by payer	60	%	3	%	—	%	—	%	—	%	—	%	63	%

CDD
Biopharmaceutical and medical device companies	18	%	—	%	4	%	5	%	4	%	6	%	37	%

Total revenues	78	%	3	%	4	%	5	%	4	%	6	%	100	%



	Three Months Ended June 30, 2017		Six Months Ended June 30, 2017
Net revenues	$	2,728.1	$	5,339.4
Operating income	321.5		662.2
Net income	172.5		363.2
Earnings per share:
Basic	$	1.68	$	3.54
Diluted	$	1.66	$	3.49



	June 30, 2018		December 31, 2017
Assets:
Cash and cash equivalents	$	—	$	0.1
Accounts receivable	20.9		24.4
Unbilled services	9.5		7.6
Supplies inventories	0.4		0.4
Prepaid expenses and other	1.1		1.2
Property, plant and equipment, net	39.1		42.3
Goodwill, net	170.5		170.5
Intangible assets, net	169.7		174.7
Other assets, net	0.2		0.3
Total assets held for sale	$	411.4	$	421.5

Liabilities:
Accounts Payable	$	1.1	$	2.4
Accrued expenses and other	13.0		15.2
Unearned revenue	2.0		2.6
Deferred income taxes and other tax liabilities	64.1		64.1
Other liabilities	2.2		2.2
Total liabilities held for sale	$	82.4	$	86.5

Net assets held for sale	$	329.0	$	335.0



	LCD						CDD
	Severance and Other Employee Costs			Lease and Other Facility Costs			Severance and Other Employee Costs			Lease and Other Facility Costs			Total
Balance as of December 31, 2017	$	1.7		$	10.1		$	8.3		$	34.6		$	54.7
Restructuring charges	7.4			2.2			15.7			2.6			27.9
Reduction of prior restructuring accruals	—			(0.5		)	(0.9		)	—			(1.4		)
Cash payments and other adjustments	(7.1		)	(4.1		)	(11.2		)	(5.7		)	(28.1		)
Balance as of June 30, 2018	$	2.0		$	7.7		$	11.9		$	31.5		$	53.1
Current													$	25.5
Non-current													27.6
													$	53.1