Company Quick10K Filing
Quick10K
Laboratory of America
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$165.92 98 $16,340
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-K 2013-12-31 Annual: 2013-12-31
8-K 2019-07-01 Regulation FD
8-K 2019-06-25 Regulation FD
8-K 2019-06-18 Regulation FD
8-K 2019-06-07 Regulation FD
8-K 2019-06-04 Regulation FD
8-K 2019-06-04 Officers, Regulation FD, Exhibits
8-K 2019-06-03 Enter Agreement, Off-BS Arrangement, Regulation FD, Exhibits
8-K 2019-05-10 Regulation FD
8-K 2019-05-09 Shareholder Vote
8-K 2019-05-02 Regulation FD
8-K 2019-04-30 Earnings
8-K 2019-04-17 Regulation FD, Exhibits
8-K 2019-03-11 Regulation FD
8-K 2019-02-19 Regulation FD
8-K 2019-02-07 Exhibits
8-K 2019-02-07 Earnings
8-K 2019-01-31 Officers
8-K 2019-01-22 Regulation FD
8-K 2019-01-16 Regulation FD
8-K 2019-01-15 Regulation FD
8-K 2019-01-08 Regulation FD
8-K 2019-01-03 Regulation FD
8-K 2019-01-03 Regulation FD
8-K 2019-01-03 Regulation FD
8-K 2018-12-21 Officers
8-K 2018-12-20 Officers
8-K 2018-12-07 Regulation FD
8-K 2018-12-07 Regulation FD
8-K 2018-11-30 Regulation FD, Exhibits
8-K 2018-11-28 Regulation FD
8-K 2018-11-08 Regulation FD
8-K 2018-11-01 Regulation FD
8-K 2018-10-29 Regulation FD
8-K 2018-10-24 Exhibits
8-K 2018-10-24 Earnings
8-K 2018-10-18 Regulation FD
8-K 2018-10-18 Regulation FD
8-K 2018-10-17 Regulation FD
8-K 2018-10-10 Regulation FD
8-K 2018-10-01 Regulation FD
8-K 2018-09-25 Regulation FD
8-K 2018-09-24 Regulation FD
8-K 2018-09-24 Regulation FD
8-K 2018-09-11 Regulation FD
8-K 2018-09-06 Regulation FD
8-K 2018-07-25 Earnings
8-K 2018-07-25 Exhibits
8-K 2018-07-16 Regulation FD
8-K 2018-07-12 Regulation FD
8-K 2018-07-02 Regulation FD
8-K 2018-06-28 Regulation FD
8-K 2018-06-27 Regulation FD
8-K 2018-06-12 Regulation FD
8-K 2018-06-11 Regulation FD
8-K 2018-06-05 Regulation FD
8-K 2018-06-01 Regulation FD
8-K 2018-05-25 Regulation FD
8-K 2018-05-24 Regulation FD
8-K 2018-05-10 Shareholder Vote
8-K 2018-05-03 Regulation FD
8-K 2018-04-30 Regulation FD, Other Events, Exhibits
8-K 2018-04-25 Exhibits
8-K 2018-04-24 Regulation FD
8-K 2018-04-23 Regulation FD
8-K 2018-04-02 Regulation FD
8-K 2018-03-22 Regulation FD
8-K 2018-03-12 Regulation FD
8-K 2018-03-09 Regulation FD
8-K 2018-03-07 Regulation FD
8-K 2018-03-06 Regulation FD
8-K 2018-03-05 Regulation FD
8-K 2018-02-28 Regulation FD
8-K 2018-02-23 Regulation FD
8-K 2018-02-20 Regulation FD
8-K 2018-02-06 Regulation FD
8-K 2018-01-19 Regulation FD
8-K 2018-01-09 Regulation FD
8-K 2018-01-08 Regulation FD
8-K 2018-01-03 Regulation FD
8-K 2018-01-02 Regulation FD
TPX Tempur Sealy 3,390
GTLS Chart Industries 2,960
URBN Urban Outfitters 2,940
FMBI First Midwest Bancorp 2,220
GCI Gannett 999
DCO Ducommun 560
TMQ Trilogy Metals 330
FIF Financial Federal 270
CLD Cloud Peak Energy 0
SFR Steadfast Income REIT 0
LH 2019-03-31
Part I. Financial Information
Part II. Other Information
Item 1. Legal Proceedings 35 Item 1A. Risk Factors 35 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 35 Item 6. Exhibits 35
Part I - Financial Information
Item 1. Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II - Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds (Dollars in Millions)
Item 6. Exhibits
EX-10.1 ex101retirementagreementfs.htm
EX-31.1 ex311q12019.htm
EX-31.2 ex312q12019.htm
EX-32 ex32q12019.htm

Laboratory of America Earnings 2019-03-31

LH 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 lh201910-qq1.htm 10-Q Document
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.  20549
FORM 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2019
OR
[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to  ______

Commission file number   1-11353
LABORATORY CORPORATION OF
AMERICA HOLDINGS
(Exact name of registrant as specified in its charter)
Delaware
 
13-3757370
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
358 South Main Street,
 
 
Burlington, North Carolina
 
27215
(Address of principal executive offices)
 
(Zip Code)

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

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (paragraph 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes [X] No [  ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer [X]
Accelerated filer [  ]
Non-accelerated filer [  ]
Smaller reporting company [  ]
 
Emerging growth company [ ]
If emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [  ] No [X].
Securities registered pursuant to Section 12(b) of the Exchange Act.

Title of Each Class            Trading Symbol            Name of exchange on which registered
Common Stock, $0.10 par value        LH                New York Stock Exchange
The number of shares outstanding of the issuer's common stock is 98.5 million shares, net of treasury stock as of May 1, 2019.




INDEX


PART I. FINANCIAL INFORMATION

Item 1.
 
 
 
 
 
 
March 31, 2019 and December 31, 2018
 
 
 
 
 
 
Three months ended March 31, 2019 and 2018

 
 
 
 
 
 
Three months ended March 31, 2019 and 2018
 
 
 
 
 
 
Three months ended March 31, 2019 and 2018


 
 
 
 
 
 
Three months ended March 31, 2019 and 2018

 
 
 
 
 
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.

PART II. OTHER INFORMATION



1


PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in millions)
(unaudited)
 
March 31,
2019
 
December 31,
2018
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
348.8

 
$
426.8

Accounts receivable
1,563.0

 
1,467.9

Unbilled services
422.7

 
394.4

Supplies inventories
233.7

 
237.3

Prepaid expenses and other
317.1

 
309.0

Total current assets
2,885.3

 
2,835.4

Property, plant and equipment, net
2,457.9

 
1,740.3

Goodwill, net
7,385.9

 
7,360.3

Intangible assets, net
3,884.9

 
3,911.1

Joint venture partnerships and equity method investments
66.9

 
60.5

Deferred income tax assets
1.7

 
1.7

Other assets, net
288.2

 
276.0

Total assets
$
16,970.8

 
$
16,185.3

 
 
 
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
 

 
 

Current liabilities:
 

 
 

Accounts payable
$
592.2

 
$
634.6

Accrued expenses and other
797.3

 
870.0

Unearned revenue
364.6

 
356.4

Short-term operating lease liabilities
263.4

 

Short-term finance lease liabilities
7.7

 
7.9

Short-term borrowings and current portion of long-term debt
501.7

 
10.0

Total current liabilities
2,526.9

 
1,878.9

Long-term debt, less current portion
5,495.6

 
5,990.9

Operating lease liabilities
502.4

 

Financing lease liabilities
48.7

 
51.0

Deferred income taxes and other tax liabilities
959.1

 
940.0

Other liabilities
307.3

 
334.0

Total liabilities
9,840.0

 
9,194.8

Commitments and contingent liabilities


 


Noncontrolling interest
19.5

 
19.1

Shareholders’ equity:
 

 
 

Common stock, 98.7 and 98.9 shares outstanding at March 31, 2019 and December 31, 2018, respectively
11.6

 
11.7

Additional paid-in capital
1,401.3

 
1,451.1

Retained earnings
7,265.4

 
7,079.8

Less common stock held in treasury
(1,127.5
)
 
(1,108.1
)
Accumulated other comprehensive loss
(439.5
)
 
(463.1
)
Total shareholders’ equity
7,111.3

 
6,971.4

Total liabilities and shareholders’ equity
$
16,970.8

 
$
16,185.3


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

2


LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions, except per share data)
(unaudited)

 
Three Months Ended March 31,
 
2019
 
2018
Revenues
$
2,791.2

 
$
2,848.3

Cost of revenues
2,001.5

 
2,069.3

Gross profit
789.7

 
779.0

Selling, general and administrative expenses
393.8

 
397.0

Amortization of intangibles and other assets
57.1

 
62.3

Restructuring and other special charges
20.6

 
14.3

Operating income
318.2

 
305.4

Other income (expenses):
 

 
 

Interest expense
(56.7
)
 
(63.5
)
Equity method income, net
3.0

 
2.5

Investment income
0.6

 
0.6

Other, net
(10.4
)
 
(3.5
)
Earnings before income taxes
254.7

 
241.5

Provision for income taxes
68.8

 
69.0

Net earnings
185.9

 
172.5

Less: Net (earnings) loss attributable to the noncontrolling interest
(0.3
)
 
0.7

Net earnings attributable to Laboratory Corporation of America Holdings
$
185.6

 
$
173.2

 
 
 
 
Basic earnings per common share
$
1.88

 
$
1.70

Diluted earnings per common share
$
1.86

 
$
1.67


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

3


 
LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS
(in millions, except per share data)
(unaudited)

 
Three Months Ended March 31,
 
2019
 
2018
Net earnings
$
185.9

 
$
172.5

Foreign currency translation adjustments
21.6

 
39.4

Net benefit plan adjustments
2.7

 
2.9

Other comprehensive earnings before tax
24.3

 
42.3

(Provision) benefit for income tax related to items of other comprehensive earnings
(0.7
)
 
10.2

Other comprehensive earnings, net of tax
23.6

 
52.5

Comprehensive earnings
209.5

 
225.0

Less: Net (earnings) loss attributable to the noncontrolling interest
(0.3
)
 
0.7

Comprehensive earnings attributable to Laboratory Corporation of America Holdings
$
209.2

 
$
225.7


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


4


LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN
SHAREHOLDERS’ EQUITY
(in millions)
(unaudited)

 
Common
Stock
 
Additional
Paid-in
Capital
 
Retained
Earnings
 
Treasury
Stock
 
Accumulated
Other
Comprehensive
Loss
 
Total
Shareholders’
Equity
BALANCE AT DECEMBER 31, 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

 

 
173.2

 

 

 
173.2

Other comprehensive earnings, net of tax

 

 

 

 
52.5

 
52.5

Issuance of common stock under employee stock plans

 
28.4

 

 

 

 
28.4

Net share settlement tax payments from issuance of stock to employees


 

 

 
(25.0
)
 

 
(25.0
)
Conversion of zero-coupon convertible debt

 

 

 

 

 

Stock compensation

 
25.8

 

 

 

 
25.8

Purchase of common stock

 
(75.0
)
 

 

 

 
(75.0
)
BALANCE AT MARCH 31, 2018
$
12.0

 
$
1,969.0

 
$
6,369.3

 
$
(1,085.1
)
 
$
(281.2
)
 
$
6,984.0

 
 
 
 
 
 
 
 
 
 
 
 
BALANCE AT DECEMBER 31, 2018
$
11.7

 
$
1,451.1

 
$
7,079.8

 
$
(1,108.1
)
 
$
(463.1
)
 
$
6,971.4

Net earnings attributable to Laboratory Corporation of America Holdings

 

 
185.6

 

 

 
185.6

Other comprehensive earnings, net of tax

 

 

 

 
23.6

 
23.6

Issuance of common stock under employee stock plans

 
24.7

 

 

 

 
24.7

Net share settlement tax payments from issuance of stock to employees


 

 

 
(19.4
)
 

 
(19.4
)
Conversion of zero-coupon convertible debt

 

 

 

 

 

Stock compensation

 
25.5

 

 

 

 
25.5

Purchase of common stock
(0.1
)
 
(100.0
)
 

 

 

 
(100.1
)
BALANCE AT MARCH 31, 2019
$
11.6

 
$
1,401.3

 
$
7,265.4

 
$
(1,127.5
)
 
$
(439.5
)
 
$
7,111.3


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

5


LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
(unaudited)
 
Three Months Ended March 31,
 
2019
 
2018
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
Net earnings
$
185.9

 
$
172.5

Adjustments to reconcile net earnings to net cash provided by operating activities:
 

 
 

Depreciation and amortization
137.3

 
142.8

Stock compensation
25.5

 
25.8

Loss on sale of assets
6.0

 
1.7

Amortization of operating lease right-of-use assets
61.2

 

Cumulative earnings more than distributions from equity method investments

(0.8
)
 
(0.5
)
Asset impairment

 
2.3

Deferred income taxes
17.1

 
36.0

Change in assets and liabilities (net of effects of acquisitions):
 

 
 

Increase in accounts receivable
(90.8
)
 
(53.6
)
Increase in unbilled services
(26.4
)
 
(22.8
)
Decrease in inventories
3.4

 
1.4

Decrease (increase) in prepaid expenses and other
7.2

 
(33.8
)
Decrease in accounts payable
(28.8
)
 
(59.8
)
Increase in unearned revenue
5.6

 
26.2

Decrease in accrued expenses and other
(136.6
)
 
(58.5
)
Net cash provided by operating activities
165.8

 
179.7

CASH FLOWS FROM INVESTING ACTIVITIES:
 

 
 

Capital expenditures
(94.2
)
 
(72.5
)
Proceeds from sale of assets
3.9

 
0.1

Proceeds from sale of investment
0.4

 

Investments in equity affiliates
(3.3
)
 
(1.9
)
Acquisition of businesses, net of cash acquired
(47.3
)
 

Net cash used for investing activities
(140.5
)
 
(74.3
)
CASH FLOWS FROM FINANCING ACTIVITIES:
 

 
 

Proceeds from revolving credit facilities
133.2

 
229.7

Payments on revolving credit facilities
(133.2
)
 
(214.7
)
Payments on zero-coupon subordinated notes
(5.2
)
 

Noncontrolling interest distributions
(0.2
)
 
(5.6
)
Payments on long-term lease obligations
(3.0
)
 
(2.8
)
Net share settlement tax payments from issuance of stock to employees

(19.4
)
 
(25.0
)
Net proceeds from issuance of stock to employees
24.7

 
28.4

Purchase of common stock
(100.1
)
 
(75.0
)
Net cash used for financing activities
(103.2
)
 
(65.0
)
Effect of exchange rate changes on cash and cash equivalents
(0.1
)
 
4.7

Net (decrease) increase in cash and cash equivalents
(78.0
)
 
45.1

Cash and cash equivalents at beginning of period
426.8

 
316.7

Cash and cash equivalents at end of period
$
348.8

 
$
361.8


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

6

LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollars and shares in millions, except per share data)



1.  
BASIS OF FINANCIAL STATEMENT PRESENTATION
Laboratory Corporation of America® Holdings together with its subsidiaries (the Company) is a leading global life sciences company that is deeply integrated in guiding patient care, providing comprehensive clinical laboratory and end-to-end drug development services. The Company’s mission is to improve health and improve lives by delivering world-class diagnostic solutions, bringing innovative medicines to patients faster and using technology to provide better care. The Company serves a broad range of customers, including managed care organizations (MCOs), biopharmaceutical companies, medical device companies, governmental agencies, physicians and other healthcare providers (e.g., physician assistants and nurse practitioners, generally referred to herein as physicians), hospitals and health systems, employers, patients and consumers, contract research organizations (CROs) and independent clinical laboratories. Prior to the sale of its Covance Food Solutions (CFS) business on August 1, 2018, the Company's customers also included food and nutritional companies. The Company believes that it generated more revenue from laboratory testing than any other company in the world in 2018.
The Company reports its business in two segments, LabCorp Diagnostics (LCD) and Covance Drug Development (CDD). For further financial information about these segments, see Note 16 (Business Segment Information). During the three months ended March 31, 2019, LCD and CDD contributed approximately 62% and 38%, respectively, of revenues to the Company.
The condensed consolidated financial statements include the accounts of the Company and its majority-owned subsidiaries for which it exercises control. Long-term investments in affiliated companies in which the Company exercises significant influence, but which it does not control, are accounted for using the equity method. Investments in which the Company does not exercise significant influence (generally, when the Company has an investment of less than 20.0% and no representation on the investee's board of directors) are accounted for at fair value or at cost minus impairment for those investments that do not have readily determinable fair values. All significant inter-company transactions and accounts have been eliminated. The Company does not have any variable interest entities or special purpose entities whose financial results are not included in the condensed consolidated financial statements.
The financial statements of the Company's operating foreign subsidiaries are measured using the local currency as the functional currency. Assets and liabilities are translated at exchange rates as of the balance sheet date. Revenues and expenses are translated at average monthly exchange rates prevailing during the period. Resulting translation adjustments are included in “Accumulated other comprehensive income.”
The accompanying condensed consolidated financial statements of the Company are unaudited. In the opinion of management, all adjustments necessary for a fair statement of results of operations, cash flows and financial position have been made. Except as otherwise disclosed, all such adjustments are of a normal recurring nature. Interim results are not necessarily indicative of results for a full year. The year-end condensed consolidated balance sheet data was derived from audited financial statements but does not include all disclosures required by generally accepted accounting principles.
The condensed consolidated financial statements and notes are presented in accordance with the rules and regulations of the United States (U.S.) Securities and Exchange Commission (SEC) and do not contain certain information included in the Company’s 2018 Annual Report on Form 10-K. Therefore, the interim statements should be read in conjunction with the consolidated financial statements and notes thereto contained in the Company’s Annual Report.
Recently Adopted Guidance
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 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 effective date method, as such 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,

7

LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollars and shares in millions, except per share data)


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 Condensed Consolidated Balance Sheets. Operating lease expense is recognized on a straight-line basis over the lease term.
Operating lease assets and liabilities are recognized at the commencement date, based on the present value of the future minimum lease payments over the lease term. A certain number of these leases contain rent escalation clauses either fixed or adjusted periodically for inflation or market rates that are factored into the 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 uses its incremental borrowing rate based on the information available at the lease commencement date to discount payments to the present value. Some operating leases contain renewal options, some of which also include options to early terminate the leases. The exercise of these options is at the Company's discretion. The Company determined that all renewal options within leases for main laboratories, STAT laboratories, branches or combination sites were reasonably possible to be exercised and therefore are included in the accounting lease term.
The standard had a material impact in the consolidated balance sheets, but no material impact in the consolidated income statements. The most significant impact was the recognition of right of use (ROU) assets and lease liabilities for operating leases, while the accounting for finance leases remained unchanged.
Financial Instruments
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.
New Accounting Pronouncements
In June 2016, the FASB issued a new accounting standard intended to provide financial statement users with more decision-useful information about expected credit losses and other commitments to extend credit held by the reporting entity. The standard replaces the incurred loss impairment methodology in current GAAP with one that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The update is effective on January 1, 2020, with early adoption permitted. The Company is currently evaluating the impact this new standard will have on the consolidated financial statements.
In August 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, 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 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, with early adoption permitted. The Company is currently evaluating the impact this new standard will have on the consolidated financial statements.
Reclassifications and Revisions
The Company adopted Accounting Standard Update 2016-09 Compensation - Stock Compensation (Topic 718) during 2016 and incorrectly classified payments made to tax authorities for withheld shares from an employee’s equity award as cash flows from operating activities versus cash flows from financing activities. As a result, the Company has revised the consolidated statement of cash flows for these tax payments of $25.0 for the three months ended March 31, 2018, from operating activities to financing activities. The Company concluded that these errors were not material individually or in the aggregate to any of the periods impacted.
In 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.

8

LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollars and shares in millions, except per share data)


2.  
REVENUE
The Company's revenue by segment payers/customer groups for the three months ended March 31, 2019, and 2018 is as follows:
 
For the Three Months Ended March 31, 2019
 
U.S.
 
Canada
 
U.K.
 
Switzerland
 
Other Europe
 
Other
 
Total
Payer/Customer
 
 
 
 
 
 
 
 
 
 
 
 
 
LCD
 
 
 
 
 
 
 
 
 
 
 
 

   Clients
16
%
 
1
%
 
%
 
%
 
%
 
%
 
17
%
   Patients
8
%
 
%
 
%
 
%
 
%
 
%
 
8
%
   Medicare and Medicaid
9
%
 
%
 
%
 
%
 
%
 
%
 
9
%
   Third-party
26
%
 
2
%
 
%
 
%
 
%
 
%
 
28
%
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 Three Months Ended March 31, 2018
 
U.S.
 
Canada
 
U.K.
 
Switzerland
 
Other Europe
 
Other
 
Total
Payer/Customer
 
 
 
 
 
 
 
 
 
 
 
 
 
LCD
 
 
 
 
 
 
 
 
 
 
 
 
 
   Clients
16
%
 
1
%
 
1
%
 
%
 
%
 
%
 
18
%
   Patients
8
%
 
%
 
%
 
%
 
%
 
%
 
8
%
   Medicare and Medicaid
9
%
 
%
 
%
 
%
 
%
 
%
 
9
%
   Third-party
25
%
 
2
%
 
%
 
%
 
%
 
%
 
27
%
Total LCD revenues by payer
58
%
 
3
%
 
1
%
 
%
 
%
 
%
 
62
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
CDD
 
 
 
 
 
 
 
 
 
 
 
 
 
   Biopharmaceutical and medical
device companies
19
%
 
%
 
3
%
 
5
%
 
4
%
 
7
%
 
38
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total revenues
77
%
 
3
%
 
4
%
 
5
%
 
4
%
 
7
%
 
100
%
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 months to 57 months, depending on the business. For businesses that enter into primarily short-term contracts, the Company applies the practical expedient which allows costs to obtain a contract to be expensed when incurred if the amortization period of the assets that would otherwise have been recognized is one year or less. Amortization of assets from sales commissions is included in selling, general, and administrative expense.
CDD incurs costs to fulfill contracts with customers, which are recoverable through the service fees in the contract. Contract fulfillment costs include software implementation costs and setup costs for certain endpoint and market access solutions. These costs are recognized as assets and amortized over the expected term of the contract to which the implementation relates, which is the period over which services are expected to be provided to the customer. This period typically ranges from 24-60 months. Amortization of deferred contract fulfillment costs is included in cost of goods sold.
 
March 31, 2019
 
December 31, 2018
Sales commission assets
$
26.7

 
$
24.2

Deferred contract fulfillment costs
13.6

 
12.9

Total
$
40.3

 
$
37.1


9

LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollars and shares in millions, except per share data)


Amortization related to sales commission assets and associated payroll taxes for the three-month periods ended March 31, 2019, and 2018, was $4.5 and $4.2, respectively. Amortization related to deferred contract fulfillment costs for the three-month periods ended March 31, 2019, and 2018, was $1.8 and $0.6, respectively. Impairment expense related to contract costs was immaterial to the Company’s consolidated statement of operations.
Contract Assets and Liabilities
The following table provides information about receivables, unbilled services, and unearned revenue (contract liabilities) from contracts with customers for the CDD segment. Unbilled services are comprised primarily of unbilled receivables, but also include contract assets. A contract asset is recorded when a right to payment has been earned for work performed, but billing and payment for that work is determined by certain contractual milestones, whereas unbilled receivables are billable upon the passage of time. While CDD attempts to negotiate terms that provide for billing and payment of services prior or in close proximity to the provision of services, this is not always possible and there are fluctuations in the level of unbilled services and unearned revenue from period to period.
 
March 31, 2019
 
December 31, 2018
Receivables, which are included in Accounts Receivable, net
$
716.1

 
$
693.6

Unbilled services
425.4

 
396.9

Unearned revenue
362.0

 
354.1

Revenue recognized during the period, which was included in the unearned revenue balance at the beginning of the period for the three-month period ended March 31, 2019 was $103.6. Bad debt expense on receivables for the three-month periods ended March 31, 2019 and 2018, was immaterial to the Company’s consolidated statement of operations.
Performance Obligations Under Long-Term Contracts
Long-term contracts at the Company consist primarily of fully managed clinical studies within the CDD segment. The amount of existing performance obligations under such long-term contracts unsatisfied as of March 31, 2019, was $3,950.4. The Company expects to recognize approximately 33% of the remaining performance obligations as revenue over the next 12 months, and the balance thereafter. The Company's long-term contracts generally range from 1 to 8 years.
Within CDD, revenue of $39.7 and $22.1 was recognized during the three months ended March 31, 2019, and 2018, respectively, from performance obligations that were satisfied in previous periods. This revenue comes from adjustments related to changes in scope and estimates in full service clinical studies.
3.
BUSINESS ACQUISITIONS AND DISPOSITIONS
During the three months ended March 31, 2019, the Company acquired various businesses and related assets for approximately $47.3 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 $24.8 in identifiable intangible assets and a residual amount of goodwill of approximately $22.1. 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 Company divested its food solutions and forensic testing services business in the U.K. and the U.S. in 2018. Total operating income for the three divested businesses was $2.0 for the three months ended March 31, 2018.
4.  
EARNINGS PER SHARE
Basic earnings per share is computed by dividing net earnings attributable to Laboratory Corporation of America Holdings by the weighted average number of common shares outstanding. Diluted earnings per share is computed by dividing net earnings including the impact of dilutive adjustments by the weighted average number of common shares outstanding plus potentially dilutive shares, as if they had been issued at the earlier of the date of issuance or the beginning of the period presented. Potentially dilutive common shares result primarily from the Company’s outstanding stock options, restricted stock awards, restricted stock units, performance share awards, and shares issuable upon conversion of zero-coupon subordinated notes.








10

LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollars and shares in millions, except per share data)


The following represents a reconciliation of basic earnings per share to diluted earnings per share:
 
Three Months Ended March 31,
 
2019
 
2018
 
Earnings
 
Shares
 
Per
Share
Amount
 
Earnings
 
Shares
 
Per
Share
Amount
Basic earnings per share:
 
 
 
 
 
 
 
 
 
 
 
Net earnings
$
185.6

 
98.6

 
$
1.88

 
$
173.2

 
101.9

 
$
1.70

Dilutive effect of employee stock options and awards

 
0.9

 
 

 

 
1.5

 
 

Net earnings including impact of dilutive adjustments
$
185.6

 
99.5

 
$
1.86

 
$
173.2

 
103.4

 
$
1.67

The following table summarizes the potential common shares not included in the computation of diluted earnings per share because their impact would have been antidilutive:
 
Three Months Ended March 31,
 
2019
 
2018
Stock options
0.3

 
0.1

5.  
RESTRUCTURING AND OTHER SPECIAL CHARGES
During the three months ended March 31, 2019, the Company recorded net restructuring and other special charges of $20.6: $13.1 within LCD and $7.5 within CDD. The charges were comprised of $16.8 related to severance and other personnel costs and $3.3 in costs associated with facility closures, impairment of operating lease right-of-use assets and general integration initiatives. The charges were increased by the adjustment of previously established reserves of $0.5 in severance reserves.
During the three months ended March 31, 2018, the Company recorded net restructuring and other special charges of $14.3: $3.6 within LCD and $10.7 within CDD. The charges were comprised of $11.3 related to severance and other personnel costs, $1.2 in costs associated with facility closures and general integration initiatives, and $2.3 in impairment to land held for sale. The Company reversed previously established reserves of $0.5 in unused facility reserves.
The following represents the Company’s restructuring reserve activities for the period indicated:
 
LCD
 
CDD
 
 
 
Severance and Other
Employee Costs

Facility Costs
 
Severance and Other
Employee Costs

Facility Costs
 
Total
Balance as of December 31, 2018
$
2.1

$
7.4

 
$
6.5

$
27.6

 
$
43.6

Reclassification for ASC 842 adoption

(5.7
)
 

(27.1
)
 
(32.8
)
Restructuring charges
9.9

1.4

 
6.9

0.2

 
18.4

Adjustments to prior restructuring accruals
0.1


 
0.4


 
0.5

Impairment of operating lease right-of-use asset

1.7

 


 
1.7

Cash payments and other adjustments
(10.9
)
(2.0
)
 
(4.2
)
1.4

 
(15.7
)
Balance as of March 31, 2019
$
1.2

$
2.8

 
$
9.6

$
2.1

 
$
15.7

Current
 

 

 
 
 
 
$
15.7

Non-current
 

 

 
 
 
 

 
 

 

 
 
 
 
$
15.7

6.  
GOODWILL AND INTANGIBLE ASSETS
The changes in the carrying amount of goodwill for the three-month period ended March 31, 2019, are as follows:
 
LCD
 
CDD
 
Total
Balance as of January 1
$
3,638.8

 
$
3,721.5

 
$
7,360.3

Goodwill acquired during the period
7.8

 
14.3

 
22.1

Adjustments to goodwill
0.2

 
3.3

 
3.5

Balance at March 31
$
3,646.8

 
$
3,739.1

 
$
7,385.9

 

11

LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollars and shares in millions, except per share data)


The components of identifiable intangible assets are as follows:
 
March 31, 2019
 
December 31, 2018
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
Customer relationships
$
4,135.5

 
$
(1,188.9
)
 
$
2,946.6

 
$
4,119.4

 
$
(1,146.7
)
 
$
2,972.7

Patents, licenses and technology
449.3

 
(217.4
)
 
231.9

 
447.3

 
(211.2
)
 
236.1

Non-compete agreements
78.1

 
(55.1
)
 
23.0

 
76.8

 
(53.7
)
 
23.1

Trade names
405.1

 
(195.6
)
 
209.5

 
404.0

 
(189.1
)
 
214.9

Land use right
10.8

 
(4.5
)
 
6.3

 
10.8

 
(4.1
)
 
6.7

Canadian licenses
467.6

 

 
467.6

 
457.6

 

 
457.6

 
$
5,546.4

 
$
(1,661.5
)
 
$
3,884.9

 
$
5,515.9

 
$
(1,604.8
)
 
$
3,911.1

Amortization of intangible assets for the three-month periods ended March 31, 2019, and 2018, was $57.1 and $62.3, respectively. Amortization expense for the net carrying amount of intangible assets is estimated to be $169.1 for the remainder of fiscal 2019, $218.5 in fiscal 2020, $211.9 in fiscal 2021, $206.0 in fiscal 2022, $202.3 in fiscal 2023 and $2,409.5 thereafter.
7. LEASES

The Company has operating and finance leases for patient service centers, STAT laboratories, corporate offices, vehicles, and certain equipment. Leases have remaining lease terms of less than a year to 15 years, some of which include options to extend the leases for up to 15 years.
The components of lease expense were as follows:
 
Three Months Ended March 31, 2019
Operating lease cost
$
61.2

 
 

Finance lease cost:
 

Amortization of right-of-use assets
$
1.4

Interest on lease liabilities
0.8

Total finance lease cost
$
2.2

Supplemental cash flow information related to leases was as follows:
 
Three Months Ended March 31, 2019
Cash paid for amounts included in the measurement of lease liabilities:
 
Operating cash flows from operating leases
$
(62.0
)
Operating cash flows from finance leases
(0.5
)
Financing cash flows from finance leases
(3.0
)
 
 
Right-of-use assets obtained in exchange for lease obligations:
 
Operating leases
$
35.7

Finance leases

Supplemental balance sheet information related to leases was as follows:
 
March 31, 2019
Operating Leases
 
Operating lease right-of-use assets (included in Property, plant and equipment, net)
$
717.9

 
 

Short-term operating lease liabilities
263.4

Operating lease liabilities
502.4

Total operating lease liabilities
$
765.8



12

LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollars and shares in millions, except per share data)


 
March 31, 2019
Finance Leases
 

Finance lease right-of-use assets (included in Other assets)
$
43.6

 
 

Short-term finance lease liabilities
$
7.7

Finance lease liabilities
48.7

Total finance lease liabilities
$
56.4

 
 
Weighted Average Remaining Lease Term
 
Operating leases
5.3

Finance leases
6.6

 
 

Weighted Average Discount Rate
 
Operating leases
4.0
%
Finance leases
4.6
%
Maturities of lease liabilities are as follows:
Three Months Ended March 31, 2019
Operating Leases
 
Finance Leases
 
 
 
 
2019
$
208.0

 
$
10.9

2020
196.1

 
13.8

2021
108.8

 
12.0

2022
75.6

 
10.8

2023
54.0

 
10.7

Thereafter
161.4

 
34.3

Total lease payments
803.9

 
92.5

Less imputed interest
(38.1
)
 
(36.1
)
Total
$
765.8

 
$
56.4

Rental expense for short term leases with a term less than one year for the three months ended March 31, 2019, amounted to $3.3. 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 three months ended March 31, 2019, were $4.5. As of March 31, 2019, the Company has entered into approximately 50 additional operating leases, primarily for patient service centers, that have not yet commenced and are not significant to the overall lease portfolio. These operating leases will commence in 2019 with lease terms of less than a year to 10 years.
The Company leases various facilities and equipment under non-cancelable lease arrangements. Future minimum rental commitments for leases with non-cancelable terms of one year or more at December 31, 2018, under Accounting Standards Codification 840 are as follows:
Year Ended December 31,
Operating Leases
 
Finance Leases
 
 
 
 
2019
$
191.1

 
$
8.6

2020
145.4

 
8.0

2021
107.0

 
6.7

2022
80.9

 
6.0

2023
61.5

 
6.5

Thereafter
155.6

 
23.1

Rental expense, which includes rent for real estate, equipment and automobiles under operating leases, amounted to $85.7 for the three months ended March 31, 2018.







13

LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollars and shares in millions, except per share data)


8.  
DEBT
Short-term borrowings and the current portion of long-term debt at March 31, 2019, and December 31, 2018, consisted of the following:
 
March 31,
2019
 
December 31, 2018
Zero-coupon convertible subordinated notes
$
1.4

 
$
8.7

2.625% senior notes due 2020

500.0

 

Debt issuance costs
(1.5
)
 
(0.5
)
Current portion of note payable
1.8

 
1.8

Total short-term borrowings and current portion of long-term debt
$
501.7

 
$
10.0

Long-term debt at March 31, 2019, and December 31, 2018, consisted of the following:
 
March 31,
2019
 
December 31, 2018
2.625% senior notes due 2020
$

 
$
500.0

4.625% senior notes due 2020
599.4

 
597.0

3.20% senior notes due 2022
500.0

 
500.0

3.75% senior notes due 2022
500.0

 
500.0

4.00% senior notes due 2023
300.0

 
300.0

3.25% senior notes due 2024
600.0

 
600.0

3.60% senior notes due 2025
1,000.0

 
1,000.0

3.60% senior notes due 2027
600.0

 
600.0

4.70% senior notes due 2045
900.0

 
900.0

2017 Term loan
527.0

 
527.0

Debt issuance costs
(37.4
)
 
(40.2
)
Note payable
6.6

 
7.1

Total long-term debt
$
5,495.6

 
$
5,990.9

Senior Notes
During the third quarter of 2013, the Company entered into two fixed-to-variable interest rate swap agreements for its 4.625% senior notes due 2020 with an aggregate notional amount of $600.0 and variable interest rates based on one-month LIBOR plus 2.298% to hedge against changes in the fair value of a portion of the Company's long-term debt. These derivative financial instruments are accounted for as fair value hedges of the senior notes due 2020. These interest rate swaps are included in other long-term assets or other long-term liabilities, as applicable, and added to or subtracted from the value of the senior notes, with an aggregate fair value liability of $0.6 at March 31, 2019, and $3.1 at December 31, 2018.
Zero-Coupon Subordinated Notes
On March 11, 2019, the Company announced that for the period from March 11, 2019, to September 10, 2019, the zero-coupon subordinated notes will accrue contingent cash interest at a rate of no less than 0.125% of the average market price of a zero-coupon subordinated note for the five trading days ended August 27, 2019, in addition to the continued accrual of the original issue discount.
During the three months ended March 31, 2019, the Company settled notices to convert $7.7 aggregate principal amount of its zero-coupon subordinated notes with a conversion value of $14.5. The total cash used for these settlements was $7.3. As a result of these conversions, the Company also reversed deferred tax liabilities of $1.7.
On April 1, 2019, the Company announced that its zero-coupon subordinated notes may be converted into cash and common stock at the conversion rate of 13.4108 per $1,000.0 principal amount at maturity of the notes, subject to the terms of the zero-coupon subordinated notes and the Indenture, dated as of October 24, 2006, between the Company and The Bank of New York Mellon, as trustee and the conversion agent. In order to exercise the option to convert all or a portion of the zero-coupon subordinated notes, holders are required to validly surrender their zero-coupon subordinated notes at any time during the calendar quarter beginning April 1, 2019, through the close of business on the last business day of the calendar quarter, which is 5:00 p.m., New York City time, on Friday, June 28, 2019. If notices of conversion are received, the Company plans to settle the cash portion of the conversion obligation with cash on hand and/or borrowings under its revolving credit facility.



14

LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollars and shares in millions, except per share data)


Credit Facilities
On September 15, 2017, the Company entered into a new $750.0 term loan facility in addition to its then existing $1,000.0 term loan entered into in December 2014. The 2017 term loan facility will mature on September 15, 2022. The Company paid off the 2014 term loan during the second quarter of 2018.
The 2017 term loan facility accrues interest at a per annum rate equal to, at the Company's election, either a LIBOR rate plus a margin ranging from 0.875% to 1.50%, or a base rate determined according to a prime rate or federal funds rate plus a margin ranging from 0.0% to 0.50%. The 2017 term loan balance at March 31, 2019, was $527.0 and at December 31, 2018, was $527.0. As of March 31, 2019, the effective interest rate on the 2017 term loan was 3.62%.
The Company entered into a senior unsecured revolving credit facility on December 21, 2011, which was amended and restated on December 19, 2014, further amended on July 13, 2016, and further amended and restated on September 15, 2017. The revolving credit facility consists of a five-year revolving facility in the principal amount of up to $1,000.0, with the option of increasing the facility by up to an additional $350.0, subject to the agreement of one or more new or existing lenders to provide such additional amounts and certain other customary conditions. The revolving credit facility also provides for a subfacility of up to $100.0 for swing line borrowings and a subfacility of up to $150.0 for issuances of letters of credit. The revolving credit facility is permitted to be used for general corporate purposes, including working capital, capital expenditures, funding of share repurchases and certain other payments, and acquisitions and other investments. The Company had no outstanding balances on its revolving credit facility at March 31, 2019, or December 31, 2018.
Advances under the revolving credit facility will accrue interest at a per annum rate equal to, at the Company’s election, either a LIBOR rate plus a margin ranging from 0.775% to 1.25%, or a base rate determined according to a prime rate or federal funds rate plus a margin ranging from 0.00% to 0.25%. Fees are payable on outstanding letters of credit under the revolving credit facility at a per annum rate equal to the applicable margin for LIBOR loans, and the Company is required to pay a facility fee on the aggregate commitments under the revolving credit facility, at a per annum rate ranging from 0.10% to 0.25%. The interest margin applicable to the credit facilities, and the facility fee and letter of credit fees payable under the revolving credit facility, are based on the Company’s senior credit ratings as determined by Standard & Poor’s and Moody’s.
Under the term loan facilities and the revolving credit facility, the Company is subject to negative covenants limiting subsidiary indebtedness and certain other covenants typical for investment grade-rated borrowers, and the Company is required to maintain certain leverage ratios. The Company was in compliance with all covenants in the term loan facilities and the revolving credit facility at March 31, 2019. As of March 31, 2019, the ratio of total debt to consolidated proforma trailing 12 month EBITDA was 3.0 to 1.0.
As of March 31, 2019, the Company had provided letters of credit aggregating approximately $72.2, primarily in connection with certain insurance programs. The Company's availability under its revolving credit facility is reduced by the amount of these letters of credit.
9. PREFERRED STOCK AND COMMON SHAREHOLDERS’ EQUITY
The Company is authorized to issue up to 265.0 shares of common stock, par value $0.10 per share. The Company’s treasury shares are recorded at aggregate cost. 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 March 31, 2019, and December 31, 2018.
The changes in common shares issued and held in treasury are summarized below:
 
Issued
 
Held in Treasury
 
Outstanding
Common shares at December 31, 2018
122.4

 
(23.5
)
 
98.9

Common stock issued under employee stock plans
0.7

 

 
0.7

Surrender of restricted stock and performance share awards
(0.1
)
 

 
(0.1
)
Retirement of common stock

 
(0.8
)
 
(0.8
)
Common shares at March 31, 2019
123.0

 
(24.3
)
 
98.7

 Share Repurchase Program
At the end of 2018, the Company had outstanding authorization from the board of directors to purchase up to $443.5 of Company common stock. During January 2019, the Company purchased 0.8 shares of its common stock at a total cost of $100.1 under this plan. On February 6, 2019, the board of directors replaced the Company's existing share repurchase plan with a new plan authorizing repurchase of up to $1.25 billion of the Company's shares and no shares have been repurchased under this plan. The repurchase authorization has no expiration.

15

LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED 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 (Loss)
Balance at December 31, 2018
$
(389.8
)
 
$
(73.3
)
 
$
(463.1
)
  Other comprehensive earnings before reclassifications
21.6

 
2.7

 
24.3

  Tax effect of adjustments

 
(0.7
)
 
(0.7
)
Balance at March 31, 2019
$
(368.2
)
 
$
(71.3
)
 
$
(439.5
)
10.
INCOME TAXES
The Company does not recognize a tax benefit unless the Company concludes that it is more likely than not that the benefit will be sustained on audit by the taxing authority based solely on the technical merits of the associated tax position. If the recognition threshold is met, the Company recognizes a tax benefit measured at the largest amount of the tax benefit that the Company believes is greater than 50% likely to be realized.
The gross unrecognized income tax benefits were $17.2 and $18.0 at March 31, 2019, and December 31, 2018, respectively. It is anticipated that the amount of the unrecognized income tax benefits will change within the next 12 months; however, these changes are not expected to have a significant impact on the results of operations, cash flows or the financial position of the Company.
As of March 31, 2019, and December 31, 2018, $17.2 and $18.0, respectively, are the approximate amounts of gross unrecognized income tax benefits that, if recognized, would favorably affect the effective income tax rate in future periods.
The Company recognizes interest and penalties related to unrecognized income tax benefits in income tax expense. Accrued interest and penalties related to uncertain tax positions totaled $9.0 and $8.7 as of March 31, 2019, and December 31, 2018, respectively.
The Company has substantially concluded all U.S. federal income tax matters for years through 2014. Substantially all material state and local, and foreign income tax matters have been concluded through 2013 and 2014, respectively.
The IRS has not initiated a new examination of any of the Company's federal income tax returns. The Company has various state and foreign income tax examinations ongoing throughout the year. The Company believes adequate provisions have been recorded related to all open tax years.
11.
COMMITMENTS AND CONTINGENCIES
The Company is involved from time to time in various claims and legal actions, including arbitrations, class actions, and other litigation (including those described in more detail below), arising in the ordinary course of business. Some of these actions involve claims that are substantial in amount. These matters include, but are not limited to, intellectual property disputes; commercial and contract disputes; professional liability 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

16

LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollars and shares in millions, except per share data)


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 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 May 2, 2013, the Company was served with a False Claims Act lawsuit, State of Georgia ex rel. Hunter Laboratories, LLC and Chris Riedel v. Quest Diagnostics Incorporated, et al., filed in the State Court of Fulton County, Georgia. The lawsuit, filed by a competitor laboratory, alleges that the Company overcharged Georgia's Medicaid program. The State of Georgia filed a Notice of Declination on August 13, 2012, before the Company was served with the complaint. The case was removed to the U.S. District Court for the Northern District of Georgia. 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. On March 14, 2014, the Company's Motion to Dismiss was granted. The Plaintiffs repled their complaint, and the Company filed a Motion to Dismiss the First Amended Complaint. In May 2015, the Court dismissed the Plaintiffs' anti-kickback claim and remanded the remaining state law claims to the State Court of Fulton County. In July 2015, the Company filed a Motion to Dismiss these remaining claims. The Plaintiffs filed an opposition to the Company's Motion to Dismiss in August 2015. Also, the State of Georgia filed a brief as amicus curiae. The parties have reached a settlement in principle.
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 has appealed the Circuit Court’s ruling to the Florida Second District Court of Appeal. The Company will vigorously defend the lawsuit.

17

LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollars and shares in millions, except per share data)


In December 2014, the Company received a Civil Investigative Demand issued pursuant to the U.S. False Claims Act from the U.S. Attorney's 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.
On August 3, 2016, the Company was served with a putative class action lawsuit, Daniel L. Bloomquist v. Covance Inc., et al., filed in the Superior Court of California, County of San Diego. The Complaint alleges that Covance Inc. violated the California Labor Code and California Business & Professions Code by failing to provide overtime wages, failing to provide meal and rest periods, failing to pay for all hours worked, failing to pay for all wages owed upon termination, and failing to provide accurate itemized wage statements to Clinical Research Associates and Senior Clinical Research Associates employed by Covance in California. The lawsuit seeks monetary damages, civil penalties, injunctive relief, and recovery of attorney's fees and costs. On October 13, 2016, the case was removed to the U.S. District Court for the Southern District of California. On May 3, 2017, the U.S. District Court for the Southern District of California remanded the case to the Superior Court. The Company will vigorously defend the lawsuit.
Prior to the Company's acquisition of Sequenom, Inc. (Sequenom) between August 15, 2016, and August 24, 2016, six putative class-action lawsuits were filed on behalf of purported Sequenom stockholders (captioned Malkoff v. Sequenom, Inc., et al., No. 16-cv-02054- JAH-BLM, Gupta v. Sequenom, Inc., et al., No. 16-cv-02084-JAH-KSC, Fruchter v. Sequenom, Inc., et al., No. 16-cv-02101- WQH-KSC, Asiatrade Development Ltd. v. Sequenom, Inc., et al., No. 16-cv-02113-AJB-JMA, Nunes v. Sequenom, Inc., et al., No. 16-cv-02128-AJB-MDD, and Cusumano v. Sequenom, Inc., et al., No. 16-cv-02134-LAB-JMA) in the U.S. District Court for the Southern District of California challenging the acquisition transaction. The complaints asserted claims against Sequenom and members of its board of directors (the Individual Defendants). The Nunes action also named the Company and Savoy Acquisition Corp. (Savoy), a wholly owned subsidiary of the Company, as defendants. The complaints alleged that the defendants violated Sections 14(e), 14(d)(4) and 20 of the Securities Exchange Act of 1934 by failing to disclose certain allegedly material information. In addition, the complaints in the Malkoff action, Asiatrade action, and the Cusumano action alleged that the Individual Defendants breached their fiduciary duties to Sequenom shareholders. The actions sought, among other things, injunctive relief enjoining the merger. On 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 centiorari 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,

18

LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollars and shares in millions, except per share data)


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, which remains pending. The Company will vigorously defend the lawsuit.
On August 1, 2017, the Company was served with a putative class action lawsuit, Maria T. Gonzalez, et al. v. Examination Management Services, Inc. and Laboratory Corporation of America Holdings, filed in the U.S. District Court for the Southern District of California. The complaint alleges that the Company misclassified phlebotomists as independent contractors through an arrangement with the co-Defendant temporary staffing agency. The complaint further alleges that the Company violated the California Labor Code and California Business and Professions Code by failing to pay minimum wage, failing to pay for all hours worked, failing to pay for all wages owed upon termination, and failing to provide accurate itemized wage statements. The lawsuit seeks monetary damages, civil penalties, injunctive relief, and recovery of attorney's fees and costs. The parties reached a settlement, which was approved by the Court.
On September 7, 2017, the Company was served with a putative class action lawsuit, John Sealock, et al. v. Covance Market Access Services, Inc., filed in the U.S. District Court for the Southern District of New York. The complaint alleges that Covance Market Access Services, Inc. violated the Fair Labor Standards Act and New York labor laws by failing to provide overtime wages, failing to pay for all hours worked, and failing to provide accurate wage statements. The lawsuit seeks monetary damages, civil penalties, injunctive relief, and recovery of attorney's fees and costs. In November 2017, the Company filed a Motion to Strike Class Allegations, which was denied. In December 2017, the Plaintiff filed a Motion for Conditional Certification of a Collective Action, which was granted in May 2018. In December 2018, Plaintiff filed, and the Court granted, a second motion to conditionally certify an expanded class to a nationwide class action. The Company will vigorously defend the lawsuit.
On July 16, 2018, the Company reported that it had detected suspicious activity on its information technology network and was taking steps to respond to and contain the activity. The activity was subsequently determined to be a new variant of ransomware affecting certain LCD information technology systems. As part of its response, the Company took certain systems offline, which temporarily affected test processing and customer access to test results, and also affected certain other information technology systems involved in conducting Company-wide operations. Operations were returned to normal within a few days of the incident. As part of its in-depth investigation into this incident, the Company engaged outside security experts and worked with authorities, including law enforcement. The investigation determined that the ransomware did not and could not transfer patient or client data outside of Company systems and that there was no theft or misuse of patient or client data. The Company cooperated with law enforcement and regulatory authorities with respect to the incident.
The Company has insurance coverage for costs resulting from cyber-attacks and has filed a claim for recovery of its losses resulting from this incident. However, disputes over the extent of insurance coverage for claims are not uncommon and the Company has not recognized any estimated proceeds resulting from this claim. Furthermore, while the Company has not been the subject of any legal proceedings involving this incident, it is possible that the Company could be the subject of claims from persons alleging they suffered damages from the incident, or actions by governmental authorities.
On September 10, 2018, the Company was served with a LCPAGA lawsuit, Terri Wilson v. Laboratory Corporation of America Holdings, which was filed in the U.S. District Court for the Northern District of California. Plaintiff alleges claims for failure to pay meal and rest break premiums, failure to provide compliant wage statements, failure to compensate employees for all hours worked, and failure to pay wages upon termination of employment. Plaintiff asserts these actions violate various Labor Code provisions and constitute an unfair competition practice under California law. The lawsuit seeks monetary damages, civil penalties, injunctive relief, and recovery of attorney's fees and costs. The Company will vigorously defend the lawsuit.
On September 21, 2018, the Company was served with a putative class action lawsuit, Alma Haro v. Laboratory Corporation of America, et al., which was filed in the Superior Court of California, County of Los Angeles. Plaintiff alleges that employees were not properly paid overtime compensation, minimum wages, meal and rest break premiums, did not receive compliant wage statements, and were not properly paid wages upon termination of employment. Plaintiff asserts these actions violate various Labor Code provisions and constitute an unfair competition practice under California law. The lawsuit seeks monetary damages, civil penalties, and recovery of attorney's fees and costs. The Company will vigorously defend the lawsuit.
On December 20, 2018, the Company was served with a putative class action lawsuit, Feckley v. Covance Inc., et al., filed in the Superior Court of California, County of Orange. The complaint alleges that Covance Inc. violated the California Labor Code and California Business & Professions Code by failing to properly pay commissions to employees under a sales incentive

19

LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollars and shares in millions, except per share data)


compensation plan upon their termination of employment.  The lawsuit seeks monetary damages, civil penalties, punitive damages, and recovery of attorney’s fees and costs. On January 22, 2018, the case was removed to the U.S. District Court for the Central District of California. The Company will vigorously defend the lawsuit.
On April 1, 2019, Covance Research Products was served with a Grand Jury Subpoena issued by the Department of Justice (“DOJ”) in Miami, Florida requiring the production of documents related to the importation into the United States of live non-human primate shipments originating from or transiting through China, Cambodia, and/or Vietnam from April 1, 2014 through March 28, 2019. The Company is cooperating with the DOJ.
On April 4, 2019, Tri-Cities Laboratory (a joint venture that was acquired as part of the Pathology Associates Medical Laboratories transaction in May 2017) was served with a subpoena issued by the DOJ in Newark, New Jersey requiring the production of documents related to test orders and payments to various third party companies and individuals. 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 will vigorously defend the lawsuit.
Under the Company's present insurance programs, coverage is obtained for catastrophic exposure as well as those risks required to be insured by law or contract. The Company is responsible for the uninsured portion of losses related primarily to general, professional and vehicle liability, certain medical costs and workers' compensation. The self-insured retentions are on a per-occurrence basis without any aggregate annual limit. Provisions for losses expected under these programs are recorded based upon the Company's estimates of the aggregated liability of claims incurred.
12.
PENSION AND POST-RETIREMENT PLANS
The Company's two defined contribution retirement plans (401K Plans) cover substantially all U.S. employees. All employees eligible for the LabCorp 401K Plan receive a minimum 3% non-elective contribution concurrent with each payroll period. The 401K Plan also permits discretionary contributions by the Company of up to 1% and up to 3% of pay for eligible employees based on years of service with the Company. The cost of this plan was $24.2 and $16.1 for the three months ended March 31, 2019, and 2018, respectively. All of the Covance U.S. employees, including legacy Chiltern employees, are eligible to participate in the Covance 401K plan, which features a maximum 4.5% Company match, based upon a percentage of the employee’s contributions. Chiltern employees were previously eligible to participate in the Chiltern 401K plan, which featured a maximum 3.0% Company match, based upon a percentage of the employee's contributions. The Chiltern 401K plan merged into the Covance Plan effective January, 7, 2019. The Company incurred expense of $19.9 and $18.9 for the Covance 401K plan during the three months ended March 31, 2019, and 2018, respectively.The Company also maintains several other immaterial 401K plans associated with companies acquired over the last several years.
The Company also maintains a frozen defined benefit retirement plan (Company Plan), which as of December 31, 2009, covered substantially all employees. The benefits to be paid under the Company Plan are based on years of credited service through December 31, 2009, and ongoing interest credits. Effective January 1, 2010, the Company Plan was closed to new participants. The Company’s policy is to fund the Company Plan with at least the minimum amount required by applicable regulations.
The Company maintains a second, unfunded, non-contributory, non-qualified defined benefit retirement plan (PEP), which as of December 31, 2009, covered substantially all of its senior management group. The PEP supplements the Company Plan and was closed to new participants effective January 1, 2010.     
The effect on operations for the Company Plan and the PEP is summarized as follows:
 
Three Months Ended March 31,
 
2019
 
2018
Service cost for administrative expenses
$
1.0

 
$
1.4

Interest cost on benefit obligation
3.5

 
3.3

Expected return on plan assets
(3.8
)
 
(4.1
)
Net amortization and deferral
2.6

 
2.8

Defined benefit plan costs
$
3.3

 
$
3.4

During the three months ended March 31, 2019, the Company made no contributions to the Company Plan.

20

LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollars and shares in millions, except per share data)


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 executive officers of the Company who were formerly employees of Covance. Benefit amounts are based upon years of service and compensation of the participating employees. 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. pension plans are funded. The Company’s funding policy has been to contribute annually amounts at least equal to the local statutory funding requirements.
 
U.K. Plans
 
Three Months Ended March 31,
 
2019
 
2018
Service cost for administrative expenses
$
0.8

 
$
0.9

Interest cost on benefit obligation
1.9

 
1.9

Expected return on plan assets
(2.8
)
 
(3.2
)
Defined benefit plan costs
$
(0.1
)
 
$
(0.4
)
 
U.K. Plans
 
Three Months Ended March 31,
 
2019
 
2018
Assumptions used to determine defined benefit plan cost
 
 
 
Discount rate
2.9
%
 
2.5
%
Expected return on assets
4.5
%
 
4.5
%
Salary increases
3.6
%
 
3.6
%
 
German Plan
 
Three Months Ended March 31,
 
2019
 
2018
Service cost for administrative expenses
$
0.3

 
$
0.3

Interest cost on benefit obligation
0.1

 
0.2

Defined benefit plan costs
$
0.4

 
$
0.5

 
 
 
 
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
%
13.
FAIR VALUE MEASUREMENTS
The Company’s population of financial assets and liabilities subject to fair value measurements as of March 31, 2019, and December 31, 2018, is as follows:
 
 
 
 
 
Fair Value Measurements as of
 
 
 
Fair Value
as of
 
March 31, 2019
 
Balance Sheet
 
 
Using Fair Value Hierarchy
 
Classification
 
March 31, 2019
 
Level 1
 
Level 2
 
Level 3
Noncontrolling interest put
Noncontrolling interest
 
$
15.4

 
$

 
$
15.4

 
$

Cross currency swap asset
Other assets, net
 
9.0

 

 
9.0

 

Interest rate swap
Other liabilities
 
0.6

 

 
0.6

 

Cash surrender value of life insurance policies
Other assets, net
 
71.0

 

 
71.0

 

Deferred compensation liability
Other liabilities
 
71.6

 

 
71.6

 

Contingent consideration
Other liabilities
 
18.6

 

 

 
18.6


21

LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollars and shares in millions, except per share data)


 
 
 
 
 
Fair Value Measurements as of
 
 
 
Fair Value
as of
 
December 31, 2018
 
Balance Sheet
 
 
Using Fair Value Hierarchy
 
Classification
 
December 31, 2018
 
Level 1
 
Level 2
 
Level 3
Noncontrolling interest put
Noncontrolling interest
 
$
15.0

 
$

 
$
15.0

 
$

Cross currency swap liability
Other liabilities
 
2.8

 

 
2.8

 

Interest rate swap
Other liabilities
 
3.1

 

 
3.1

 

Cash surrender value of life insurance policies
Other assets, net
 
63.5

 

 
63.5

 

Deferred compensation liability
Other liabilities
 
64.2

 

 
64.2

 

Contingent consideration
Other liabilities
 
18.6

 

 

 
18.6

Fair Value Measurement of Level 3 Assets
 
Contingent Consideration
Balance at December 31, 2017
 
$
16.5

Addition
 
2.1

Balance at December 31, 2018
 
18.6

Addition/Reduction
 

Balance at March 31, 2019
 
$
18.6

The Company has a noncontrolling interest put related to its Ontario subsidiary that has been classified as mezzanine equity in the Company’s condensed consolidated balance sheets. The noncontrolling interest put is valued at its contractually determined value, which approximates fair value.
The Company offers certain employees the opportunity to participate in an employee-funded deferred compensation plan (DCP). A participant's deferrals are allocated by the participant to one or more of 22 measurement funds, which are indexed to externally managed funds. From time to time, to offset the cost of the growth in the participant's investment accounts, the Company purchases life insurance policies, with the Company named as beneficiary of the policies. Changes in the cash surrender value of these policies are based upon earnings and changes in the value of the underlying investments, which are typically invested in a manner similar to the participants' allocations. Changes in the fair value of the DCP obligation are derived using quoted prices in active markets based on the market price per unit multiplied by the number of units. The cash surrender value and the DCP obligations are classified within Level 2 because their inputs are derived principally from observable market data by correlation to the hypothetical investments.
The Company has contingent accrued earn-out business acquisition consideration liabilities which were recorded at fair value on the acquisition date and are remeasured quarterly based on the then assessed fair value and adjusted if necessary. The increases or decreases in the fair value of contingent consideration payable can result from changes in anticipated revenue levels and changes in assumed discount periods and rates. As the fair value measure is based on significant inputs that are not observable in the market, they are categorized as Level 3.
The carrying amounts of cash and cash equivalents, accounts receivable, income taxes receivable, and accounts payable are considered to be representative of their respective fair values due to their short-term nature. The fair market value of the zero-coupon subordinated notes, based on market pricing, was approximately $1.8 and $16.9 as of March 31, 2019, and December 31, 2018, respectively. The fair market value of all of the senior notes, based on market pricing, was approximately $5,508.6 and $5,318.0 as of March 31, 2019, and December 31, 2018, respectively. The Company's note and debt instruments are classified as Level 2 instruments, as the fair market values of these instruments are determined using other observable inputs.
14.
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
The Company addresses its exposure to market risks, principally the market risk associated with changes in interest rates and foreign currency exchange rates, through a controlled program of risk management that includes, from time to time, the use of derivative financial instruments such as interest rate and cross currency swap agreements (see Interest Rate Swap and Cross Currency Swap sections below). Although the Company’s zero-coupon subordinated notes contain features that are considered to be embedded derivative instruments (see Embedded Derivatives Related to the Zero-Coupon Subordinated Notes section below), the Company does not hold or issue derivative financial instruments for trading purposes. The derivative financial instrument contracts are with major investment grade financial institutions and the Company does not anticipate any material non-performance by any of the counterparties. The Company does not believe that its exposure to market risk is material to the Company’s financial position or results of operations.



22

LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollars and shares in millions, except per share data)


Interest Rate Swap
The Company is party to two fixed-to-variable interest rate swap agreements for its 4.625% senior notes due 2020 with an aggregate notional amount of $600.0 and variable interest rates based on one-month LIBOR plus 2.298% to hedge against changes in the fair value of a portion of the Company's long term debt. These derivative financial instruments are accounted for as fair value hedges of the senior notes due 2020. These interest rate swaps are included in other long-term assets or other long-term liabilities, as applicable, and added to or subtracted from the value of the senior notes, with an aggregate fair value of $0.6 (liability) and $3.1 (liability) at March 31, 2019, and December 31, 2018, respectively. As the specific terms and notional amounts of the derivative financial instruments match those of the fixed-rate debt being hedged, the derivative instruments are assumed to be perfectly effective hedges and accordingly, there is no impact to the Company's Condensed Consolidated Statements of Operations.
 
 
Carrying amount of hedged liabilities as of
 
Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Liabilities as of
 
 
March 31, 2019
 
December 31, 2018
 
March 31, 2019
 
December 31, 2018
Balance Sheet Line Item in which Hedged Items are Included
Long-term debt, less current portion
 
$
599.4

 
$
597.0

 
$
(0.6
)
 
$
(3.1
)
Cross Currency Swap
During the fourth quarter of 2018, the Company entered into six U.S. Dollar to Swiss Franc cross-currency swap agreements with an aggregate notional value of $600.0 and which are accounted for as a hedge against its net investment in a Swiss subsidiary. Of the notional value, $300.0 matures in 2022 and $300.0 matures in 2025. These cross currency swaps maturing in 2022 and 2025 are included in other long-term assets with an aggregate fair value of $4.6 and $4.4, respectively, as of March 31, 2019 and are included in other long-term liabilities with an aggregate fair value of $(1.0) and $(1.8)), respectively, as of December 31, 2018. Changes in the fair value of the cross-currency swaps are charged or credited through accumulated other comprehensive income in the Condensed Consolidated Balance Sheet until the hedged item is recognized in earnings. The cumulative amount of the fair value hedging adjustment included in the current value of the cross currency swaps is $12.8 for the three months ended March 31, 2019, and was recognized as currency translation within the Condensed Consolidated Statement of Comprehensive Earnings. There were no amounts reclassified from the Condensed Consolidated Statement of Comprehensive Earnings to the Condensed Consolidated Statement of Operations during the three months ended March 31, 2019.
The table below presents the fair value of derivatives on a gross basis and the balance sheet classification of those instruments:
 
 
 
March 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
Other liabilities
 

 
(0.6
)
 
600.0

 

 
(3.1
)
 
600.0

Cross currency swaps
Other assets, net or Other liabilities
 
9.0

 

 
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
 
 
Three Months Ended March 31,
 
Three Months Ended March 31,
 
 
2019
 
2018
 
2019
 
2018
Interest rate swap contracts
 
$
2.5

 
$
0.3

 
$

 
$

Cross currency swaps
 
$
11.5

 
$
(0.1
)
 
$

 
$

No gains or losses from derivative instruments classified as hedging instruments have been recognized into income for the three months ended March 31, 2019 and 2018.


23

LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollars and shares in millions, except per share data)


Embedded Derivatives Related to the Zero-Coupon Subordinated Notes
The Company’s zero-coupon subordinated notes contain the following two features that are considered to be embedded derivative instruments under authoritative guidance in connection with accounting for derivative instruments and hedging activities:
1)
The Company will pay contingent cash interest on the zero-coupon subordinated notes after September 11, 2006, if the average market price of the notes equals 120% or more of the sum of the issue price, accrued original issue discount and contingent additional principal, if any, for a specified measurement period.
2)
Holders may surrender zero-coupon subordinated notes for conversion during any period in which the rating assigned to the zero-coupon subordinated notes by Standard & Poor’s Ratings Services is BB- or lower.
The Company believes these embedded derivatives had no fair value at March 31, 2019, and December 31, 2018. These embedded derivatives also had no impact on the Condensed Consolidated Statements of Operations for the three months ended March 31, 2019, and 2018.
Other Derivative Instruments
The Company periodically enters into foreign currency forward contracts, which are recognized as assets or liabilities at their fair value. These contracts do not qualify for hedge accounting and the changes in fair value are recorded directly to earnings. The contracts are short-term in nature and the fair value of these contracts is based on market prices for comparable contracts. The fair value of these contracts is not significant as of March 31, 2019, and December 31, 2018.
15.
SUPPLEMENTAL CASH FLOW INFORMATION
 
Three Months Ended March 31,
 
2019
 
2018
Supplemental schedule of cash flow information:
 
 
 
Cash paid during period for:
 
 
 
Interest
$
99.7

 
$
96.9

Income taxes, net of refunds
(2.2
)
 
24.6

Disclosure of non-cash financing and investing activities:
 

 
 

Conversion of zero-coupon convertible debt
7.3

 

Change in accrued property, plant and equipment
(12.1
)
 
1.2

16.
BUSINESS SEGMENT INFORMATION
The following table is a summary of segment information for the three months ended March 31, 2019, and 2018. The management approach has been used to present the following segment information. This approach is based upon the way the management of the Company organizes its business unit operations for making operating decisions and assessing performance. Financial information is reported on the basis that it is used internally by the chief operating decision maker (CODM) for evaluating segment performance and deciding how to allocate resources to segments. The Company’s chief executive officer has been identified as the CODM.
Segment asset information is not presented because it is not used by the CODM at the segment level. Operating earnings of each segment represents net revenues less directly identifiable expenses to arrive at operating income for the segment. General management and administrative corporate expenses are included in general corporate expenses below. The table below represents information about the Company’s reporting segments for the three months ended March 31, 2019, and 2018:

24

LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollars and shares in millions, except per share data)


 
Three Months Ended
 
March 31,
 
2019
 
2018
Revenues:
LCD
$
1,722.0

 
$
1,770.2

CDD
1,074.7

 
1,078.5

Intercompany eliminations
(5.5
)
 
(0.4
)
Revenues
2,791.2

 
2,848.3

 
 
 
 
Operating earnings:
LCD
268.3

 
303.4

CDD
88.0

 
38.6

Unallocated corporate expenses
(38.1
)
 
(36.6
)
Total operating income
318.2

 
305.4

Other income (expense), net
(63.5
)
 
(63.9
)
Earnings before income taxes
254.7

 
241.5

Provision for income taxes
68.8

 
69.0

Net earnings
185.9

 
172.5

Less (earnings) loss attributable to noncontrolling interests
(0.3
)
 
0.7

Net income attributable to Laboratory Corporation of America Holdings
$
185.6

 
$
173.2

17.
SUBSEQUENT EVENT
On April 17, 2019, the Company announced that it will acquire Envigo International Holdings, Inc.'s (Envigo) nonclinical research services business, thus expanding CDD's global nonclinical drug development capabilities, and Envigo's Research Models Services business will acquire the Covance Research Products business. The transaction will result in net implied cash consideration to be paid by the Company of $485.0 and is expected to close within the second quarter. The Company will pay Envigo $595.0 in cash and will receive a note receivable of $110.0.






























25


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

FORWARD-LOOKING STATEMENTS
 
Laboratory Corporation of America® Holdings together with its subsidiaries (the Company) has made in this report, and from time to time may otherwise make in its public filings, press releases and discussions by Company management, forward-looking statements concerning the Company’s operations, performance and financial condition, as well as its strategic objectives. Some of these forward-looking statements can be identified by the use of forward-looking words such as “believes”, “expects”, “may”, “will”, “should”, “seeks”, “approximately”, “intends”, “plans”, “estimates”, or “anticipates” or the negative of those words or other comparable terminology. Such forward-looking statements are subject to various risks and uncertainties and the Company claims the protection afforded by the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. Actual results could differ materially from those currently anticipated due to a number of factors in addition to those discussed elsewhere herein and in the Company’s other public filings, press releases and discussion with Company management, including:
1.
changes in government and third-party payer regulations, reimbursement, or coverage policies or other future reforms in the healthcare system (or in the interpretation of current regulations), new insurance or payment systems, including state, regional or private insurance cooperatives (e.g., health insurance exchanges) affecting governmental and third-party coverage or reimbursement for commercial laboratory testing, including the impact of the Protecting Access to Medicare Act of 2014 (PAMA);
2.
significant monetary damages, fines, penalties, assessments, refunds, repayments, damage to the Company’s reputation, unanticipated compliance expenditures, and/or exclusion or disbarment from or ineligibility to participate in government programs, among other adverse consequences, arising from enforcement of anti-fraud and abuse laws and other laws applicable to the Company in jurisdictions in which the Company conducts business;
3.
significant fines, penalties, costs, unanticipated compliance expenditures and/or damage to the Company’s reputation arising from the failure to comply with applicable privacy and security laws and regulations, including the Health Insurance Portability and Accountability Act of 1996, the Health Information Technology for Economic and Clinical Health Act, the European Union's General Data Protection Regulation and similar laws and regulations in jurisdictions in which the Company conducts business;
4.
loss or suspension of a license or imposition of a fine or penalties under, or future changes in, or interpretations of applicable licensing laws or regulations regarding the operation of clinical laboratories and the delivery of clinical laboratory test results, including, but not limited to, the U.S. Clinical Laboratory Improvement Act of 1967 and the Clinical Laboratory Improvement Amend