Item 1. Financial Information

LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In Millions)

	December 31, 2019				December 31, 2018
ASSETS
Current assets:
Cash and cash equivalents	$	337.5			$	426.8
Accounts receivable	1,543.9				1,467.9
Unbilled services	481.4				394.4
Supplies inventory	244.7				237.3
Prepaid expenses and other	373.7				309.0
Total current assets	2,981.2				2,835.4
Property, plant and equipment, net	2,636.6				1,740.3
Goodwill, net	7,865.0				7,360.3
Intangible assets, net	4,034.5				3,911.1
Joint venture partnerships and equity method investments	84.9				60.5
Deferred income taxes	8.8				1.7
Other assets, net	435.4				276.0
Total assets	$	18,046.4			$	16,185.3
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	632.3			$	634.6
Accrued expenses and other	942.4				870.0
Unearned revenue	451.0				356.4
Short-term operating lease liabilities	206.5				—
Short-term finance lease liabilities	8.4				7.9
Short-term borrowings and current portion of long-term debt	415.2				10.0
Total current liabilities	2,655.8				1,878.9
Long-term debt, less current portion	5,789.8				5,990.9
Operating lease liabilities	596.6				—
Financing lease liabilities	91.1				51.0
Deferred income taxes and other tax liabilities	942.8				940.0
Other liabilities	383.2				334.0
Total liabilities	10,459.3				9,194.8
Commitments and contingent liabilities
Noncontrolling interest	20.1				19.1
Shareholders’ equity
Common stock, 97.2 and 98.9 shares outstanding at December 31, 2019 and 2018, respectively	9.0				11.7
Additional paid-in capital	26.8				1,451.1
Retained earnings	7,903.6				7,079.8
Less common stock held in treasury	—				(1,108.1		)
Accumulated other comprehensive loss	(372.4		)		(463.1		)
Total shareholders’ equity	7,567.0				6,971.4
Total liabilities and shareholders’ equity	$	18,046.4			$	16,185.3

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

F-6

Index

LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(In Millions, Except Per Share Data)

	Years Ended December 31,
	2019				2018				2017
Revenues	$	11,554.8			$	11,333.4			$	10,308.0
Cost of revenues	8,302.3				8,157.0				7,216.2
Gross profit	3,252.5				3,176.4				3,091.8
Selling, general and administrative expenses	1,624.5				1,570.9				1,499.2
Amortization of intangibles and other assets	243.2				231.7				216.5
Restructuring and other charges	54.6				48.1				70.9
Operating income	1,330.2				1,325.7				1,305.2
Other income (expense):
Interest expense	(240.7		)		(244.2		)		(235.1		)
Equity method income, net	9.8				11.6				11.3
Investment income	8.8				7.5				2.1
Other, net	(3.2		)		167.7				(6.0		)
Earnings before income taxes	1,104.9				1,268.3				1,077.5
Provision (benefit) for income taxes	280.0				384.4				(155.4		)
Net earnings	824.9				883.9				1,232.9
Less: Net earnings attributable to the noncontrolling interest	(1.1		)		(0.2		)		(5.8		)
Net earnings attributable to Laboratory Corporation of America Holdings	$	823.8			$	883.7			$	1,227.1
Basic earnings per common share	$	8.42			$	8.71			$	11.99
Diluted earnings per common share	$	8.35			$	8.61			$	11.81

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

F-7

Index

LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS

(In Millions, Except Per Share Data)

	Years Ended December 31,
	2019				2018				2017
Net earnings	$	824.9			$	883.9			$	1,232.9
Foreign currency translation adjustments	104.4				(176.6		)		265.1
Net benefit plan adjustments	(17.4		)		29.3				20.9
Other comprehensive earnings (loss) before tax	87.0				(147.3		)		286.0
Provision (benefit) for income tax related to items of comprehensive earnings	3.7				17.9				(37.8		)
Other comprehensive earnings (loss), net of tax	90.7				(129.4		)		248.2
Comprehensive earnings	915.6				754.5				1,481.1
Less: Net earnings attributable to the noncontrolling interest	(1.1		)		(0.2		)		(5.8		)
Comprehensive earnings attributable to Laboratory Corporation of America Holdings	$	914.5			$	754.3			$	1,475.3

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

F-8

Index

LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(In Millions)

	Common Stock				Additional Paid-in Capital				Retained Earnings				Treasury Stock				Accumulated Other Comprehensive Earnings (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	—				—				1,227.1				—				—				1,227.1
Other comprehensive earnings, net of tax	—				—				—				—				248.2				248.2
Issuance of common stock under employee stock plans	0.1				73.5				—				—				—				73.6
Net share settlement tax payments from issuance of stock to employees	—				—				—				(47.4		)		—				(47.4		)
Conversion of zero-coupon convertible debt	—				12.8				—				—				—				12.8
Stock compensation	—				109.7				—				—				—				109.7
Purchase of common stock	(0.2		)		(337.9		)		—				—				—				(338.1		)
BALANCE AT DECEMBER 31, 2017	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	—				—				883.7				—				—				883.7
Other comprehensive loss, net of tax	—				—				—				—				(129.4		)		(129.4		)
Issuance of common stock under employee stock plans	—				69.1				—				—				—				69.1
Net share settlement tax payments from issuance of stock to employees	—				—				—				(48.0		)		—				(48.0		)
Conversion of zero-coupon convertible debt	—				0.3				—				—				—				0.3
Stock compensation	—				91.6				—				—				—				91.6
Purchase of common stock	(0.3		)		(699.7		)		—				—				—				(700.0		)
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	—				—				823.8				—				—				823.8
Other comprehensive earnings, net of tax	—				—				—				—				90.7				90.7
Issuance of common stock under employee stock plans					64.7				—				—				—				64.7
Net share settlement tax payments from issuance of stock to employees	—				(0.5		)		—				(40.1		)		—				(40.6		)
Stock compensation	—				107.0				—				—				—				107.0
Retirement of treasury stock	(2.4		)		(1,145.8		)		—				1,148.2				—				—
Purchase of common stock	(0.3		)		(449.7		)		—				—				—				(450.0		)
BALANCE AT DECEMBER 31, 2019	$	9.0			$	26.8			$	7,903.6			$	—			$	(372.4	)		$	7,567.0

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

F-9

Index

LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Millions)

	Years Ended December 31,
	2019				2018				2017
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings	$	824.9			$	883.9			$	1,232.9
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization	577.2				552.1				533.2
Stock compensation	107.0				91.6				109.7
Loss (gain) on sale of business	13.2				(184.9		)		—
Operating lease right-of-use asset expense	194.1				—				—
Deferred income taxes	29.2				22.2				(525.8		)
Other	(6.5		)		10.8				25.8
Change in assets and liabilities (net of effects of acquisitions and divestitures):
(Increase) decrease in accounts receivable	(64.1		)		50.2				(13.2		)
(Increase) decrease in unbilled services	(59.0		)		(81.0		)		4.0
Increase in inventory	(21.9		)		(18.9		)		(16.4		)
(Increase) decrease in prepaid expenses and other	(42.6		)		(57.9		)		19.8
Increase (decrease) in accounts payable	(12.8		)		43.3				172.3
Increase (decrease) in deferred revenue	38.1				(33.8		)		58.6
Increase (decrease) in accrued expenses and other	(132.1		)		27.8				(102.8		)
Net cash provided by operating activities	1,444.7				1,305.4				1,498.1
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures	(400.2		)		(379.8		)		(312.9		)
Purchases of investments	(27.5		)		(22.3		)		(36.2		)
Proceeds from sale of assets	7.7				50.1				5.5
Proceeds from sale or distributions of investments	11.2				—				—
Proceeds from sale of business	—				658.2				—
Proceeds from exit of swaps	1.7				18.3				—
Acquisition of licensing technology	—				—				(2.5		)
Acquisition of businesses, net of cash acquired	(876.0		)		(117.8		)		(1,882.6		)
Net cash (used for) provided by investing activities	(1,283.1		)		206.7				(2,228.7		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Senior Notes offerings	1,050.0				—				1,200.0
Proceeds from term loan	850.0				—				750.0
Payments on term loan	(1,002.0		)		(295.0		)		(493.0		)
Proceeds from revolving credit facilities	495.0				467.2				1,392.2
Payments on revolving credit facilities	(495.0		)		(467.2		)		(1,392.2		)
Payments on Senior Notes	(687.9		)		(400.0		)		(500.1		)
Payment of debt issuance costs	(11.6		)		—				(15.3		)
Other	(25.3		)		(16.0		)		(36.5		)
Net share settlement tax payments from issuance of stock to employees	(40.6		)		(48.0		)		(47.4		)
Net proceeds from issuance of stock to employees	64.7				69.1				73.6
Purchase of common stock	(450.0		)		(700.0		)		(338.1		)
Net cash (used for) provided by financing activities	(252.7		)		(1,389.9		)		593.2
Effect of exchange rate changes on cash and cash equivalents	1.8				(12.0		)		20.5
Net increase (decrease) in cash and cash equivalents	(89.3		)		110.2				(116.9		)
Cash and cash equivalents at beginning of period	426.8				316.6				433.6
Cash and cash equivalents included in assets held for sale	—				—				(0.1		)
Cash and cash equivalents at end of period	$	337.5			$	426.8			$	316.6

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

F-10

Index

LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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, 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 (CROs) and independent clinical laboratories. During 2018, the Company sold its Covance Food Solutions (CFS) business, which provided food testing and integrity services, as well as its domestic and international forensic analysis businesses. During 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. Additionally, the Company divested the Covance Research Products (CRP) business, which was part of the CDD segment, to Envigo. As part of this sale, CDD entered into a multi-year, renewable supply agreement with Envigo.

The Company reports its business in two segments, LabCorp Diagnostics (LCD) and Covance Drug Development (CDD). For further financial information about these segments, including information for each of the last three fiscal years regarding revenue, operating income, and other important information, see Note 21 Business Segment Information to the Consolidated Financial Statements. In 2019, LCD and CDD contributed 60% and 40%, respectively, of revenues to the Company, and in 2018 contributed 62% and 38%, respectively.

The 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% and no representation on the investee's board of directors) are accounted for at fair value or at cost minus impairment adjusted for observable price changes in orderly transactions for an identical or similar investment of the same issuer 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 variable interest entities or special purpose entities whose financial results are not included in the 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 year. Resulting translation adjustments are included in “Accumulated other comprehensive income.”

Recently Adopted Guidance

Leases

In February 2016, the Financial Accounting Standards Board (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 (ROU) asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. The Company has elected to utilize the short-term lease exemption and not record leases with initial terms of 12 months or less on 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.

The Company adopted the standard on January 1, 2019, using the modified retrospective method. Comparative periods were not adjusted and are presented in accordance with lease guidance in effect for that period. 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. Leases with an initial term of 12 months or less are not recorded on the Consolidated Balance Sheets. Operating lease expense is recognized on a straight-line basis over the lease term.

F-11

Index

LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Operating lease assets and liabilities are recognized at the commencement date, based on the present value of the future 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 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 are recorded as variable cost when incurred. As most of the Company's leases do not provide an implicit rate, the Company estimates an incremental borrowing rate based on the credit quality of the Company and by comparing interest rates available in the market for similar borrowings, and adjusting this amount based on the impact of collateral over the term of each lease. The Company uses this rate to discount payments to 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, rapid response (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 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. See Note 5 Leases to the Consolidated Financial Statements.

Other

In July 2017, the FASB issued a new accounting standard intended to reduce the complexity associated with the issuer's accounting for certain financial instruments with characteristics of liabilities and equity. Specifically, a down round feature would no longer cause a free-standing equity-linked financial instrument (or embedded conversion option) to be accounted for as a derivative liability at fair value with changes in fair value recognized in current earnings. The Company adopted this standard effective January 1, 2019. The adoption of this standard did not have a material impact on the consolidated financial statements.

In February 2018, the FASB issued a new accounting standard update that gives entities the option to reclassify to retained earnings tax effects related to items in accumulated other comprehensive income that the FASB refers to as having been stranded in accumulated other comprehensive income as a result of tax reform. The Company's adoption of this standard effective January 1, 2019, did not have a material impact on the Company's consolidated financial statements.

Reimbursable Out-of-Pocket Expenses

CDD pays on behalf of its customers certain out-of-pocket costs for which the Company is reimbursed at cost, without mark-up or profit. Out-of-pocket costs paid by CDD are reflected in operating expenses, while the reimbursements received are reflected in revenues in the consolidated statements of operations.

Cost of Revenues

Cost of revenue includes direct labor and related benefit charges, other direct costs, shipping and handling fees, and an allocation of facility charges and information technology costs. Selling, general and administrative expenses consist primarily of administrative payroll and related benefit charges, advertising and promotional expenses, administrative travel and an allocation of facility charges and information technology costs. Cost of advertising is expensed as incurred.

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported periods. Significant estimates include implicit price concessions, revenue estimates, the allowances for doubtful accounts, deferred tax assets, fair values of acquired assets and assumed liabilities in business combinations, amortization lives for acquired intangible assets, and accruals for self-insurance reserves, litigation reserves and pensions. The allowance for doubtful accounts is determined based on historical collections trends, the aging of accounts, current economic conditions and regulatory changes. Actual results could differ from those estimates.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents and accounts receivable.

The Company maintains cash and cash equivalents with various major financial institutions. The total cash and cash equivalent balances that exceeded the balances insured by the Federal Deposit Insurance Commission, were approximately $335.0 and $423.0 at December 31, 2019, and 2018, respectively.

F-12

Index

LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Substantially all of the Company’s accounts receivable are with companies in the healthcare or biopharmaceutical industry and individuals. However, concentrations of credit risk are mitigated due to the number of the Company’s customers as well as their dispersion across many different geographic regions.

Although LCD has receivables due from U.S. and state governmental agencies, the Company does not believe that such receivables represent a credit risk since the related healthcare programs are funded by U.S. and state governments, and payment is primarily dependent upon submitting appropriate documentation. Accounts receivable balances (gross) from Medicare and Medicaid were $81.4 and $88.8 at December 31, 2019, and 2018, respectively.

For the Company's operations in Ontario, Canada, the Ontario Ministry of Health and Long-Term Care (Ministry) determines who can establish a licensed community medical laboratory and caps the amount that each of these licensed laboratories can bill the government sponsored healthcare plan. The Ontario government-sponsored healthcare plan covers the cost of commercial laboratory testing performed by the licensed laboratories. The provincial government discounts the annual testing volumes based on certain utilization discounts and establishes an annual maximum it will pay for all community laboratory tests. The agreed-upon reimbursement rates are subject to Ministry review at the end of year and can be adjusted (at the government's discretion) based upon the actual volume and mix of test work performed by the licensed healthcare providers in the province during the year. The capitated accounts receivable balances from the Ontario government sponsored healthcare plan were CAD 3.2 and CAD 0.5 at December 31, 2019, and 2018, respectively.

The portion of the Company's accounts receivable due from patients comprises the largest portion of credit risk. At December 31, 2019, and 2018, receivables due from patients represented approximately 21.1% and 21.5% of the Company's consolidated gross accounts receivable, respectively. The Company applies assumptions and judgments including historical collection experience for assessing collectability and determining allowances for doubtful accounts for accounts receivable from patients.

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, 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:

	2019											2018											2017
	Income				Shares			Per Share Amount				Income				Shares			Per Share Amount				Income				Shares			Per Share Amount
Basic earnings per share	$	823.8			97.9			$	8.42			$	883.7			101.4			$	8.71			$	1,227.1			102.4			$	11.99
Stock options and stock awards	—				0.7							—				1.2							—				1.4
Effect of convertible debt, net of tax	—				—							—				—							—				0.1
Diluted earnings per share	$	823.8			98.6			$	8.35			$	883.7			102.6			$	8.61			$	1,227.1			103.9			$	11.81

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:

	Years Ended December 31,
	2019		2018		2017
Stock options	0.2		0.1		0.1

Stock Compensation Plans

The Company measures stock compensation cost for all equity awards at fair value on the date of grant and recognizes compensation expense over the service period for awards expected to vest. The fair value of restricted stock units is determined based on the number of shares granted and the quoted price of the Company’s common stock on the grant date. The grant date fair value of performance awards is based on a Monte Carlo simulated fair value for the relative (as compared to the peer companies) total shareholder return component of the performance awards. Such value is recognized as expense over the service period, net of estimated forfeitures and the Company's determination of whether it is probable that the performance targets will be achieved. At the end of each reporting period, the Company reassesses the probability of achieving performance targets. The estimation of equity awards that will ultimately vest requires judgment and the Company considers many factors when estimating expected forfeitures,

F-13

Index

LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

including types of awards, employee class, and historical experience. Forfeitures are recognized as a reduction of compensation expense in earnings in the period in which they occur.

See Note 15 Stock Compensation Plans for assumptions used in calculating compensation expense for the Company’s stock compensation plans.

Cash Equivalents

Cash and cash equivalents consist of highly liquid instruments, such as commercial paper, time deposits, and other money market instruments, substantially all of which have maturities when purchased of three months or less.

Supplies Inventory

Inventories, consisting primarily of purchased laboratory and customer supplies and finished goods, are stated at the lower of cost (first-in, first-out) or net realizable value. Supplies accounted for $228.3 and $200.1 and finished goods accounted for $16.4 and $37.2 of total inventory at December 31, 2019, and 2018, respectively.

Property, Plant and Equipment

Property, plant and equipment are recorded at cost. Depreciation and amortization expense is computed on all classes of assets based on their estimated useful lives, as indicated below, using the straight-line method.

	Years
Buildings and building improvements	10	-	40
Machinery and equipment	3	-	10
Furniture and fixtures	5	-	10
Software	3	-	10

Leasehold improvements are amortized over the shorter of their estimated useful lives or the term of the related leases. Expenditures for repairs and maintenance are charged to operations as incurred. Retirements, sales and other disposals of assets are recorded by removing the cost and accumulated depreciation from the related accounts with any resulting gain or loss reflected in the consolidated statements of operations.

Capitalized Software Costs

The Company capitalizes purchased software which is ready for service and capitalizes software development costs incurred on significant projects starting from the time that the preliminary project stage is completed and the Company commits to funding a project until the project is substantially complete and the software is ready for its intended use. Capitalized costs include direct material and service costs and payroll and payroll-related costs. Research and development (R&D) costs and other computer software maintenance costs related to software development are expensed as incurred. Capitalized software costs are amortized using the straight-line method over the estimated useful life of the underlying system ranging from three to ten years, generally five years. Amortization begins once the underlying system is substantially complete and ready for its intended use.

Long-Lived Assets

The Company assesses goodwill and indefinite-lived intangibles for impairment at least annually or whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable.

Management performed its annual goodwill and intangible asset impairment testing as of the beginning of the fourth quarter of 2019. The Company elected to perform the qualitative assessment for goodwill and intangible assets for the domestic LCD reporting units, a quantitative assessment for the CDD reporting units and a quantitative assessment for the Canadian reporting unit and its indefinite-lived assets consisting of acquired Canadian licenses.

In the qualitative assessment, the Company considered relevant events and circumstances for each reporting unit, including (i) current year results, ii) financial performance versus management’s annual and five-year strategic plans, iii) changes in the reporting unit carrying value since prior year, (iv) industry and market conditions in which the reporting unit operates, (v) macroeconomic conditions, including discount rate changes, and (vi) changes in products or services offered by the reporting unit. If applicable, performance in recent years was compared to forecasts included in prior valuations. Based on the results of the qualitative assessment, the Company concluded that it was not more likely than not that the carrying values of the goodwill and intangible assets were greater than their fair values, and that further quantitative testing was not necessary.

In 2019, the Company utilized a combination of income and market approaches to determine the fair value of the CDD reporting units and an income approach to determine the fair value of the Canadian reporting unit and its indefinite-lived assets consisting of acquired Canadian licenses. Based upon the results of the quantitative assessments, the Company concluded that the fair values of the goodwill and intangible assets, including the indefinite-lived Canadian licenses, was greater than the carrying value.

F-14

Index

LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

The Company will continue to monitor the financial performance of and assumptions for one of the CDD reporting units for which a combination of income and market approaches was performed in 2019 and where the fair value exceeded carrying value by approximately 10%. Goodwill for this reporting unit as of December 31, 2019, was $2.2 billion. Management's impairment analysis for this reporting unit utilized significant judgments and assumptions related to the market comparable method analysis, such as selected market multiples, and related to cash flow projections, such as revenue and terminal growth rates, projected operating margin,and the discount rate. A significant increase in the discount rate, decrease in the revenue and terminal growth rate, or decreased operating margin, or substantial reductions in end markets and volume assumptions could have a negative impact on the estimated fair value of this reporting unit. A future impairment charge for goodwill or intangible assets could have a material effect on the Company's consolidated financial position and results of operations. Management notes that a 1% change in the discount rate would reduce the headroom to approximately 1%.

Long-lived assets, other than goodwill and indefinite-lived assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable. Recoverability of assets to be held and used is determined by the Company at the level for which there are identifiable cash flows by comparison of the carrying amount of the assets to future undiscounted net cash flows before interest expense and income taxes expected to be generated by the assets. Impairment, if any, is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets (based on market prices in an active market or on discounted cash flows). Assets to be disposed of are reported at the lower of the carrying amount or fair value.

Intangible Assets

Intangible assets are amortized on a straight-line basis over the expected periods to be benefited, as set forth in the table below, such as legal life for patents and technology and contractual lives for non-compete agreements.

	Years
Customer relationships	10	-	36
Patents, licenses and technology	3	-	15
Non-compete agreements	3		5
Trade names	1	-	15

Debt Issuance Costs

The costs related to the issuance of debt are capitalized, netted against the related debt for presentation purposes and amortized to interest expense over the terms of the related debt.

Professional Liability

The Company is self-insured (up to certain limits) for professional liability claims arising in the normal course of business, generally related to the testing and reporting of laboratory test results. The Company estimates a liability that represents the ultimate exposure for aggregate losses below those limits. The liability is based on assumptions and factors for known and incurred but not reported claims, including the frequency and payment trends of historical claims.

Income Taxes

The Company accounts for income taxes utilizing the asset and liability method. Under this method deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and for tax loss carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. 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 Company records interest and penalties in income tax expense.

Derivative Financial Instruments

Interest rate swap agreements, which have been used by the Company from time to time in the management of interest rate exposure, are accounted for at fair value.

The Company’s zero-coupon subordinated notes contained two features that were considered to be embedded derivative instruments under authoritative guidance in connection with accounting for derivative instruments and hedging activities. On

F-15

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LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

December 19, 2019, the Company redeemed any remaining outstanding zero-coupon notes that did not convert. The Company believes these embedded derivatives had no fair value at December 31, 2018.

Cross currency swap agreements, which have been used by the Company to hedge exposure of its net investment in a foreign subsidiary denominated in non-U.S. currency, are accounted for at fair value.

See Note 19 Derivative Instruments and Hedging Activities for the Company’s objectives in using derivative instruments and the effect of derivative instruments and related hedged items on the Company’s financial position, financial performance and cash flows.

Fair Value of Financial Instruments

Fair value measurements for financial assets and liabilities are determined based on the assumptions that a market participant would use in pricing an asset or liability. A three-tiered fair value hierarchy draws distinctions between market participant assumptions based on (i) observable inputs such as quoted prices in active markets (Level 1), (ii) inputs other than quoted prices in active markets that are observable either directly or indirectly (Level 2) and (iii) unobservable inputs that require the Company to use present value and other valuation techniques in the determination of fair value (Level 3).

Research and Development

The Company expenses R&D costs as incurred.

Foreign Currencies

For subsidiaries outside of the U.S. that operate in a local currency environment, income and expense items are translated to U.S. dollars at the monthly average rates of exchange prevailing during the period, assets and liabilities are translated at period-end exchange rates and equity accounts are translated at historical exchange rates. Translation adjustments are accumulated in a separate component of shareholders’ equity in the consolidated balance sheets and are included in the determination of comprehensive income in the consolidated statements of comprehensive earnings and consolidated statements of changes in shareholders’ equity. Transaction gains and losses are included in the determination of net income in the consolidated statements of operations.

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 Generally Accepted Accounting Principles (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. The Company does not expect the adoption of this standard to have a material impact on the consolidated financial statements.

In August 2018, the FASB issued a new accounting standard to remove, modify, and add to the disclosure requirements on fair value measurements. The standard is effective on January 1, 2020. The Company does not expect the adoption of this new standard to have a material impact on the consolidated financial statements.

In August 2018, the FASB issued a new accounting standard to remove, modify, and add to the disclosure requirements on defined benefit pension and other postretirement plans. The standard is effective on January 1, 2021, with early adoption permitted. The Company is currently evaluating the impact this new standard will have on the consolidated financial statements.

In August 2018, the FASB issued a new accounting standard to align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The standard is effective on January 1, 2020. The Company does not expect the adoption of this standard to have a material impact on the consolidated financial statements.

In December 2019, the FASB issued a new accounting standard to simplify accounting for income taxes and remove, modify, and add to the disclosure requirements of income taxes. The standard is effective January 1, 2021, with early adoption permitted. The Company is currently evaluating the impact this new standard will have on the consolidated financial statements.

In January 2020, the FASB issued a new accounting standard to clarify the interaction of the accounting for equity securities and investments accounted for under the equity method of accounting and the accounting for certain forward contracts and purchased options. This standard is effective January 1, 2021. The Company is currently evaluating the impact this new standard will have on the consolidated financial statements.

F-16

Index

LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Reclassifications and Revisions

In conjunction with the adoption of the new lease standard, the Company reclassified the capital lease asset balance of $44.4 at December 31, 2018 from Property, plant and equipment, net to Other assets.

2.	REVENUES

Description of Revenues

The Company's revenue by segment payers/customer groups for the years ended December 31, 2019, 2018 and 2017 is as follows:

	For the Year Ended December 31, 2019
	U.S.			Canada			United Kingdom			Switzerland			Other Europe			Other			Total
Payer/Customer
LCD
Clients	16	%		1	%		—	%		—	%		—	%		—	%		17	%
Patients	8	%		—	%		—	%		—	%		—	%		—	%		8	%
Medicare and Medicaid	8	%		—	%		—	%		—	%		—	%		—	%		8	%
Third-party	25	%		2	%		—	%		—	%		—	%		—	%		27	%
Total LCD revenues by payer	57	%		3	%		—	%		—	%		—	%		—	%		60	%
CDD
Biopharmaceutical and medical device companies	21	%		—	%		4	%		5	%		3	%		7	%		40	%
Total revenues	78	%		3	%		4	%		5	%		3	%		7	%		100	%

	For the Year Ended December 31, 2018
	U.S.			Canada			United Kingdom			Switzerland			Other Europe			Other			Total
Payer/Customer
LCD
Clients	17	%		1	%		—	%		—	%		—	%		—	%		18	%
Patients	8	%		—	%		—	%		—	%		—	%		—	%		8	%
Medicare and Medicaid	9	%		—	%		—	%		—	%		—	%		—	%		9	%
Third-party	25	%		2	%		—	%		—	%		—	%		—	%		27	%
Total LCD revenues by payer	59	%		3	%		—	%		—	%		—	%		—	%		62	%
CDD
Biopharmaceutical and medical device companies	19	%		—	%		4	%		5	%		3	%		7	%		38	%
Total revenues	78	%		3	%		4	%		5	%		3	%		7	%		100	%

	For the Year Ended December 31, 2017
	U.S.			Canada			United Kingdom			Switzerland			Other Europe			Other			Total
Payer/Customer
LCD
Clients	19	%		1	%		—	%		—	%		—	%		—	%		20	%
Patients	8	%		—	%		—	%		—	%		—	%		—	%		8	%
Medicare and Medicaid	10	%		—	%		—	%		—	%		—	%		—	%		10	%
Third-party	27	%		2	%		—	%		—	%		—	%		—	%		29	%
Total LCD revenues by payer	64	%		3	%		—	%		—	%		—	%		—	%		67	%
CDD
Biopharmaceutical and medical device companies	15	%		—	%		3	%		5	%		3	%		7	%		33	%
Total revenues	79	%		3	%		3	%		5	%		3	%		7	%		100	%

F-17

Index

LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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 along with occupational and wellness testing for employers and forensic DNA analysis, LCD also offered a range of other testing services.

Within the LCD segment, 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 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.

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 list 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. 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 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 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 worldwide. Because CDD's 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

F-18

Index

LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

obligations include agreements to provide preclinical services, 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.

Historically, a majority of CDD’s 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

F-19

Index

LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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 revenues when services are performed and realization is assured.

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

Preclinical services include fee-for-service activities such as bioanalytical testing services, and proportional performance activities such as toxicology studies. Until June 3, 2019, preclinical services also included the sale of research models. See Note 3 Business Acquisitions and Dispositions to the Consolidated Financial Statements for more information. Revenue for sale of research models was recognized at a point in time, typically upon shipment, when control transferred 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

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 12-57 months, depending on the business. For businesses that enter 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.

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 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.

	December 31, 2019				December 31, 2018
Sales commission assets	$	28.6			$	24.2
Deferred contract fulfillment costs	14.9				12.9
Total	$	43.5			$	37.1

Amortization related to sales commission assets and associated payroll taxes for the year ended December 31, 2019, 2018, and 2017 was $21.2, $16.9 and $14.3, respectively. Amortization related to deferred contract fulfillment costs for the years ended December 31, 2019, 2018 and 2017 was $8.7, $4.4 and $0.3, respectively. 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 and performance is one year or less.

Receivables, Unbilled Services and Unearned Revenue

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

F-20

Index

LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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. The following table provides information about receivables, unbilled services, and unearned revenue (contract liabilities) from contracts with customers for the CDD segment:

	December 31, 2019				December 31, 2018
Receivables, which are included in Accounts Receivable	$	771.1			$	693.6
Unbilled services	483.7				396.9
Unearned revenue	449.2				354.1

Revenue recognized during the period, that was included in the unearned revenue balance at the beginning of the period, for the year ended December 31, 2019, and 2018, was $250.2 and $204.0, respectively. Bad debt expense on receivables, for the year ended December 31, 2019 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 December 31, 2019, and 2018, was $4,520.8 and $3,784.7, respectively. The Company expects to recognize approximately 35.0% of the remaining performance obligations as of December 31, 2019, as revenue over the next 12 months, and the balance thereafter. The Company's long-term contracts generally range from 1 to 8 years.

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 related to a wholly unsatisfied performance obligation within a series of obligations.

Within CDD, revenue of $88.9 and $21.0 was recognized during the year ended December 31, 2019, and December 31, 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 June 3, 2019, the Company's CDD segment acquired Envigo's nonclinical contract research services business, expanding CDD's global nonclinical drug development capabilities with additional locations and resources. Additionally, the Company divested the CRP business, which was a part of the CDD segment, to Envigo. As part of this sale, CDD entered into a multi-year, renewable supply agreement with Envigo. The Company paid cash consideration of $601.0, received a floating rate secured note of $110.0, and recorded a loss on the sale of CRP of $12.2. The Company funded the transaction through a new term loan facility.

F-21

Index

LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

Consideration Transferred
Cash consideration		$	601.0
Fair value of CRP		110.0
Total		$	711.0
		Initial				Measurement Period Adjustments				Preliminary December 31, 2019
Net Assets Acquired
Cash and cash equivalents		$	15.1			$	(3.7	)		$	11.4
Accounts receivable		16.5				(4.5		)		12.0
Unbilled services		26.5				(0.3		)		26.2
Inventories		4.5				—				4.5
Prepaid expenses and other		3.5				5.9				9.4
Property, plant and equipment (including ROU operating lease assets)		99.1				28.1				127.2
Deferred income taxes		25.5				(12.0		)		13.5
Goodwill		432.2				(52.9		)		379.3
Customer relationships		125.8				15.0				140.8
Trade name and trademarks		0.6				—				0.6
Other assets		9.9				—				9.9
Total assets acquired		759.2				(24.4		)		734.8
Accounts payable		15.4				(0.2		)		15.2
Accrued expenses and other		11.6				(1.5		)		10.1
Unearned revenue		49.9				—				49.9
Operating lease liabilities		15.0				(15.0		)		—
Other liabilities		66.3				(7.7		)		58.6
Total liabilities acquired		158.2				(24.4		)		133.8
Net Envigo assets acquired		601.0				—				$	601.0
Floating rate secured note receivable due 2022		110.0
Total		$	711.0

The preliminary purchase consideration for Envigo has been allocated to the estimated fair market value of the net assets acquired, including approximately $141.4 in identifiable intangible assets and a residual amount of non-tax-deductible goodwill of approximately $379.3. The amortization period for intangible assets acquired is 11 years for customer relationships.

The Envigo transaction contributed $124.2 and $17.9 of revenues and operating income, respectively, during the year ended December 31, 2019. The divested CRP business contributed operating income of $5.5 and $13.2 for the years ended December 31, 2019 and 2018, respectively.

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 goodwill, 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 by the second quarter of 2020. Any adjustments will be recorded in the period in which they are identified.

During the year ended December 31, 2019, the Company also acquired various businesses and related assets for approximately $286.4 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 $184.3 in identifiable intangible assets and a residual amount of non-tax-deductible goodwill of approximately $115.1. The amortization periods for intangible assets acquired from these businesses range from 12 to 15 years for customer relationships. These acquisitions were made primarily to extend the Company's geographic reach in important market areas, enhance the Company's scientific 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. A summary of the net assets acquired in 2019 for these businesses is included below:

F-22

Index

LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

	Amounts Acquired During Year Ended December 31, 2019 (excluding Envigo)
Accounts receivable	$	2.2
Unbilled services	0.8
Inventories	4.4
Prepaid expenses and other	1.1
Property, plant and equipment (including ROU operating lease assets)	8.5
Goodwill	115.1
Intangible assets	184.3
Other assets	0.1
Total assets acquired	316.5
Accounts payable	1.5
Accrued expenses and other	14.1
Unearned revenue	3.6
Other liabilities	10.9
Total liabilies acquired	30.1
Net assets acquired	$	286.4

Unaudited Pro Forma Information

The Company completed the Envigo acquisition on June 3, 2019. Had the Envigo acquisition as well as the aggregate of the Company's other 2019 acquisitions been completed as of January 1, 2017, the Company's pro forma results would have been as follows:

	Years Ended December 31,
	2019			2018
Revenues	$	11,742.5		$	11,738.5
Net earnings attributable to Laboratory Corporation of America Holdings	831.4			906.6

During the year ended December 31, 2018, the Company acquired various businesses and related assets for approximately $117.8 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 $67.8 in identifiable intangible assets and a residual amount of non-tax-deductible goodwill of approximately $70.5. These acquisitions were made primarily to extend the Company's geographic reach in important market areas, enhance the Company's scientific 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, the Company entered into a definitive agreement to sell the CFS 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 transaction closed on August 1, 2018, and a net gain of $258.3 was recorded in Other, net in the consolidated statement of operations.

The Company also divested its forensic testing services business in the U.K. and the U.S. on August 7, 2018, and December 31, 2018, respectively, resulting in losses of $48.9 and $24.5, respectively, recorded in Other, net in the consolidated statement of operations.

Operating income for the Company's businesses divested in 2018 was $7.6 and $12.9, for the years ended December 31, 2018, (which includes divested operations through their respective disposal dates) and December 31, 2017, respectively.

4. RESTRUCTURING AND OTHER CHARGES

During 2019, the Company recorded net restructuring charges of $54.6; $26.7 within LCD and $27.9 within CDD. The charges were comprised of $32.9 in severance and other personnel costs and $24.9 in facility-related costs primarily associated with general integration activities. The charges were offset by the reversal of previously established liability of $1.7 in unused severance and $1.5 in unused facility-related costs.

During 2018, the Company recorded net restructuring charges of $48.1; $20.5 within LCD and $27.6 within CDD. The charges were comprised of $40.3 in severance and other personnel costs and $11.8 in facility-related costs primarily associated with general

F-23

Index

LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

integration activities. The charges were offset by the reversal of previously established liability of $2.0 in unused severance and $2.0 in unused facility-related costs. The Company also recorded $2.3 in impairment to land held for sale which is included in amortization expense.

During 2017, the Company recorded net restructuring charges of $70.9; $16.8 within LCD and $54.1 within CDD. The charges were comprised of $36.1 in severance and other personnel costs, $18.8 in facility-related costs primarily associated with general integration activities, and an asset impairment loss of $20.9 related to the termination of a software development project within the CDD segment and the forgiveness of indebtedness for LCD customers in areas heavily impacted by hurricanes experienced during the third quarter of 2017. The charges were offset by the reversal of previously established liability of $0.5 in unused severance and $4.4 in unused facility-related costs.

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

	LCD								CDD								Total
	Severance and Other Employee Costs				Lease and Other Facility Costs				Severance and Other Employee Costs				Lease and Other Facility Costs
Balance as of December 31, 2017	$	1.7			$	10.1			$	8.3			$	34.6			$	54.7
Restructuring charges	16.2				5.4				24.1				6.4				52.1
Reduction of prior restructure accruals	(0.4		)		(0.7		)		(1.6		)		(1.3		)		(4.0		)
Cash payments and other adjustments	(15.4		)		(7.4		)		(24.3		)		(12.1		)		(59.2		)
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	17.3				(1.8		)		15.6				2.0				33.1
Impairment of operating lease ROU asset	—				11.8				—				12.9				24.7
Reduction of prior restructuring accruals	(0.2		)		(0.4		)		(1.5		)		(1.1		)		(3.2		)
Cash payments and other adjustments	(18.7		)		(8.6		)		(15.1		)		(9.6		)		(52.0		)
Balance as of December 31, 2019	$	0.5			$	2.7			$	5.5			$	4.7			$	13.4
Current																	$	9.8
Non-current																	3.6
																	$	13.4

The non-current portion of the restructuring liabilities is expected to be paid out over 4.4 years. Cash payments and other adjustments include the reclassification of profit sharing, pension, and holiday accrual.

5. LEASES

The Company has operating and finance leases for patient service centers, laboratories and testing facilities, clinical facilities, general office spaces, vehicles, and office and laboratory 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.

The components of lease expense were as follows:

	For the Year Ended
	December 31, 2019
Operating lease cost	$	224.0
Finance lease cost:
Amortization of right-of-use assets	$	11.1
Interest on lease liabilities	6.7
Total finance lease cost	$	17.8

F-24

Index

LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Supplemental cash flow information related to leases was as follows:

	For the Year Ended
	December 31, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	(227.3	)
Operating cash flows from finance leases	(6.7		)
Financing cash flows from finance leases	(8.9		)
ROU assets obtained in exchange for lease obligations:
Operating leases	$	132.6
Finance leases	0.2

Supplemental balance sheet information related to leases was as follows:

	December 31, 2019
Operating Leases
Operating lease ROU assets (included in Property, plant and equipment, net)	$	732.8
Short-term operating lease liabilities	206.5
Operating lease liabilities	596.6
Total operating lease liabilities	$	803.1

	December 31, 2019
Finance Leases
Finance lease ROU assets (included in Other assets)	$	87.7
Short-term finance lease liabilities	8.4
Financing lease liabilities	91.1
Total finance lease liabilities	$	99.5
Weighted Average Remaining Lease Term
Operating leases	7.6
Finance leases	15.5
Weighted Average Discount Rate
Operating leases	4.1		%
Finance leases	5.2		%

Maturities of lease liabilities are as follows:

Year Ended December 31, 2019	Operating Leases				Finance Leases
2020	$	206.5			$	15.8
2021	164.8				13.9
2022	121.0				12.6
2023	88.2				12.4
2024	67.6				10.9
Thereafter	289.9				96.8
Total lease payments	$	938.0			$	162.4
Less imputed interest	(134.9		)		(62.9		)
Less current portion	(206.5		)		(8.4		)
Total maturities, due beyond one year	$	596.6			$	91.1

Rental expense for short term leases with a term less than one year for the year ended December 31, 2019, amounted to $10.6. 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 year ended December 31, 2019, were $20.8. As of December 31, 2019, the Company has entered into approximately 3 additional operating leases, for patient service centers, that have not yet commenced and are not significant to the overall lease portfolio. These operating leases will commence in 2020 with lease terms ranging from 5 to 9 years.

F-25

Index

LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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 Standard Codification 840 are as follows:

	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 automobiles under operating leases,under ASC 842 amounted to $393.1 for the year ended December 31, 2019. Rent expense, which includes rent for real estate, equipment and automobiles under operating leases under ASC 840 amounted to $358.7 and $313.8 for the years ended December 31, 2018 and 2017, respectively.

6. JOINT VENTURE PARTNERSHIPS AND EQUITY METHOD INVESTMENTS

At December 31, 2019, the Company had investments in the following unconsolidated joint venture partnerships and equity method investments:

Locations	Net Investment				Interest Owned
Joint Venture Partnerships:
Alberta, Canada (2)	$	43.7			43.37	%
Florence, South Carolina	10.3				49.00	%
Buffalo, New York	16.6				48.18	%
Equity Method Investments:
Various	13.7				various

The joint venture partnerships are governed by agreements that mandate unanimous agreement between partners on all major business decisions as well as providing other participating rights to each partner. The equity method investments represent the Company’s purchase of ownership interests in clinical diagnostic companies. The investments are accounted for under the equity method of accounting as the Company does not have control of these investments. The Company has no material obligations or guarantees to, or in support of, these unconsolidated investments and their operations.

The Company’s investment in one of its Alberta joint venture partnerships at December 31, 2019, includes $34.0 of value assigned to that partnership’s Canadian license to conduct diagnostic testing services in the province. Substantially all of the joint venture's revenue is received as reimbursement from the Alberta government's healthcare programs (AHS). While the Canadian license provides the joint venture the ability to conduct diagnostic testing in Alberta, it does not guarantee that the provincial government will continue to reimburse diagnostic laboratory testing in future years at current levels. A decision by the provincial government to limit or reduce its reimbursement of laboratory diagnostic services would have a negative impact on the profits and cash flows the Company derives from the joint venture. In August 2016, AHS and the Canadian partnership reached an agreement to extend the contract for five additional years through March 2022, with the intent to have the services provided pursuant to the contract transferred to AHS at the end of the five-year period. In consideration of AHS acquiring the assets and assuming liabilities in accordance with the parties’ agreement, AHS will pay CAD 50.0 to the partnership when the transfer is effective, subject to a working capital adjustment. The Company is amortizing the value of the partnership's Canadian license to its residual value over the remaining term of the agreement. In December 2019, AHS issued a Request for Expression of Interest, that seeks to gauge market interest from private third parties for the provision of community lab services in Alberta. The Canadian partnership submitted a response indicating its interest in providing lab services.

7. ACCOUNTS RECEIVABLE

	December 31, 2019				December 31, 2018
LCD accounts receivable	$	798.1			$	793.3
CDD accounts receivable	764.8				690.3
Less CDD allowance for doubtful accounts	(19.0		)		(15.7		)
Accounts receivable	$	1,543.9			$	1,467.9

F-26

Index

LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

8. PROPERTY, PLANT AND EQUIPMENT, NET

	December 31, 2019				December 31, 2018
Land	$	90.9			$	77.4
Buildings and building improvements	781.8				703.7
Machinery and equipment	1,345.1				1,243.2
Software	794.9				714.6
Leasehold improvements	411.7				340.7
Furniture and fixtures	97.0				93.8
Construction in progress	311.1				304.8
Operating lease ROU assets	732.8				—
	4,565.3				3,478.2
Less accumulated depreciation	(1,928.7		)		(1,737.9		)
	$	2,636.6			$	1,740.3

Depreciation expense and amortization of property, plant and equipment was $321.5, $311.5 and $306.8 for 2019, 2018 and 2017, respectively, including software depreciation of $90.4, $92.7, and $85.6 for 2019, 2018 and 2017, respectively.

9. GOODWILL AND INTANGIBLE ASSETS

The changes in the carrying amount of goodwill (net of accumulated amortization) for the years ended December 31, 2019 and 2018 are as follows:

	LCD								CDD								Total
	December 31, 2019				December 31, 2018				December 31, 2019				December 31, 2018				December 31, 2019				December 31, 2018
Balance as of January 1	$	3,638.8			$	3,673.9			$	3,721.5			$	3,727.0			$	7,360.3			$	7,400.9
Goodwill acquired during the year	80.2				7.2				414.3				63.3				494.5				70.5
Dispositions	—				(34.9		)		(12.6		)		—				(12.6		)		(34.9		)
Foreign currency impact and other adjustments to goodwill	2.5				(7.4		)		20.3				(68.8		)		22.8				(76.2		)
Balance at end of year	$	3,721.5			$	3,638.8			$	4,143.5			$	3,721.5			$	7,865.0			$	7,360.3

The components of identifiable intangible assets are as follows:

	December 31, 2019												December 31, 2018
	Gross Carrying Amount				Accumulated Amortization				Net Carrying Amount				Gross Carrying Amount				Accumulated Amortization				Net Carrying Amount
Customer relationships	$	4,441.7			$	(1,329.5	)		$	3,112.2			$	4,119.4			$	(1,146.7	)		$	2,972.7
Patents, licenses and technology	453.6				(235.7		)		217.9				447.3				(211.2		)		236.1
Non-compete agreements	90.9				(60.5		)		30.4				76.8				(53.7		)		23.1
Trade names	408.2				(219.9		)		188.3				404.0				(189.1		)		214.9
Land use rights	10.9				(5.5		)		5.4				10.8				(4.1		)		6.7
Canadian licenses	480.3				—				480.3				457.6				—				457.6
	$	5,885.6			$	(1,851.1	)		$	4,034.5			$	5,515.9			$	(1,604.8	)		$	3,911.1

A summary of amortizable intangible assets acquired during 2019, and their respective weighted average amortization periods are as follows:

	Amount				Weighted Average Amortization Period
Customer relationships	$	308.6			13.6
Trade name	3.0				0.8
Land use rights	0.3				10.7
Non-compete agreements	14.0				4.8
	$	325.9			13.1

F-27

Index

LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Amortization of intangible assets, including amortization of the Canadian license recorded in other assets, was $243.2, $231.7 and $216.5 in 2019, 2018 and 2017, respectively. The Company recorded purchase accounting adjustments and impairment losses through amortization expense of $0.4, $4.5, and $3.0 in 2019, 2018 and 2017, respectively. Amortization expense of intangible assets is estimated to be $243.2 in fiscal 2020, $234.0 in fiscal 2021, $228.0 in fiscal 2022, $224.8 in fiscal 2023, $219.6 in fiscal 2024, and $2,315.7 thereafter.

10. ACCRUED EXPENSES AND OTHER

	December 31, 2019				December 31, 2018
Employee compensation and benefits	$	474.6			$	427.6
Accrued taxes payable	156.7				124.8
Other	311.1				317.6
	$	942.4			$	870.0

11. OTHER LIABILITIES

	December 31, 2019				December 31, 2018
Defined-benefit plan obligation	$	188.4			$	125.8
Deferred compensation plan obligation	76.7				64.2
Other	118.1				144.0
	$	383.2			$	334.0

12. DEBT

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

	December 31, 2019				December 31, 2018
Zero-coupon convertible subordinated notes	$	—			$	8.7
4.625% senior notes due 2020	413.7				—
Debt issuance costs	(0.7		)		(0.5		)
Current portion of note payable	2.2				1.8
Total short-term borrowings and current portion of long-term debt	$	415.2			$	10.0

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

	December 31, 2019				December 31, 2018
4.625% senior notes due 2020	—				597.0
2.625% senior notes due 2020	—				500.0
3.75% senior notes due 2022	500.0				500.0
3.20% 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
2.30% senior notes due 2024	400.0				—
2.95% senior notes due 2029	650.0				—
2019 term loan	375.0				—
2017 term loan	—				527.1
Debt issuance costs	(42.2		)		(40.3		)
Note payable	7.0				7.1
Total long-term debt	$	5,789.8			$	5,990.9

Credit Facilities

On June 3, 2019, the Company entered into a new $850.0 term loan (the 2019 Term Loan). The 2019 Term Loan will mature

F-28

Index

LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

on June 3, 2021. Proceeds of the 2019 Term Loan were used to repay approximately $250.0 of the 2017 Term Loan and to fund the acquisition of Envigo's nonclinical research services business.

The 2019 Term Loan accrues interest at a per annum rate equal to, at 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%. As of December 31, 2019, the effective interest rate on the 2019 Term Loan was 2.59%.

On September 15, 2017, the Company entered into a new $750.0 term loan (the 2017 Term Loan). The 2017 Term Loan accrued 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 2017 Term Loan was fully repaid in 2019.

The Company also maintains a 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 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 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, acquisitions, and other investments. There were no balances outstanding on the Company's current revolving credit facility at December 31, 2019, or December 31, 2018. As of December 31, 2019, the effective interest rate on the revolving credit facility was 2.74%. The credit facility expires on September 15, 2022.

Under the Company's 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 its term loans and the revolving credit facility at December 31, 2019, and December 31, 2018.

The Company’s availability of $923.7 at December 31, 2019, under its revolving credit facility is reduced by the amount of the Company's outstanding letters of credit.

Zero-Coupon Convertible Subordinated Notes

During 2019 and 2018, the Company settled notices to convert $8.6 and $0.3 aggregate principal amount at maturity of its zero-coupon subordinated notes with a conversion value of $16.6 and $0.7, respectively. The total cash used for these settlements was $8.2 and $0.3 and the Company also issued 0.1 and 0.0 additional shares of common stock, respectively. As a result of these conversions in 2019 and 2018, the Company also reversed approximately $2.0 and $0.2, respectively, of deferred tax liability to reflect the tax benefit realized upon issuance of the shares. On December 19, 2019, the Company redeemed all remaining outstanding zero-coupon notes that did not convert. The Company had $8.6 aggregate principal amount at maturity of zero-coupon convertible subordinated notes due 2021 outstanding at December 31, 2018.

Senior Notes

On November 25, 2019, the Company issued $1,050.0 in debt securities, consisting of $400.0 aggregate principal amount of 2.300% Senior Notes due 2024 and $650.0 aggregate principal amount of 2.950% Senior Notes due 2029. The net proceeds from the new Senior Notes were used to redeem of all of the outstanding $500.0 principal amount of its 2.625% Senior Notes due February 1, 2020, redeem $187.9 of the outstanding 4.625% Senior Notes due November 15, 2020 in a tender offer, and to repay $348.3 outstanding under the Company's term loan credit facilities. The Company recorded a loss of $4.0 on the extinguishment of the 2.625% Senior Notes and part of the outstanding 4.625% Senior Notes.

During the first quarter of 2018, the Company entered into six U.S. dollar (USD) to Swiss Franc cross-currency swap agreements with an aggregate notional value of $600.0 and which were accounted for as a hedge against its net investment in a Swiss subsidiary. Of the notional value, $300.0 was due to mature in 2022 and $300.0 was due to mature in 2025. These cross currency swaps maturing in 2022 and 2025 were settled on December 10, 2018 in cash.

During the fourth quarter of 2018, the Company entered into six new 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. These cross currency swaps maturing in 2022 and 2025 are included in other long-term assets with an aggregate fair value of $0.2 and $3.0, respectively, as of December 31, 2019. 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.

F-29

Index

LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

The scheduled payments of long-term debt at the end of 2019 are summarized as follows:

2020		$	415.9
2021		375.0
2022		1,000.0
2023		300.0
2024		1,000.0
Thereafter		3,157.0
Total scheduled payments		6,247.9
Less total debt issuance costs		(42.9		)
Total long-term debt		6,205.0
Less current portion		(415.2		)
Long-term debt, due beyond one year		$	5,789.8

13. 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. Common shares issued and outstanding are summarized in the following table:

	2019			2018
Issued	97.2			122.4
In treasury	—			(23.5	)
Outstanding	97.2			98.9

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 December 31, 2019 and 2018.

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

Common Shares Issued
	2019			2018			2017
Common stock issued at January 1	122.4			125.1			125.6
Common stock issued under employee stock plans	1.2			1.6			1.7
Common stock issued upon conversion of zero-coupon subordinated notes	0.1			—			0.3
Retirement of treasury stock	(23.6	)		—			—
Purchase of common stock	(2.9	)		(4.3	)		(2.5	)
Common stock issued at December 31	97.2			122.4			125.1

Common Shares Held in Treasury
	2019			2018			2017
Common shares held in treasury at January 1	23.5			23.2			22.9
Surrender of restricted stock and performance share awards	0.1			0.3			0.3
Retirement of treasury shares	(23.6	)		—			—
Common shares held in treasury at December 31	—			23.5			23.2

The Company’s treasury shares are recorded at aggregate cost. During 2019, the board of directors approved the retirement of all current treasury shares and future shares received in settlement of tax liabilities related to restricted stock vesting.

Share Repurchase Program

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 $1,250.0 of the Company’s shares. The repurchase authorization has no expiration date. During 2019, the Company purchased 2.9 shares of its common stock at an average price of $154.94 for a total cost of $450.0, of which $100.0 was repurchased prior to the new plan in February 2019. At the end of 2019, the Company had outstanding authorization from its board of directors to purchase $900.0 of Company common stock. When the Company repurchases shares for retirement, the amount paid to repurchase the shares in excess of the par or stated value is allocated to additional paid-in capital unless subject to limitation or the balance in additional paid-in-capital is exhausted. Remaining amounts are recognized as a reduction in retained earnings.

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LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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
Balance at December 31, 2017	$	(240.7	)		$	(93.0	)		$	(333.7	)
Current year adjustments	(176.6		)		29.4				(147.2		)
Amounts reclassified from accumulated other comprehensive income for settlement charge	—				(7.5		)		(7.5		)
Amounts reclassified from accumulated other comprehensive income (a)	—				7.4				7.4
Tax effect of adjustments	27.5				(9.6		)		17.9
Balance at December 31, 2018	(389.8		)		(73.3		)		(463.1		)
Current year adjustments	104.4				(22.5		)		81.9
Amounts reclassified from accumulated other comprehensive income (a)	—				5.1				5.1
Tax effect of adjustments	—				3.7				3.7
Balance at December 31, 2019	$	(285.4	)		$	(87.0	)		$	(372.4	)

(a) The amortization of prior service cost is included in the computation of net periodic benefit cost. Refer to Note 17 Pension and Postretirement Plans for additional information regarding the Company's net periodic benefit cost.

14. INCOME TAXES

The sources of income before taxes, classified between domestic and foreign entities are as follows:

	2019				2018				2017
Domestic	$	784.4			$	937.7			$	838.8
Foreign	320.5				330.6				238.7
Total pre-tax income	$	1,104.9			$	1,268.3			$	1,077.5

The provisions (benefits) for income taxes in the accompanying consolidated statements of operations consist of the following:

	Years Ended December 31,
	2019				2018				2017
Current:
Federal	$	126.7			$	225.8			$	300.8
State	40.2				61.2				32.9
Foreign	83.9				64.3				53.0
	$	250.8			$	351.3			$	386.7
Deferred:
Federal	$	38.2			$	(2.5	)		$	(547.8	)
State	2.5				30.0				11.4
Foreign	(11.5		)		5.6				(5.7		)
	29.2				33.1				(542.1		)
	$	280.0			$	384.4			$	(155.4	)

A net benefit of $1.6, $10.2 and $16.9 in excess stock-based compensation was recorded directly to income tax expense in the years ended December 31, 2019, 2018 and 2017 respectively. The gross benefit was reduced by the Internal Revenue Code Section 162(m) disallowance for non-deductible stock compensation of $30.0, $5.9 and $2.0 for the years ended December 31, 2019, 2018, and 2017, respectively. The 2019 Section 162(m) disallowance includes the accelerated expensing of stock-based compensation for executive retirement.

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LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

The effective tax rates on earnings before income taxes are reconciled to statutory U.S. income tax rates as follows:

	Years Ended December 31,
	2019			2018			2017
Statutory U.S. rate	21.0	%		21.0	%		35.0	%
State and local income taxes, net of U.S. Federal income tax effect	3.2			3.4			2.6
Foreign earnings taxed at lower rates than the statutory U.S. rate	(0.1	)		(0.3	)		(3.7	)
Restructuring and acquisition items	0.7			1.9			0.6
Share-based compensation	(0.1	)		(0.8	)		(1.6	)
Re-measurement of deferred taxes	—			2.4			(36.9	)
Deferred taxes on unremitted foreign earnings	—			—			(16.6	)
Repatriation tax	—			1.2			5.3
GILTI	1.1			1.0			—
Other	(0.5	)		0.5			0.9
Effective rate	25.3	%		30.3	%		(14.4	)%

In December 2017, the U.S. enacted the Tax Cuts and Jobs Act (TCJA), which made widespread changes to the Internal Revenue Code. The TCJA, among other things, reduced the U.S. federal corporate tax rate from 35.0% to 21.0% beginning January 1, 2018, requires companies to pay a repatriation tax on earnings of certain foreign subsidiaries that were previously not subject to U.S. tax, and created new income taxes on certain foreign sourced earnings. Also on December 22, 2017, the U.S. Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin No. 118 (SAB 118), which provided companies with additional guidance on how to account for the TCJA in its financial statements, allowing companies utilize a one year measurement period. At December 31, 2017, 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 was made. For these items, in accordance with SAB 118, a provisional net benefit was recognized, totaling $519.0, which is included as a component of income tax expense from continuing operations. The Company continued to assess the impact of TCJA throughout the 2018 calendar year and finalized the SAB 118 provisional estimate in the fourth quarter of 2018. For 2018, the Company recorded a total tax expense of $45.0, $14.8 related to the repatriation tax and $30.1 for the remeasurement of deferred taxes. Overall a net benefit of $474.0 was recorded for TCJA tax provisions effective as of the end of 2018. As additional regulations or guidance in relation to the TCJA are issued, the Company will analyze and record the necessary impacts during the quarter in which this occurs.

The TCJA includes provisions relating to global low-taxed intangible income (GILTI). The Company finalized its decision on accounting policy during the fourth quarter of 2018. The Company will account for GILTI as a periodic charge in the period it arises. The Company recorded $11.8 and $13.0 in 2019 and 2018 for GILTI, which is included as a component of income tax expense from continuing operations.

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LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are as follows:

	December 31, 2019				December 31, 2018
Deferred tax assets:
Accounts receivable	$	16.9			$	13.9
Employee compensation and benefits	105.1				104.4
Operating lease liability	191.4				—
Acquisition and restructuring reserves	9.9				16.8
Tax loss carryforwards	207.1				209.0
Other	62.9				34.5
	593.3				378.6
Less: valuation allowance	(145.4		)		(156.9		)
Deferred tax assets, net of valuation allowance	$	447.9			$	221.7
Deferred tax liabilities:
Right of use asset	$	(177.3	)		$	—
Intangible assets	(910.5		)		(891.8		)
Property, plant and equipment	(194.6		)		(182.8		)
Other	(57.4		)		(31.4		)
Total gross deferred tax liabilities	(1,339.8		)		(1,106.0		)
Net deferred tax liabilities	$	(891.9	)		$	(884.3	)

The table below provides a rollforward of the valuation allowance.

	December 31, 2019				December 31, 2018				December 31, 2017
Beginning balance	$	156.9			$	153.5			$	31.3
Additions charged to expense	—				3.4				11.5
Reductions and other adjustments	(11.5		)		—				110.7
Ending balance	$	145.4			$	156.9			$	153.5

The Company has U.S. federal tax loss carryforwards of approximately $209.5, which expire periodically through 2036, as well as post 2017 carryovers of $6.1 that are limited to 80% of taxable income and have an indefinite carryover. The utilization of tax loss carryforwards is limited due to change of ownership rules; however, at this time, the Company expects to fully utilize substantially all U.S. federal tax loss carryforwards with the exception of approximately $3.9 for which a full valuation allowance has been provided. The Company has U.S. state tax loss carryforwards of $594.1, which also expire periodically through 2038, and on which a valuation allowance of $311.4 has been provided. In addition to federal and state tax loss carryforwards, the Company has other federal and state attribute carryforwards of $252.5. These attribute carryforwards have indefinite lives and a valuation allowance of $209.6. The Company has foreign tax loss carryforwards of $116.9 which have an indefinite life and on which a valuation allowance of $26.7 has been provided, as well as foreign tax loss carryforwards of $443.8 which expire in 2034 that have a full valuation allowance. In addition to the foreign net operating losses, the Company has a foreign capital loss carryforward of $6.9. The foreign capital loss carryforward has an indefinite life and has a full valuation allowance.

The valuation allowance decreased from $156.9 in 2018 to $145.4 in 2019 primarily due to issuance of final guidance for tax laws affecting anticipated utilization of state NOLs.

Unrecognized income tax benefits were $31.7 and $18.0 at December 31, 2019, and 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.

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 $5.5 and $8.7 as of December 31, 2019, and 2018, respectively. During the years ended December 31, 2019, 2018 and 2017, the Company recognized $2.0, $1.8 and $2.3, respectively, in interest and penalties expense, which was offset by a benefit from reversing previous accruals for interest and penalties of $5.8, $0.5 and $4.3, respectively. During 2019, the Company paid interest of $0.2, and $0.8 was added to the accrued interest from the opening balance sheet of an acquisition.

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LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

The following table shows a reconciliation of the unrecognized income tax benefits, excluding interest and penalties, from uncertain tax positions for the years ended December 31, 2019, 2018 and 2017:

	2019				2018				2017
Balance as of January 1	$	18.0			$	19.5			$	18.4
Increase in reserve for tax positions taken in the current year	10.3				3.1				7.3
Increase in reserve from an acquisition's opening balance sheet	8.4				—				—
Decrease in reserve as a result of payments	(0.8		)		(4.6		)		—
Decrease in reserve as a result of lapses in the statute of limitations	(4.2		)		—				(6.2		)
Balance as of December 31	$	31.7			$	18.0			$	19.5

As of December 31, 2019, and 2018, $31.7 and $18.0, respectively, are the approximate amounts of unrecognized income tax benefits that, if recognized, would favorably affect the effective income tax rate in any future periods.

The Company has substantially concluded all U.S. federal income tax matters for years through 2015. Substantially all material state and local and foreign income tax matters have been concluded through 2013 and 2010, respectively.

The Internal Revenue Service concluded the examination of Covance Inc.'s 2013 federal consolidated income tax return in the third quarter of 2018. There were no material changes as a result of the audit. The Company is appealing a Canada Revenue Agency assessment related to the 2014 income tax return. The Company believes adequate reserves have been established for the assessment. 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.

As a result of the TCJA, the Company 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 still considers the earnings of its foreign subsidiaries to be permanently reinvested, but if repatriation were to occur the Company would be required to accrue U.S. taxes, if any, and applicable withholding taxes as appropriate. The Company has unremitted earnings and profits of $601.4 and $490.1 that are permanently reinvested in its foreign subsidiaries as of December 31, 2019, and 2018, respectively. A determination of the amount of the unrecognized deferred tax liability related to these undistributed earnings is not practicable due to the complexity and variety of assumptions necessary based on the manner in which the undistributed earnings would be repatriated.

15. STOCK COMPENSATION PLANS

Stock Incentive Plans

There are currently 9.8 shares authorized for issuance under the Laboratory Corporation of America Holdings 2016 Omnibus Incentive Plan (the Plan), and at December 31, 2019 there were 6.3 additional shares available for grant under the Plan. The Plan was approved by shareholders at the 2016 annual meeting.

Stock Options

The following table summarizes grants of non-qualified options made by the Company to officers, key employees, and non-employee directors under all plans. Stock options are generally granted at an exercise price equal to or greater than the fair market price per share on the date of grant. Also, for each grant, options vest ratably over a period of three years on the anniversaries of the grant date, subject to their earlier expiration or termination.

Changes in options outstanding under the plans for the period indicated were as follows:

	Number of Options			Weighted-Average Exercise Price per Option			Weighted-Average Remaining Contractual Term		Aggregate Intrinsic Value
Outstanding at December 31, 2018	0.8			100.30
Granted	0.2			163.80
Exercised	(0.3	)		85.74
Cancelled	(0.1	)		151.21
Outstanding at December 31, 2019	0.6			125.26			5.4		$	27.3
Vested and expected to vest at December 31, 2019	0.6			125.26			2.9		$	24.5
Exercisable at December 31, 2019	0.4			99.86			2.9		$	24.5

The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (the difference between the Company’s closing stock price on the last trading day of 2019 and the exercise price, multiplied by the number of in-the-money options) that

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LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

would have been received by the option holders had all option holders exercised their options on December 31, 2019. The amount of intrinsic value will change based on the fair market value of the Company’s stock.

Cash received by the Company from option exercises, the actual tax benefit realized for the tax deductions and the aggregate intrinsic value of options exercised from option exercises under all share-based payment arrangements during the years ended December 31, 2019, 2018, and 2017 were as follows:

	2019				2018				2017
Cash received by the Company	$	27.6			$	37.5			$	43.9
Tax benefits realized	$	6.9			$	9.4			$	13.4
Aggregate intrinsic value	$	24.5			$	44.1			$	34.8

The following table shows the weighted average grant-date fair values of options issued during the respective year and the weighted average assumptions that the Company used to develop the fair value estimates:

	2019 Grant Dates
	November 1			November 1		February 12				2018
Fair value per option	$	39.85		$30.39		$	34.40			$	44.37
Valuation assumptions
Weighted average expected life (in years)	6.0			6.0		6.0				6.0
Risk free interest rate	1.6		%	1.6	%	2.5		%		2.7		%
Expected volatility	20.8		%	20.8	%	20.0		%		18.9		%
Expected dividend yield	N/A			N/A		N/A				N/A

The Black Scholes model incorporates assumptions to value stock-based awards. The risk-free interest rate for periods within the contractual life of the option is based on a zero-coupon U.S. government instrument over the contractual term of the equity instrument. Expected volatility of the Company’s stock is based on historical volatility of the Company’s stock. The Company estimates expected option terms through an analysis of actual, historical post-vesting exercise, cancellation and expiration behavior by employees and projected post-vesting activity of outstanding options. Groups of employees and non-employee directors that have similar exercise behavior with regard to option exercise timing and forfeiture rates are considered separately for valuation purposes. For 2019, 2018 and 2017, expense related to the Company’s stock option plan totaled $5.9, $3.5 and $0.9, respectively, and is included in selling, general and administrative expenses. The Company did not grant any options to employees during 2017.

Restricted Stock, Restricted Stock Units and Performance Shares

The Company grants restricted stock, restricted stock units and performance shares (non-vested shares) to officers and key employees and grants restricted stock and restricted stock units to non-employee directors. Restricted stock and units typically vest annually in equal one third increments beginning on the first anniversary of the grant. A performance share grant in 2017 represents a three-year award opportunity for the period 2017-2019, and if earned, vests fully (to the extent earned) in the first quarter of 2020. A performance share grant in 2018 represents a three-year award opportunity for the period of 2018-2020 and, if earned, vests fully (to the extent earned) in the first quarter of 2021. A performance share grant in 2019 represents a three-year award opportunity for the period of 2019-2021 and, if earned, vests fully (to the extent earned) in the first quarter of 2022. Performance share awards are subject to certain earnings per share, revenue and total shareholder return targets, the achievement of which may increase or decrease the number of shares which the grantee earns and therefore receives upon vesting. Unearned restricted stock and performance share compensation is amortized to expense, when probable, over the applicable vesting periods. For 2019, 2018 and 2017, total restricted stock, restricted stock unit and performance share compensation expense was $91.2, $80.1 and $100.8, respectively, and is included in selling, general and administrative expenses.

The following table shows a summary of non-vested shares for the year ended December 31, 2019:

	Number of Shares			Weighted-Average Grant Date Fair Value
Non-vested at January 1, 2019	1.3			$	140.58
Granted	0.9			150.29
Vested	(0.8	)		120.22
Canceled	(0.1	)		153.10
Non-vested at December 31, 2019	1.3			$	152.70

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LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

As of December 31, 2019, there was $112.2 of total unrecognized compensation cost related to non-vested stock options, restricted stock, restricted stock unit and performance share-based compensation arrangements granted under the Company's stock incentive plans. That cost is expected to be recognized over a weighted average period of 2.2 years and will be included in selling, general and administrative expenses.

Employee Stock Purchase Plan

Under the 2016 Employee Stock Purchase Plan, the Company is authorized to issue 1.8 shares of common stock. The plan permits substantially all employees to purchase a limited number of shares of Company stock at 85% of market value. The Company issues shares to participating employees semi-annually in January and July of each year. Approximately 0.2 shares were purchased by eligible employees in each of 2019, 2018 and 2017, respectively, under either the 2016 Employee Stock Purchase Plan or the prior plan, which began in 1997 and was amended in 1999, 2004, 2008 and 2012. For 2019, 2018 and 2017, expense related to the Company’s employee stock purchase plan was $9.9, $8.0 and $8.0, respectively.

The Company uses the Black-Scholes model to calculate the fair value of the employee’s purchase right. The fair value of the employee’s purchase right and the assumptions used in its calculation are as follows:

	2019				2018				2017
Fair value of the employee’s purchase right	$	31.84			$	34.43			$	31.54
Valuation assumptions
Risk free interest rate	1.9		%		2.3		%		1.3		%
Expected volatility	0.2				0.2				0.2
Expected dividend yield	—				—				—

16. COMMITMENTS AND CONTINGENT LIABILITIES

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 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 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.

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.

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

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LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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 to Dismiss while the government reviews the amended complaint. The Court granted the motion and vacated the briefing dates. Plaintiff then filed 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 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 that the Company violated the Florida Consumer Collection Practices Act by billing patients who were collecting benefits under the 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 appealed the Circuit Court's ruling to the Florida Second District Court of Appeal. On October 16, 2019, the Court of Appeal reversed the Circuit Court's dismissal, but certified a controlling issue of Florida law to the Florida Supreme Court. On February 17, 2020, the Florida Supreme Court accepted jurisdiction of the lawsuit. The Company will vigorously defend the lawsuit.

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 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' 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 and 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 filed a Motion to Dismiss seeking the dismissal of the claims asserted under the California and Illinois insurance fraud prevention statutes, the conspiracy claim, the reverse False Claims Act claim, and all claims based on the theory that the Company performed medically unnecessary testing. On January 16, 2019, the Court entered an order granting in part and denying in part the 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 California and Illinois insurance fraud prevention statutes, and the reverse False Claims Act claim. The Court denied the Motion to Dismiss as to the conspiracy claim. 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-

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LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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 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, Inc. Shareholder Litig., Lead Case No. 16-cv-02054-JAH-BLM, 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, 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. Supreme Court dismissed the writ of certiorari in Emulex as improvidently granted. The Company 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 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' Complaint and Strike Class Allegations; 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 contained similar allegations and sought similar relief to the Bouffard complaint, and added additional counts regarding state consumer protection laws. On 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 to Dismiss Plaintiffs’ Amended Complaint and Strike Class Allegations. On August 16, 2019, the court entered an order granting in part and denying in part the Motion to Dismiss the Amended Complaint, and denying the Motion to Strike the Class Allegations. 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 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 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 Motion to Dismiss, the Plaintiff filed an amended complaint, which contains additional allegations, including allegations related to another facsimile. On December 16, 2019, the Plaintiff filed a notice withdrawing its Motion for Class Certification and all class allegations in the Amended Complaint. In January 2020, the parties settled the lawsuit.

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LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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.

Twenty-three putative class action lawsuits were filed against the Company related to the AMCA Incident in various U.S. District Courts. Numerous similar lawsuits have been filed against other health care providers who used AMCA. These lawsuits have been consolidated into a multidistrict litigation in the District of New Jersey. On November 15, 2019, the Plaintiffs filed a Consolidated Class Action Complaint in the U.S. District Court of New Jersey. On January 22, 2020, the Company filed Motions to Dismiss all claims. The consolidated Complaint generally alleges that the Company did not adequately protect its patients' data and failed to timely notify those patients of the AMCA Incident. The Complaint asserts 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 Complaint seeks damages on behalf of a class of all affected Company customers. The Company will vigorously defend the multi-district litigation.

Certain governmental entities have requested information from the Company related to the AMCA Incident. The Company has received requests for information from the Office of Civil Rights of the Department of Health and Human Services, and from a multi-state group of state Attorneys General. The Company is cooperating with these requests for information.

Three putative class-action lawsuits related to California wage and hour laws have been served on the Company. On September 21, 2018, the Company was served with a putative class action lawsuit, Alma Haro v. Laboratory Corporation of America, et al., filed in the Superior Court of California, County of Los Angeles. On June 10, 2019, the Company was served with a putative class action lawsuit, Ignacio v. Laboratory Corporation of America, filed in Superior Court of California, County of Los Angeles. On July 1, 2019, the Company was served with a putative class action lawsuit, Jan v. Laboratory Corporation of America, filed in the Superior Court of California, County of Sacramento. All three cases were subsequently removed to the U.S. District Court for the Central District of California, and then consolidated for all pre-trial proceedings. In the lawsuits, Plaintiffs allege 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. The Plaintiffs assert these actions violate various California Labor Code provisions and constitute an unfair competition practice under California law. The lawsuits seek monetary damages, civil penalties, and recovery of attorney's fees and costs. The Company will vigorously defend the lawsuits.

On July 30, 2019, the Company was served with a class action lawsuit, Mitchell v. Covance, Inc. et al., filed in the U.S. 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 attorney’s fees and costs. On February 3, 2020, the Court denied without prejudice the Plaintiff's motion to conditionally certify a class action. The Company will vigorously defend the lawsuit.

On January 31, 2020, the Company was served with a putative class action lawsuit, Luke Davis and Julian Vargas, et al. v. Laboratory Corporation of America Holdings, filed in the U.S. District Court for the Central District of California. The lawsuit alleges that visually impaired patients are unable to use the Company’s touchscreen kiosks at Company patient service centers in violation of the Americans with Disabilities Act and similar California statutes. The lawsuit seeks statutory damages, injunctive relief, and attorney’s 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-

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LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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.

17. PENSION AND POSTRETIREMENT PLANS

Retirement Plans

All employees eligible for the LCD defined-contribution retirement plan (401K Plan) receive a minimum 3% non-elective contribution (NEC) concurrent with each payroll period. Employees are not required to make a contribution to the LCD 401K Plan to receive the NEC. The NEC is non-forfeitable and vests immediately. The LCD 401K Plan also permits discretionary contributions by the Company of 1% and 3% of pay for eligible employees based on service. In 2019, 2018, and 2017, non-elective and discretionary contributions were $52.3, $65.0 and $58.1, while total expense was $65.6, $63.6 and $59.1, respectively.

All of the CDD U.S. employees are eligible to participate in the CDD 401K plan, which is available on a voluntary basis and features a maximum 4.5% Company match, based upon a percentage of the employee’s contributions. Chiltern employees were previously eligible to participate in the Chiltern 401K plan, which featured a maximum 3% Company match, based upon a percentage of the employee's contributions. The Chiltern 401K plan merged into the CDD 401K plan effective January 7, 2019. The Company incurred expense of $73.9, $66.3, and $58.4 for the CDD 401K Plan in 2019, 2018 and 2017, respectively.

The Company also maintains several other small 401K plans associated with companies acquired over the last several years.

Pension Plans

The Company has a defined-benefit retirement plan (Company Plan) and a nonqualified supplemental retirement plan (PEP). Both plans have been closed to new participants since December 31, 2009. Employees participating in the Company Plan and the PEP no longer earn service-based credits, but continue to earn interest credits.

The Company Plan covers substantially all employees employed prior to December 31, 2009. The benefits to be paid under the Company Plan are based on years of credited service through December 31, 2009, interest credits and average compensation. The Company’s policy is to fund the Company Plan with at least the minimum amount required by applicable regulations. The Company made contributions to the Company Plan of $0.0, $28.9 and $16.0 in 2019, 2018 and 2017, respectively.

The PEP covers a portion of the Company’s senior management group. Prior to 2010, the PEP provided for the payment of the difference, if any, between the amount of any maximum limitation on annual benefit payments under the Employee Retirement Income Security Act of 1974 and the annual benefit that would be payable under the Company Plan but for such limitation. Effective January 1, 2010, employees participating in the PEP no longer earn service-based credits. The PEP is an unfunded plan.

Projected pension expense for the Company Plan and the PEP is expected to decrease to $11.8 in 2020. This amount excludes any accelerated recognition of pension cost due to the total lump-sum payouts exceeding certain components of net periodic pension cost in a fiscal year. If such levels were to be met in 2020, the Company projects that it would result in additional pension expense of several million dollars. The actual amount would be determined in the fiscal quarter when the lump-sum payments cross the threshold and would be based upon the plan's funded status and actuarial assumptions in effect at that time.

The Company plans to make contributions of $2.2 to the Company Plan and the PEP during 2020.

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

	Year ended December 31,
	2019				2018				2017
Service cost for benefits earned	$	4.1			$	5.2			$	5.5
Interest cost on benefit obligation	13.9				13.0				14.4
Expected return on plan assets	(15.1		)		(16.5		)		(16.3		)
Net amortization and deferral	10.9				11.7				11.0
Settlements	—				7.5				—
Defined-benefit plan costs	$	13.8			$	20.9			$	14.6

Amounts included in accumulated other comprehensive earnings consist of unamortized net loss of $111.2. The accumulated other comprehensive earnings that are expected to be recognized as components of the defined-benefit plan costs during 2020 are $10.2 related to amortization of the net loss. For the year ended December 31, 2018, the Company recorded a pension settlement charge of $7.5 recorded in Other, net on the Consolidated Statement of Operations as a result of lump sum distributions exceeding $16.5 threshold level for 2018.

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LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

A summary of the changes in the projected benefit obligations of the Company Plan and the PEP are summarized as follows:

	2019				2018
Balance at January 1	$	334.6			$	368.0
Service cost	4.1				5.2
Interest cost	13.9				13.0
Actuarial (gain) loss	33.3				(21.9		)
Benefits and administrative expenses paid	(30.4		)		(33.9		)
Merger of Covance SERP	—				4.2
Balance at December 31	$	355.5			$	334.6

The Accumulated Benefit Obligation was $355.5 and $334.6 at December 31, 2019 and 2018, respectively.

A summary of the changes in the fair value of plan assets follows:

	2019				2018
Fair value of plan assets at beginning of year	$	246.9			$	263.7
Actual return on plan assets	43.4				(14.3		)
Employer contributions	2.2				31.4
Benefits and administrative expenses paid	(30.4		)		(33.9		)
Fair value of plan assets at end of year	$	262.1			$	246.9

The net funded status of the Company Plan and the PEP at December 31:

	2019				2018
Funded status	$	93.4			$	87.6
Recorded as:
Accrued expenses and other	$	2.2			$	2.1
Other liabilities	91.2				85.5
	$	93.4			$	87.6

Weighted average assumptions used in the accounting for the Company Plan and the PEP are summarized as follows:

	2019			2018			2017
Discount rate for the Company Plan	3.3	%		4.4	%		3.7	%
Discount rate for the PEP	3.4	%		4.4	%		3.7	%
Expected long term rate of return for the Company Plan	6.5	%		6.5	%		6.8	%

The Company used the RP-2014 Mortality Tables to estimate life expectancy. The weighted average expected long-term rate of return on assets of the Company Plan and PEP is based on the target asset allocation and the average rate of growth expected for the asset classes invested. The rate of expected growth is derived from a combination of historic returns, current market indicators, the expected risk premium for each asset class over the risk-free rate, and the opinion of professional advisors.

The Company maintains an investment policy for the management of the Company Plan’s assets. The objective of this policy is to build a portfolio designed to achieve a balance between investment return and asset protection by investing in indexed funds that are comprised of equities of high quality companies and in high quality fixed income securities which are broadly balanced and represent all market sectors. The target allocations for plan assets are 50% equity securities, 43% fixed income securities and 7% in other assets. Equity securities primarily include investments in large-cap, mid-cap and small-cap companies located in the U.S. and to a lesser extent international equities in developed and emerging countries. Fixed income securities primarily include U.S. Treasury securities, mortgage-backed bonds and corporate bonds of companies from diversified industries. Other assets include investments in real estate. The weighted average expected long-term rate of return for the Company Plan’s assets is as follows:

	Target Allocation			Weighted Average Expected Long-Term Rate of Return
Equity securities	50.0	%		3.3	%
Fixed income securities	43.0	%		2.8	%
Other assets	7.0	%		0.4	%

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LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

The fair values of the Company Plan’s assets at December 31, 2019, and 2018, by asset category are as follows:

					Fair Value Measurements as of
					December 31, 2019
	Fair Value as of December 31, 2019				Using Fair Value Hierarchy
Asset Category		Level 1				Level 2				Level 3
Cash	$	4.3			$	4.3			$	—			$	—
Equity securities:
U.S. large cap - blend (a)	61.1				—				61.1				—
U.S. mid cap - blend (b)	23.8				—				23.8				—
U.S. small cap - blend (c)	8.5				—				8.5				—
International equity - blend (d)	40.6				—				40.6				—
Real estate (e)	12.7				—				12.7				—
Fixed income securities:
U.S. fixed income (f)	111.1				—				111.1				—
U.S inflation protection income (g)	—				—				—				—
Total fair value of the Company Plan’s assets	$	262.1			$	4.3			$	257.8			$	—

					Fair Value Measurements as of
					December 31, 2018
	Fair Value as of December 31, 2018				Using Fair Value Hierarchy
Asset Category		Level 1				Level 2				Level 3
Cash	$	7.8			$	7.8			$	—			$	—
Equity securities:
U.S. large cap - blend (a)	54.2				—				54.2				—
U.S. mid cap - blend (b)	20.4				—				20.4				—
U.S. small cap - blend (c)	6.4				—				6.4				—
International equity - blend (d)	36.4				—				36.4				—
Commodities index (h)	11.8				—				11.8				—
Fixed income securities:
U.S. fixed income (f)	103.5				—				103.5				—
U.S inflation protection income (g)	6.4				—				6.4				—
Total fair value of the Company Plan’s assets	$	246.9			$	7.8			$	239.1			$	—

a)	This category represents an equity index fund not actively managed that tracks the S&P 500 Index.

b)	This category represents an equity index fund not actively managed that tracks the S&P mid-cap 400 Index.

c)	This category represents an equity index fund not actively managed that tracks the Russell 2000 Index.

d)	This category represents an equity index fund not actively managed that tracks the MSCI ACWI ex USA Index.

e)	This category represents a real estate index fund not actively managed that tracks the Vanguard REIT Index.

f)	This category primarily represents bond index funds not actively managed that track the Northern Trust U.S. Aggregate Index as well as an actively managed strategy which utilizes the Metropolitan West Total Return Bond Index as its primary prospectus benchmark.

g)	This category primarily represents a bond index fund not actively managed that tracks the Northern Trust U.S. TIPS Index.

h)	This category represents a commodities index fund not actively managed that tracks the Dow Jones - UBS Commodity Index.

The following estimated benefit payments under the Company Plan and PEP, which were used in the calculation of projected benefit obligations, are expected to be paid as follows:

2020	$	27.6
2021	27.2
2022	26.8
2023	25.9
2024	25.2
Years 2025 and thereafter	115.1

In addition to the PEP, 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 employees

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LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

who were executive officers of Covance prior to the acquisition. Benefit amounts are based upon years of service and compensation of the participating employees. As of December 31, 2018, the SERP was combined with the PEP.

As a result of the Covance acquisition, the Company sponsors two defined-benefit pension plans for the benefit of its employees at two U.K. subsidiaries (U.K. Plans) and one defined-benefit pension plan for the benefit of its employees at a German subsidiary (German 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. Plans are funded. The Company’s funding policy has been to contribute annually a fixed percentage of the eligible employee's salary, and additional amounts, at least equal to the local statutory funding requirements. All plans have a measurement date of December 31.

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 $46.6, based on the preliminary valuation of acquired assets and assumed liabilities, is reported under Other liabilities in the Consolidated Balance Sheet as of December 31, 2019. The Company’s funding policy has been to contribute amounts at least equal to the local statutory funding requirements. The Envigo plan has a measurement date of December 31. The U.K. Plans disclosures below are inclusive of the Envigo plan for 2019.

The components of the defined-benefit plan costs for these plans for 2019 and 2018 are as follows:

		U.K. Plans
		Year Ended December 31, 2019				Year Ended December 31, 2018
Service cost		$	4.6			$	4.8
Interest cost		10.3				7.4
Expected return on plan assets		(15.0		)		(12.6		)
Expected participant contributions		(1.2		)		(1.3		)
Defined-benefit plan costs		$	(1.3	)		$	(1.7	)
Assumptions used to determine defined-benefit plan cost (Excluding Envigo Plan):
Discount rate		2.9		%		2.5		%
Expected return on assets		4.4		%		4.5		%
Salary increases		3.6		%		3.6		%
Assumptions used to determine defined-benefit plan cost (Envigo Plan):
Discount rate		2.3		%
Expected return on assets		3.9		%

		German Plan
		Year Ended December 31, 2019				Year Ended December 31, 2018
Service cost		$	1.1			$	1.2
Interest cost		0.6				0.6
Defined-benefit plan costs		$	1.7			$	1.8
Assumptions used to determine defined-benefit plan cost:
Discount rate		1.9		%		1.7		%
Expected return on assets		N/A				N/A
Salary increases		2.0		%		2.0		%

The weighted average expected long-term rate of return on assets of the U.K Plans is based on the target asset allocation and the average rate of growth expected for the asset classes invested. The rate of expected growth is derived from a combination of historic returns, current market indicators, the expected risk premium for each asset class over the risk-free rate, and the opinion of professional advisors.

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LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

The change in the projected benefit obligation and plan assets, the funded status of the plan and a reconciliation of such funded status to the amounts reported in the consolidated balance sheet as of December 31, 2019, and December 31, 2018, is as follows:

Change in Projected Benefit Obligation:		U.K. Plans
		2019				2018
Balance at beginning of year		$	260.1			$	303.4
Balance of acquired subsidiary at acquisition date		215.4				—
Service cost		4.6				4.8
Interest cost		10.3				7.4
Actuarial (gain) loss		64.1				(34.9		)
Benefits paid		(11.3		)		(6.3		)
Plan amendments		—				1.4
Foreign currency exchange rate changes		20.8				(15.7		)
Plan curtailment		(16.1		)		—
Balance at end of year		$	547.9			$	260.1

Change in Projected Benefit Obligation:		German Plan
		2019				2018
Balance at beginning of year		$	34.0			$	35.7
Service cost		1.1				1.2
Interest cost		0.6				0.6
Actuarial (gain) loss		8.2				(1.7		)
Benefits paid		(0.3		)		(0.2		)
Foreign currency exchange rate changes		(0.8		)		(1.6		)
Balance at end of year		$	42.8			$	34.0

Change in Fair Value of Assets:		U.K. Plans
		2019				2018
Balance at beginning of year		$	254.6			$	281.9
Plan assets of acquired subsidiary at acquisition date		168.3				—
Company contributions		11.4				6.5
Participant contributions		1.3				1.3
Actual return on assets		48.8				(13.6		)
Benefits paid		(11.3		)		(6.3		)
Foreign currency exchange rate changes		18.6				(15.2		)
Fair value of plan assets at end of year		$	491.7			$	254.6

		U.K. Plans
		2019				2018
Funded status		$	56.3			$	5.6
Recorded as:
Other liabilities		56.3				5.6
		$	56.3			$	5.6

		German Plan
		2019				2018
Funded status		$	42.8			$	34.0
Recorded as:
Accrued expenses and other		$	0.5			$	0.3
Other liabilities		42.3				33.7
		$	42.8			$	34.0

On December 31, 2019, the U.K. plans were closed to future accrual, which resulted in an estimated reduction in the projected benefit obligation of the plans of $16.1. The reduction in the projected benefit obligation due to the plan revisions resulted in a

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LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

curtailment gain, which was recorded as a reduction to the unrecognized actuarial losses present in accumulated other comprehensive income as of December 31, 2019.

The Company contributed $11.4 in 2019 to the U.K. Plans and expects to contribute $13.8 in 2020. No contributions were made to the German plan during 2019, nor are any contributions expected to be made in 2020, as the plan is unfunded.

The accumulated benefit obligation for the U.K. Plans and the German Plan was $547.9 and $37.8 at December 31, 2019, respectively. The accumulated benefit obligation for the U.K. Plans and the German Plan was $223.8 and $30.1 at December 31, 2018, respectively.

The amounts recognized in accumulated other comprehensive income for the year ended December 31, 2019, and December 31, 2018, is as follows:

		U.K. Plans
		2019				2018
Net actuarial loss		$	24.4			$	10.1
Less: Tax benefit (deferred tax asset)		(4.2		)		(1.7		)
Accumulated other comprehensive income impact		$	20.2			$	8.4
Assumptions used to determine benefit obligations:
Discount rate		2.0		%		2.9		%
Salary increases (excludes Envigo plan at 0%)		3.5		%		3.6		%

		German Plan
		2019				2018
Net actuarial loss/(gain)		$	7.1			$	(1.0	)
Less: Tax expense (deferred tax liability)		(2.2		)		0.3
Accumulated other comprehensive income impact		$	4.9			$	(0.7	)
Assumptions used to determine benefit obligations:
Discount rate		0.9		%		1.9		%
Salary increases		2.0		%		2.0		%

The net actuarial loss for the U.K and German pension plans required to be amortized from accumulated other comprehensive income into net periodic pension cost in 2020 is expected to be $0.1 and $0.3, respectively.

The investment policies for the U.K. Plans are set by the plan trustees, based upon the guidance of professional advisors and after consultation with the Company, taking into consideration the plans’ liabilities and future funding levels. The trustees have set the long-term investment policy largely in accordance with the asset allocation of a broadly diversified investment portfolio. Assets for the U.K. Plans are generally invested within the target ranges as follows:

		Legacy U.K. Plans				Envigo Plan
Equity securities		60.0%	to	70.0%		20.0	%	to	30.0	%
Debt securities		10.0%	to	20.0%		60.0	%	to	70.0	%
Annuities		10.0%	to	20.0%		—	%	to	—	%
Real estate		—%	to	10.0%		5.0	%	to	15.0	%
Other		—%	to	5.0%		—	%	to	5.0	%

The weighted average asset allocation of the U.K. Pension Plans as of December 31, 2019, by asset category is as follows:

		December 31, 2019
		Legacy U.K. Plans			Envigo Plan
Equity securities		64.0	%		25.0	%
Debt securities		21.0	%		65.0	%
Annuities		10.0	%		—	%
Real estate		4.0	%		9.0	%
Other		1.0	%		1.0	%

F-45

Index

LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Investments are made in pooled investment funds. Pooled investment fund managers are regulated by the Financial Conduct Authority in the U.K. and operate under terms which contain restrictions on the way in which the portfolios are managed and require the managers to ensure that suitable internal operating procedures are in place. The trustees have set performance objectives for each fund manager and routinely monitor and assess the managers’ performance against such objectives. Annuities represent annuity buy-in insurance policies purchased by the plan trustees from large, financially sound insurers. The cash flows from the annuities are intended to match the plan’s obligations to specific groups of participants, typically those participants currently receiving benefits.

The fair value of the Company’s U.K. Plans' assets as of December 31, 2019, and December 31, 2018, by asset category, are as follows:

					Fair Value Measurements as of
					December 31, 2019
	December 31, 2019				Using Fair Value Hierarchy
Asset Category		Level 1				Level 2				Level 3
Cash	$	2.6			$	2.6			$	—			$	—
Mutual funds (a)	458.5				—				458.5				—
Annuities (b)	30.6				—				—				30.6
Total fair value of the Company Plan’s assets	$	491.7			$	2.6			$	458.5			$	30.6

					Fair Value Measurements as of
					December 31, 2018
	December 31, 2018				Using Fair Value Hierarchy
Asset Category		Level 1				Level 2				Level 3
Cash	$	0.7			$	0.7			$	—			$	—
Mutual funds (a)	226.6				—				226.6				—
Annuities (b)	27.3				—				—				27.3
Total fair value of the Company Plan’s assets	$	254.6			$	0.7			$	226.6			$	27.3

a)

Mutual funds represent pooled investment vehicles offered by investment managers, which are generally comprised of investments in equities, bonds, property and cash. The plans’ trustees hold units in these funds, the value of which is determined by the number of units held multiplied by the unit price calculated by the investment managers. That unit price is derived based on the market value of the securities that comprise the fund, which are determined by quoted prices in active markets. No element of the valuation is based on inputs made by the plans’ trustees.

b)

Annuities represent annuity buy-in insurance policies, whereby the insurer pays the pension payments for the lifetime of the members covered. The annuities are assets of the plan and payments from the insurer are made to the plans’ trustees, who then use those proceeds to pay the pensioners. The cash flows from the annuities are intended to effectively match the payments to the pensioners covered by the policy. As such, these assets are valued actuarially based upon the value of the liabilities with which they are associated. As the valuation of these assets is judgmental, and there are no observable inputs associated with the valuation, these assets are classified as Level 3 in the fair value hierarchy.

Fair Value Measurement of Level 3 Pension Assets		Annuities
Balance at January 1, 2018		$	31.5
Actual return on plan assets		(4.2		)
Balance at December 31, 2018		27.3
Actual return on plan assets		3.3
Balance at December 31, 2019		$	30.6

Expected future benefit payments are as follows:

		U.K. Plans				German Plan
2020		$	13.7			$	0.5
2021		14.9				0.5
2022		16.1				0.6
2023		16.7				0.6
2024		18.0				0.7
Years 2025 and thereafter		95.7				3.6

F-46

Index

LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Post-employment Retiree Health and Welfare Plan

As a result of the Covance acquisition, the Company sponsors a post-employment retiree health and welfare plan for the benefit of eligible employees at certain U.S. subsidiaries who retire after satisfying service and age requirements. This plan is funded on a pay-as-you-go basis and the cost of providing these benefits is shared with the retirees.

Post-retirement Medical Plan

The Company assumed obligations under a subsidiary's post-retirement medical plan. Coverage under this plan is restricted to a limited number of existing employees of the subsidiary. This plan is unfunded and the Company’s policy is to fund benefits as claims are incurred. The effect on operations of the post-retirement medical plan is shown in the following table:

	Year ended December 31,
	2019				2018				2017
Service cost for benefits earned	$	—			$	—			$	—
Interest cost on benefit obligation	0.3				0.3				0.3
Net amortization and deferral	0.4				(1.3		)		(6.7		)
Post-retirement medical plan costs	$	0.7			$	(1.0	)		$	(6.4	)

Amounts included in accumulated other comprehensive earnings consist of unamortized net loss of $2.0. The accumulated other comprehensive earnings that are expected to be recognized as components of the post-retirement medical plan costs during 2020 are $0.3 related to amortization of the net gain resulting from the shift of Medicare-eligible participants to private exchanges.

A summary of the changes in the accumulated post-retirement benefit obligation follows:

	2019				2018
Balance at January 1	$	6.9			$	8.6
Interest cost on benefit obligation	0.3				0.3
Actuarial loss	—				(1.2		)
Benefits paid	(0.7		)		(0.8		)
Balance at December 31	$	6.5			$	6.9
Recorded as:
Accrued expenses and other	$	0.8			$	0.9
Other liabilities	5.7				6.0
	$	6.5			$	6.9

The weighted-average discount rates used in the calculation of the accumulated post-retirement benefit obligation were 3.2% and 4.2% as of December 31, 2019, and 2018, respectively. The healthcare cost trend rate was removed due to the expectation of future funding to be at the same level as the previous year's funding.

The following assumed benefit payments under the Company's post-retirement benefit plan, which reflect expected future service, as appropriate, and which were used in the calculation of projected benefit obligations, are expected to be paid as follows:

2020	$	0.8
2021	0.8
2022	0.8
2023	0.7
2024	0.7
Years 2025 and thereafter	1.9

Deferred Compensation Plan

The Company has a Deferred Compensation Plan (DCP) under which certain of its executives may elect to defer up to 100.0% of their annual cash incentive pay and/or up to 50.0% of their annual base salary and/or eligible commissions subject to annual limits established by the U.S. government. The DCP provides executives a tax efficient strategy for retirement savings and capital accumulation without significant cost to the Company. The Company makes no contributions to the DCP. Amounts deferred by a participant are credited to a bookkeeping account maintained on behalf of each participant, which is used for measurement and determination of amounts to be paid to a participant, or his or her designated beneficiary, pursuant to the terms of the DCP. The amounts accrued under this plan were $76.7 and $64.2 at December 31, 2019, and 2018, respectively. Deferred amounts are the

F-47

Index

LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Company's general unsecured obligations and are subject to claims by the Company's creditors. The Company's general assets may be used to fund obligations and pay DCP benefits.

18. FAIR VALUE MEASUREMENTS

The Company’s population of financial assets and liabilities subject to fair value measurements as of December 31, 2019, and 2018 were as follows:

						Fair Value Measurements as of
						December 31, 2019
	Balance Sheet Classification	Fair Value as of December 31, 2019				Using Fair Value Hierarchy
		Level 1				Level 2				Level 3
Noncontrolling interest put	Noncontrolling interest	$	15.8			$	—			$	15.8			$	—
Interest rate swaps	Other assets, net	1.5				—				1.5				—
Cross currency swaps	Other assets, net	3.2				—				3.2				—
Cash surrender value of life insurance policies	Other assets, net	80.2				—				80.2				—
Deferred compensation liability	Other liabilities	76.7				—				76.7				—
Investment in equity securities	Other current assets	9.1				9.1				—				—
Contingent consideration	Other liabilities	7.8				—				—				7.8

						Fair Value Measurements as of
						December 31, 2018
	Balance Sheet Classification	Fair Value as of December 31, 2018				Using Fair Value Hierarchy
		Level 1				Level 2				Level 3
Noncontrolling interest put	Noncontrolling interest	$	15.0			$	—			$	15.0			$	—
Interest rate swap	Other liabilities	3.1				—				3.1				—
Cross currency swaps liability	Other liabilities	2.8				—				2.8				—
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 Measurement of Level 3 Liabilities		Contingent Consideration
Balance at January 1, 2018		$	16.5
Addition		2.1
Balance at December 31, 2018		18.6
Addition		3.3
Adjustments		(14.1		)
Balance at December 31, 2019		$	7.8

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. During the year ended December 31, 2019, the carrying value of the noncontrolling interest put increased by $0.8 for foreign currency translation.

The Company offers certain employees the opportunity to participate in a DCP. A participant's deferrals are allocated by the participant to one or more of 16 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 the life insurance policies are based upon earnings and changes in the value of the underlying investments, which are typically invested in a similar manner 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.

Contingent accrued earn-out business acquisition consideration liabilities for which fair values are measured as Level 3 instruments. These contingent consideration liabilities 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

F-48

Index

LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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 $0.0 and $16.9 as of December 31, 2019, and 2018, respectively. The fair market value of the Senior Notes, based on market pricing, was approximately $5,281.1 and $5,318.0 as of December 31, 2019, and 2018, respectively. The Company's note and debt instruments are considered Level 2 instruments, as the fair market values of these instruments are determined using other observable inputs.

19. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

The Company addresses its exposure to market risks, principally the market risk associated with changes in interest rates and currency exchange rates, through a controlled program of risk management that includes, from time to time, the use of derivative financial instruments. Although the Company’s zero-coupon subordinated notes contained features that were considered to be embedded derivative instruments, the Company does not hold or issue derivative financial instruments for trading purposes. The Company does not believe that its exposure to market risk is material to the Company’s financial position or results of operations.

Interest Rate Swap

During the third quarter of 2013, the Company entered into 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. The Company exited one of these swap arrangements in December 2019 in connection with the redemption of $187.9 of the 4.625% Senior Notes due 2020. 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 liabilities, as applicable, and added to the value of the Senior Notes. 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 of operations. Cash flows from the interest rate swaps are including in operating activities.

		Carrying amount of hedged liabilities as of December 31,								Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Liabilities as of December 31,
		2019				2018				2019				2018
Balance Sheet Line Item in which Hedged Items are Included
Current portion, long term debt		$	301.5			—				$	1.5			$	—
Long-term debt, less current portion		—				$	597.0			—				$	(3.1	)

Foreign Currency Forward Contracts

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 December 31, 2019 and 2018.

Cross Currency Swaps

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 were accounted for as a hedge against its net investment in a Swiss subsidiary. Of the notional value, $300.0 were due to mature in 2022 and $300.0 were due to mature in 2025. These cross currency swaps maturing in 2022 and 2025 were settled on December 10, 2018 in cash.

During the fourth quarter of 2018, the Company entered into six new 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 the impact of foreign exchange movements on its net investment in a Swiss Franc functional currency 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 as of December 31, 2019. Changes in the fair value of the cross-currency swaps are recorded as a component of the foreign currency translation adjustment in accumulated other comprehensive income in the 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 $6.0 for the year ended December 31, 2019, and was recognized as currency translation within the Consolidated Statement of

F-49

Index

LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Comprehensive Earnings. There were no amounts reclassified from the Consolidated Statement of Comprehensive Earnings to the Consolidated Statement of Operations during the year ended December 31, 2019.

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

			December 31, 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	Prepaid expenses and other/Other liabilities		1.5			—			300.0			—			(3.1	)		600.0
Cross currency swaps	Other assets, net/Other liabilities		3.2			—			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
		Year Ended December 31,												Year Ended December 31,
		2019				2018				2017				2019				2018				2017
Interest rate swap contracts		$	6.7			$	(7.2	)		$	(10.5	)		$	—			$	—			$	—
Cross currency swaps		$	6.0			$	21.6			$	—			$	—			$	—			$	—

The Company recognized a $1.6 gain on the exit one of these swap arrangements in December 2019 in connection with the redemption of $187.9 of the 4.625% Senior Notes due 2020. No gains or losses from derivative instruments classified as hedging instruments have been recognized into income for the years ended December 31, 2018 or 2017.

20. SUPPLEMENTAL CASH FLOW INFORMATION

	Years Ended December 31,
	2019				2018				2017
Supplemental schedule of cash flow information:
Cash paid during period for:
Interest	$	248.9			$	296.2			$	239.1
Income taxes, net of refunds	216.8				349.7				348.0
Disclosure of non-cash financing and investing activities:
Conversion of zero-coupon convertible debt	8.4				0.3				35.0
Assets acquired under finance leases	48.7				0.6				7.3
Accrued property, plant and equipment	2.7				22.1				1.6
Floating rate secured note receivable due 2022 from the sale of CRP	110.0				—				—

21. BUSINESS SEGMENT INFORMATION

The following table is a summary of segment information for the years ended December 31, 2019, 2018, and 2017. 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 segments within an enterprise 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 (loss) of each segment represents revenues less directly identifiable expenses to arrive at operating income for the segment. General management and administrative corporate expenses are included in general corporate expenses below.

F-50

Index

LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

		2019				2018				2017
Revenues:
LCD		$	7,000.1			$	7,030.8			$	6,858.2
CDD		4,578.1				4,313.1				3,451.6
Intercompany eliminations		(23.4		)		(10.5		)		(1.8		)
Total revenues		$	11,554.8			$	11,333.4			$	10,308.0
Operating Earnings (Loss):
LCD		$	1,086.0			$	1,166.7			$	1,300.9
CDD		411.5				303.6				144.9
General corporate expenses		(167.3		)		(144.6		)		(140.6		)
Total operating income		1,330.2				1,325.7				1,305.2
Non-operating expenses, net		(225.3		)		(57.4		)		(227.7		)
Earnings before income taxes		1,104.9				1,268.3				1,077.5
Provision for income taxes		280.0				384.4				(155.4		)
Net earnings		824.9				883.9				1,232.9
Less: Net income attributable to noncontrolling interests		(1.1		)		(0.2		)		(5.8		)
Net income attributable to Laboratory Corporation of America Holdings		$	823.8			$	883.7			$	1,227.1

		2019				2018				2017
Depreciation and Amortization
LCD		$	301.0			$	293.3			$	304.7
CDD		261.1				247.3				217.4
General corporate		2.6				2.6				1.2
Total depreciation and amortization		$	564.7			$	543.2			$	523.3

		LCD				CDD				Intercompany Eliminations				Total
Geographic distribution of revenues
US		$	6,662.6			$	2,341.8			$	(23.4	)		$	8,981.0
Canada		333.3				—				—				333.3
United Kingdom		—				507.9				—				507.9
Switzerland		—				532.9				—				532.9
Other		4.2				1,195.5				—				1,199.7
Total revenues		$	7,000.1			$	4,578.1			$	(23.4	)		$	11,554.8

		LCD				CDD				Total
Geographic distribution of property, plant and equipment, net
U.S.		$	1,385.1			$	694.8			$	2,079.9
Canada		94.9				—				94.9
U.K.		—				196.2				196.2
Switzerland		—				92.9				92.9
Other		—				172.7				172.7
Total property, plant and equipment, net		$	1,480			$	1,156.6			$	2,636.6

F-51

Index

LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

22. QUARTERLY DATA (UNAUDITED)

The following is a summary of unaudited quarterly data:

	Year Ended December 31, 2019
	1st Quarter				2nd Quarter				3rd Quarter				4th Quarter				Full Year
Revenues	$	2,791.2			$	2,881.7			$	2,928.5			$	2,953.4			$	11,554.8
Gross profit	789.7				824.8				817.3				820.7				3,252.5
Operating income	318.2				335.7				339.9				336.4				1,330.2
Net earnings attributable to Laboratory Corporation of America Holdings	185.6				190.4				220.7				227.1				823.8
Basic earnings per common share	1.88				1.94				2.26				2.34				8.42
Diluted earnings per common share	1.86				1.93				2.25				2.32				8.35

	Year Ended December 31, 2018
	1st Quarter				2nd Quarter				3rd Quarter				4th Quarter				Full Year
Revenues	$	2,848.3			$	2,866.3			$	2,831.3			$	2,787.5			$	11,333.4
Gross profit	779.0				835.1				789.9				772.4				3,176.4
Operating income	305.4				369.2				343.4				307.7				1,325.7
Net earnings attributable to Laboratory Corporation of America Holdings	173.2				233.8				318.8				157.9				883.7
Basic earnings per common share	1.70				2.29				3.14				1.58				8.71
Diluted earnings per common share	1.67				2.27				3.10				1.56				8.61

F-52