What changed in this filing

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Item 1. Financial Statements

2024-11-08 compared with 2024-08-12 · 228 added, 280 removed, 754 unchanged (40% of the section changed)

3 unchanged sentences

(in millions)

June 30, 2024 December 31, 2023

September 30, 2024 December 31, 2023

Current assets:

27 unchanged sentences

Commitments and contingent liabilities (Note 8)

Common stock, 89.5 and 88.8 shares outstanding at June 30, 2024 and December 31, 2023, respectively

Common stock, 89.7 and 88.8 shares outstanding at September 30, 2024 and December 31, 2023, respectively

Additional paid-in capital 2,027.3 1,998.0

7 unchanged sentences

(in millions, except per share data)

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2024 2023 2024 2023

1 unchanged sentence

Costs and expenses:

Direct costs, exclusive of depreciation and amortization (including costs incurred from related parties of $ — and $ — during the three and six months ended June 30, 2024 and $ 27.0 and $ 48.8 during the three and six months ended June 30, 2023, respectively)

Direct costs, exclusive of depreciation and amortization (including costs incurred from related parties of $ 48.8 during the nine months ended September 30, 2023)

526.6 563.8 1,606.1 1,674.0

6 unchanged sentences

Interest expense ( 22.4 ) ( 34.6 ) ( 101.9 ) ( 35.2 )

Foreign exchange gain (loss) ( 1.5 ) 5.2 ( 6.8 ) —

Foreign exchange loss ( 0.2 ) ( 1.2 ) ( 7.0 ) ( 1.2 )

Other, net 4.8 3.6 15.1 4.6

Income (loss) from continuing operations before income taxes ( 35.8 ) ( 21.9 ) ( 200.1 ) 24.2

Provision for income taxes 10.7 11.6 14.8 13.1

Income tax (benefit) expense ( 17.3 ) ( 5.8 ) ( 2.5 ) 7.3

Income (loss) from continuing operations ( 18.5 ) ( 16.1 ) ( 197.6 ) 16.9

12 unchanged sentences

(in millions, except per share data)

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2024 2023 2024 2023

29 unchanged sentences

Balance at June 30, 2024 89.5 $ 0.1 $ 2,017.9 $ — $ ( 307.9 ) $ ( 249.0 ) $ 1,461.1

— — — — ( 27.9 ) — ( 27.9 )

Other comprehensive loss, net of tax

— — — — — 70.9 70.9

Stock compensation

— — 13.0 — — — 13.0

Issuance of common stock under employee stock plans

0.2 — — — — — —

Net share settlement tax payments from issuance of stock to employees

— — ( 3.6 ) — — — ( 3.6 )

Balance at September 30, 2024 89.7 $ 0.1 $ 2,027.3 $ — $ ( 335.8 ) $ ( 178.1 ) $ 1,513.5

FORTREA HOLDINGS INC.

17 unchanged sentences

Balance at June 30, 2023 88.8 0.1 1,971.4 — — ( 223.7 ) 1,747.8

— — — — ( 14.0 ) — ( 14.0 )

Other comprehensive loss, net of tax

— — — — — ( 54.4 ) ( 54.4 )

Stock compensation — — 11.1 — — — 11.1

Balance at September 30, 2023 88.8 $ 0.1 $ 1,982.5 $ — $ ( 14.0 ) $ ( 278.1 ) $ 1,690.5

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

2 unchanged sentences

(in millions) (unaudited)

Six Months Ended June 30,

Nine Months Ended September 30,

CASH FLOWS FROM OPERATING ACTIVITIES:

Net income (loss) $ ( 267.3 ) $ 29.3

Adjustments to reconcile net income (loss) to net cash provided by (used for) operating activities:

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

Depreciation and amortization 66.1 73.6

Stock compensation 43.1 27.2

Credit loss expense 17.0 21.9

Operating lease right-of-use asset expense 10.8 20.9

Operating lease right-of-use asset impairment 4.8 —

Goodwill and other asset impairments 24.0 —

4 unchanged sentences

Changes in assets and liabilities:

Decrease in accounts receivable and unbilled services, net 359.4 11.4

Increase in prepaid expenses and other

Decrease (Increase) in accounts receivable and unbilled services, net

290.9 ( 45.0 )

(Increase) decrease in prepaid expenses and other

Increase in accounts payable

Increase (decrease) in deferred revenue

(Decrease) increase in accrued expenses and other ( 34.3 ) 15.2

106.4 ( 6.0 )

Decrease in accrued expenses and other

( 39.5 ) ( 8.6 )

Net cash provided by operating activities 245.7 150.0

11 unchanged sentences

Principal payments of long-term debt ( 482.7 ) ( 7.7 )

Payments for taxes related to net share settlement of stock awards ( 14.0 ) —

Special payment to Former Parent — ( 1,595.0 )

27 unchanged sentences

Refer to Note 2 - Discontinued Operations for further discussion .

As of June 30, 2024, all of the Company's consolidated revenues from continuing operations were generated from the Clinical Services segment, which provides phase I-IV clinical trials, including clinical pharmacology and comprehensive clinical development capabilities.

For all periods presented, the Company's consolidated revenues from continuing operations were generated from the Clinical Services segment, which provides phase I-IV clinical trials, including clinical pharmacology and comprehensive clinical development capabilities.

The Company’s chief operating decision maker allocates resources and assesses performance for the Clinical Services segment.

4 unchanged sentences

Unless otherwise noted, discussion within these notes to the condensed consolidated and combined financial statements relates to the Company’s continuing operations.

FORTREA HOLDINGS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

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

Agreements with Labcorp

1 unchanged sentence

The Company has entered into several agreements with Labcorp that govern the relationship of the parties following the Separation, including the Separation and Distribution Agreement, the Tax Matters Agreement, the Employee Matters Agreement, and the Transition Services Agreement with Labcorp, which are described in the Company’s Registration Statement on Form 10, as amended (“Form 10”), as filed with the Securities and Exchange Commission (the “SEC”).

Under the terms of the Transition Services Agreement, the Company and Labcorp agreed to provide each other certain

FORTREA HOLDINGS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED AND COMBI NED FINANCIAL STATEMENTS

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

transitional services.

Under the terms of the Transition Services Agreement, the Company and Labcorp agreed to provide each other certain transitional services.

The services and assets to be provided to Fortrea by Labcorp support the Company’s enterprise functions, most notably IT applications, network and security support and hosting, as well as finance, human resources, marketing and other administrative support.

2 unchanged sentences

The Company’s financial statements for periods through the Spin reflect the historical financial position, results of operations and cash flows of the Company, for the periods presented, prepared on a “carve-out” basis and have been derived from the condensed consolidated financial statements and accounting records of Labcorp using the historical results of operations and historical basis of assets and liabilities of the Company, and reflect Labcorp’s net investment in the Company.

The Company’s balance sheet as of June 30, 2024 is a consolidated balance sheet based on the financial position of Fortrea as a standalone company.

The three and six months ended June 30, 2024 includes condensed consolidated financial statements, whereas all prior periods included consolidated and combined financial statements.

The condensed consolidated financial statements subsequent to June 30, 2023 reflect the results of operations, cash flows, and financial position of Fortrea as a standalone company, whereas all prior periods included consolidated and combined financial statements.

The Company’s unaudited condensed consolidated and combined financial statements for all periods presented are referred to throughout this document as “financial statements.”

15 unchanged sentences

For a period following the Spin some of these functions are provided by Labcorp.

FORTREA HOLDINGS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

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

As of December 31, 2022, a Former Parent investment is shown in lieu of common stock and retained earnings accounts in the condensed combined financial statements.

1 unchanged sentence

All intercompany transactions within the Company have been eliminated.

All transactions between the Company and Former Parent have been included in these condensed consolidated and combined financial

FORTREA HOLDINGS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED AND COMBI NED FINANCIAL STATEMENTS

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

All transactions between the Company and Former Parent have been included in these condensed consolidated and combined financial statements.

The Former Parent investment and all due from or due to Former Parent were settled at the time of the Spin.

6 unchanged sentences

Substantially all the Company’s accounts receivable and unbilled services are with companies in the pharmaceutical, biotechnology and medical device industries.

As of June 30, 2024, one customer accounted for 15.4 % of the Company's combined gross accounts receivable and unbilled services.

As of September 30, 2024, one customer accounted for 15.6 % of the Company's combined gross accounts receivable and unbilled services.

As of December 31, 2023, two pharmaceutical companies accounted for approximately 17.0 % and 11.2 % of the Company's combined gross accounts receivable and unbilled services.

Additionally, for the three months ended June 30, 2024, one customer accounted for approximately 13.2 % of revenues, and for the six months ended June 30, 2024, two customers accounted for approximately 13.6 % and 11.3 % of revenues.

For the three months ended June 30, 2023, one customer accounted for 10.2 % of revenues, and for the six months ended June 30, 2023, one customer accounted for 10.1 % of revenues.

Additionally, for the three months ended September 30, 2024, one customer accounted for approximately 15.1 % of revenues, and for the nine months ended September 30, 2024, two customers accounted for approximately 14.2 % and 10.4 % of revenues.

For the three months ended September 30, 2023, two customer accounted for 14.6 % and 11.4 % of revenues, and for the nine months ended September 30, 2023, two customer accounted for 11.1 % and 10.6 % of revenues.

Concentrations of credit risk are mitigated due to the number of the Company’s customers as well as their dispersion across many different geographic regions.

3 unchanged sentences

During the quarter ended March 31, 2024, a change in basis of presentation, to include information technology costs and certain facility costs in Selling, general and administrative expenses was made to improve comparability of costs against peer companies in the clinical research industry.

As a result, the Company reclassified $ 33.1 and $ 78.3 from Direct costs, exclusive of depreciation and amortization, to Selling, general and administrative expenses, exclusive of depreciation and amortization in the condensed consolidated and combined statement of operations for the three and six months ended June 30, 2023 , respectively, relating to information technology costs and certain facility charges.

There is no impact on total operating expenses, operating income or net income during the period ended June 30, 2023.

As a result, the Company reclassified $ 39.0 and $ 117.3 from Direct costs, exclusive of depreciation and amortization, to Selling, general and administrative expenses, exclusive of depreciation and amortization in the condensed consolidated and combined statement of operations for the three and nine months ended September 30, 2023 , respectively, relating to information technology costs and certain facility charges.

There is no impact on total operating expenses, operating income or net income during the period ended September 30, 2023.

Direct costs include payroll and related benefits for project-related employees, pass through costs, facility costs related to phase I clinics and other direct costs from the Transition Services Agreement with Labcorp.

Selling, general and administrative expenses consist primarily of administrative payroll and related benefit charges, information technology costs, other facility charges, advertising and promotional expenses, administrative travel and credit loss provisions.

Additionally, the Company reclassified $ 0.1 from Other, net to Interest expense in the condensed consolidated and combined statement of operations for the six months ended June 30, 2023 .

Additionally, the Company reclassified $ 0.1 from Other, net to Interest expense in the condensed consolidated and combined statement of operations for the nine months ended September 30, 2023 .

FORTREA HOLDINGS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

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

Restatement of Prior Period Financial Statements

1 unchanged sentence

The errors consisted primarily of a goodwill impairment charge as a result of an incorrect carrying value used in the Company’s impairment calculation, a reduction in revenue due to the misstatement in the amount of the ultimate resolution of a customer matter, an understatement of expense accruals allocated from Former Parent prior to spin, and an understatement of depreciation expense associated with certain projects that were not depreciated in a timely manner.

FORTREA HOLDINGS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED AND COMBI NED FINANCIAL STATEMENTS

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

Management assessed the materiality of the errors, including the presentation of prior period consolidated financial statements, on a qualitative and quantitative basis in accordance with SEC Staff Accounting Bulletin No.

11 unchanged sentences

The new guidance will be effective for the Company in the annual period beginning January 1, 2024 and in 2025 for interim periods.

The Company is assessing the impact of this ASU on its disclosures within the consolidated financial statements.

The Company does not expect the adoption of this standard to have a material impact on its results of operations, financial position or cash flows.

In December 2023, the FASB issued guidance to require qualitative and quantitative updates to the rate reconciliation and income taxes paid disclosures, among others, in order to enhance the transparency of income tax disclosures, including consistent categories and greater disaggregation of information in the rate reconciliation and disaggregation by jurisdiction of income taxes paid.

9 unchanged sentences

The final adjusted purchase price for the Transaction was $ 340.0 , subject to customary purchase price adjustments, with $ 295.0 paid at closing and $ 45.0 to be paid upon achievement of certain transition-related milestones.

The Transaction closed during the second quarter of 2024 with estimated proceeds of $ 281.6 , subject to further adjustment based on customary purchase price adjustments.

The Transaction closed during the second quarter of 2024 with estimated proceeds of

FORTREA HOLDINGS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED AND COMBI NED FINANCIAL STATEMENTS

NOTES TO UNAUDITED CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

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

$ 281.6 and resulting in a loss on disposal of $ 23.2 , subject to further adjustment based on customary purchase price adjustments.

Financial Information of Discontinued Operations

The following table summarizes the significant line items included in earnings (loss) from discontinued operations, net of income tax in the condensed consolidated and combined statements of operations for the three and six months ended June 30, 2024 and 2023:

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2024 2023 2024 2023

13 unchanged sentences

Income (loss) from discontinued operations before income taxes — 2.9 ( 34.5 ) 13.7

Provision for income taxes 22.0 ( 0.6 ) 25.8 0.5

Income tax expense 9.4 0.8 35.2 1.3

Income (loss) from discontinued operations, net of tax $ ( 9.4 ) $ 2.1 $ ( 69.7 ) $ 12.4

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2024 2023 2024 2023

4 unchanged sentences

Accordingly, an impairment analysis was performed, which resulted in a goodwill impairment charge of $ 24.0 .

During the second quarter of 2024, a loss on disposal of $ 23.2 was recognized primarily due to changes in working capital and a final sales price.

FORTREA HOLDINGS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED AND COMBI NED FINANCIAL STATEMENTS

NOTES TO UNAUDITED CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

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

20 unchanged sentences

The cash flows related to discontinued operations have not been segregated and are included in the condensed consolidated and combined statements of cash flows.

The following table summarizes depreciation and amortization, capital expenditures and the significant cash flow and noncash items from discontinued operations for the six months ended June 30, 2024 and 2023:

Six months ended June 30,

The following table summarizes depreciation and amortization, capital expenditures and the significant cash flow and noncash items from discontinued operations for the nine months ended September 30, 2024 and 2023:

Nine months ended September 30,

Depreciation and amortization $ 1.6 $ 6.5

2 unchanged sentences

Capital expenditures 7.4 12.0

There are no significant operating or investing noncash items related to discontinued operations for the six months ended June 30, 2024 and 2023.

There are no significant operating or investing noncash items related to discontinued operations for the nine months ended September 30, 2024 and 2023.

FORTREA HOLDINGS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED AND COMBI NED FINANCIAL STATEMENTS

NOTES TO UNAUDITED CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

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

The Company’s revenues by geography for the three and six months ended June 30, 2024 and 2023 are as follows:

Three Months Ended June 30, 2024 Three Months Ended June 30, 2023

The Company’s revenues by geography for the three and nine months ended September 30, 2024 and 2023 are as follows:

Three Months Ended September 30, 2024 Three Months Ended September 30, 2023

North America Europe Other Total North America Europe Other Total

$ 319.7 $ 191.8 $ 163.4 $ 674.9 $ 349.5 $ 204.3 $ 160.0 $ 713.8

Six Months Ended June 30, 2024 Six Months Ended June 30, 2023

Nine Months Ended September 30, 2024 Nine Months Ended September 30, 2023

North America Europe Other Total North America Europe Other Total

3 unchanged sentences

The following table provides information about contract asset balances:

June 30, 2024 December 31, 2023

September 30, 2024 December 31, 2023

Sales commission assets $ 20.6 $ 15.8

1 unchanged sentence

Total $ 22.0 $ 17.8

Amortization related to sales commission assets for the three months ended June 30, 2024 and 2023 was $ 2.9 and $ 3.2 , respectively, and for the six months ended June 30, 2024 and 2023 was $ 5.5 and $ 7.4 , respectively.

Amortization related to deferred contract costs for the three months ended June 30, 2024 and 2023 was $ 0.5 and $ 0.5 , respectively, and for the six months ended June 30, 2024 and 2023 was $ 0.9 and $ 1.1 , respectively.

Amortization related to sales commission assets for the three months ended September 30, 2024 and 2023 was $ 2.9 and $ 2.0 , respectively, and for the nine months ended September 30, 2024 and 2023 was $ 8.5 and $ 9.4 , respectively.

Amortization related to deferred contract costs for the three months ended September 30, 2024 and 2023 was $ 0.6 and $ 0.5 , respectively, and for the nine months ended September 30, 2024 and 2023 was $ 1.5 and $ 1.6 , respectively.

Th e Company applies the practical expedient to not recognize the effect of financing in its contracts with customers when the difference in timing of payment and performance is one year or less.

1 unchanged sentence

The following table provides information about accounts receivable, unbilled services and unearned revenue from contracts with customers:

June 30, 2024 December 31, 2023

September 30, 2024 December 31, 2023

Accounts receivable $ 156.2 $ 420.2

3 unchanged sentences

Unearned revenue $ 321.1 $ 214.2

Revenue recognized during the period that was included in the unearned revenue balance at the beginning of the period was $ 125.5 and $ 139.4 for the six months ended June 30, 2024 and 2023, respectively.

Additionally, during the quarter ended June 30, 2024, the Company sold $ 300.0 of receivables as described in the Receivables Securitization Program section below.

Revenue recognized during the period that was included in the unearned revenue balance at the beginning of the period was $ 147.6 and $ 162.6 for the nine months ended September 30, 2024 and 2023, respectively.

Additionally, as of the quarter ended September 30, 2024, the Company had sold $ 300.0 of receivables as described in the Receivables Securitization Program section below.

FORTREA HOLDINGS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED AND COMBI NED FINANCIAL STATEMENTS

NOTES TO UNAUDITED CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

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

1 unchanged sentence

The Company estimates future expected losses on accounts receivable and unbilled services over the remaining collection period of the instrument.

The rollforward for the allowance for credit losses for the six months ended June 30, 2024 is as follows:

The rollforward for the allowance for credit losses for the nine months ended September 30, 2024 is as follows:

Accounts Receivable

2 unchanged sentences

Write-offs ( 11.6 )

Allowance for credit losses as of June 30, 2024 $ 32.7

Foreign currency impact ( 0.1 )

Allowance for credit losses as of September 30, 2024 $ 37.0

Performance Obligations Under Long-Term Contracts

As of June 30, 2024, approximately $ 4,357 of revenues are expected to be recognized from remaining long-term performance obligations.

The Company expects to recognize approximately 28 % of the existing performance obligations as of June 30, 2024 as revenue over the next 12 months and the remaining balance thereafter.

As of September 30, 2024, approximately $ 4,491 of revenues are expected to be recognized from remaining long-term performance obligations.

The Company expects to recognize approximately 27 % of the existing performance obligations as of September 30, 2024 as revenue over the next 12 months and the remaining balance thereafter.

The Company’s long-term contracts generally range from one to eight years .

During the three and six months ended June 30, 2024, there were reductions of approximately $ 18 and $ 52 , respectively, in revenue related to performance obligations partially satisfied in previous periods.

For the reduction, for the three months ended June 30, 2024, the majority of the change was associated with changes in scope or price, and a smaller portion related to changes in estimated effort to complete customer contract obligations.

For the three months ended June 30, 2024, the change in estimate resulted in an estimated reduction to revenue of $ 4 , and an increase in loss from continuing operations of $ 3 and in loss per share of $ 0.03 .

For the six months ended June 30, 2024, the change in estimate resulted in an estimated reduction to revenue of $ 21 , and an increase in loss from continuing operations of $ 19 and in loss per share of $ 0.21 .

During the three and six months ended June 30, 2023, there were reductions of approximately $ 22 and $ 33 , respectively, in revenue related to performance obligations partially satisfied in previous periods.

For the three months ended June 30, 2023, the majority of the change was associated with changes in scope and price, and a smaller portion related to changes in estimated effort to complete customer contract obligations.

For the three months ended June 30, 2023, the change in estimate resulted in an estimated reduction to revenue of $ 5 , and an increase in loss from continuing operations of $ 3 and in loss per share of $ 0.03 .

For the six months ended June 30, 2023, the change in estimate resulted in an estimated reduction to revenue of $ 15 , and a decrease in income from continuing operations of $ 11 and in income per share of $ 0.12 .

During the three and nine months ended September 30, 2024, there were reductions of approximately $ 6 and $ 58 , respectively, in revenue related to performance obligations partially satisfied in previous periods.

For the three months ended September 30, 2024, the majority of the change was associated with changes in estimated effort to complete customer contract obligations and a smaller portion related to changes in scope or price.

For the three months ended September 30, 2024, the change in estimate resulted in an estimated reduction to revenue of $ 4 , and an increase in loss from continuing operations of $ 2 and in loss per share of $ 0.02 .

For the nine months ended September 30, 2024, the change in estimate resulted in an estimated reduction to revenue of $ 25 , and an increase in loss from continuing operations of $ 25 and in loss per share of $ 0.28 .

During the three and nine months ended September 30, 2023, there were reductions of approximately $ 16 and $ 48 , respectively, in revenue related to performance obligations partially satisfied in previous periods.

For the three months ended September 30, 2023, the majority of the change was associated with changes in scope and price and a smaller portion related to changes in estimated effort to complete customer contract obligations.

For the three months ended September 30, 2023, the change in estimate resulted in an estimated reduction to revenue of $ 5 , and an increase in loss from continuing operations of $ 4 and in loss per share of $ 0.05 .

For the nine months ended September 30, 2023, the change in estimate resulted in an estimated reduction to revenue of $ 21 , and a decrease in income from continuing operations of $ 14 and in income per share of $ 0.16 .

Accounts Receivable Purchase Program

8 unchanged sentences

FORTREA HOLDINGS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED AND COMBI NED FINANCIAL STATEMENTS

NOTES TO UNAUDITED CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

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

6 unchanged sentences

The Receivables Facility is scheduled to terminate on May 6, 2027, unless terminated earlier pursuant to its terms.

As of June 30, 2024, the Company sold $ 300.0 of receivables, which were derecognized from the Company’s consolidated balance sheet, with net proceeds of $ 297.9 , as described in the Accounts Receivable, Unbilled Services and Unearned Revenue section above.

Total fees of $ 2.1 represent the cost associated with the sale for the three months ended June 30, 2024 and are included within Selling, general and administrative costs, exclusive of depreciation and amortization in the condensed consolidated and combined statement of operations for the three and six months ended June 30, 2024.

As of September 30, 2024, the Company had sold $ 300.0 of receivables, which were derecognized from the Company’s consolidated balance sheet, with net proceeds of $ 297.9 , as described in the Accounts Receivable, Unbilled Services and Unearned Revenue section above.

Total costs associated with the sale were $ 5.3 and $ 7.4 for the three and nine months ended September 30, 2024, respectively, and are included within Selling, general and administrative costs, exclusive of depreciation and amortization in the condensed consolidated and combined statement of operations for the three and nine months ended September 30, 2024.

Continuous cash activity related to the Receivables Facility is reflected in cash from operating activities in the consolidated statement of cash flows.

1 unchanged sentence

During 2023, the Company took actions to reduce overcapacity, align resources, and restructure certain operations.

These actions included eliminating redundant positions and aligning resources for cost improvements and to meet customer requirements.

These actions included eliminating redundant positions and aligning resources and facilities for cost improvements and to meet customer requirements.

These restructuring actions are expected to continue throughout 2024.

The following summarizes a component of the Company’s restructuring and other charges:

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

Severance and Other Employee Costs Facility Costs Total

3 unchanged sentences

Cash payments and other adjustments ( 14.2 ) ( 0.6 ) ( 14.8 )

Balance as of June 30, 2024 $ 5.2 $ 0.1 $ 5.3

Balance as of September 30, 2024 $ 2.0 $ 0.3 $ 2.3

Severance and Other Employee Costs Facility Costs Total

2 unchanged sentences

Cash payments and other adjustments ( 8.4 ) ( 1.2 ) ( 9.6 )

Balance as of June 30, 2023 $ 1.5 $ 4.1 $ 5.6

Balance as of September 30, 2023 $ 3.1 $ 4.2 $ 7.3

The current portion of the restructuring liabilities is included in the condensed consolidated balance sheets in accrued expenses and other current liabilities.

The non-current portion of the restructuring liabilities is included in the condensed consolidated balance sheets in other liabilities.

The non-current portion of the restructuring liabilities is expected to be paid out over 12 months.

The non-current portion of restructuring liabilities as of September 30, 2024 and December 31, 2023, was $ 0.0 and $ 2.4 , respectively.

FORTREA HOLDINGS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

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

EARNINGS (LOSS) PER SHARE

1 unchanged sentence

As a result, on June 30, 2023, the Company had 88.8 shares of common stock outstanding.

FORTREA HOLDINGS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED AND COMBI NED FINANCIAL STATEMENTS

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

share amount is being utilized for the calculation of basic earnings per share for all periods presented through the Separation date.

This share amount is being utilized for the calculation of basic earnings per share for all periods presented through the Separation date.

As of the Separation date, actual outstanding shares are used to calculate basic weighted average common shares outstanding.

3 unchanged sentences

The following represents a reconciliation of basic earnings (loss) per share to diluted earnings (loss) from continuing operations per share.

Three Months Ended June 30,

Three Months Ended September 30,

Per Share Amount

6 unchanged sentences

$ ( 18.5 ) 89.6 $ ( 0.21 ) $ ( 16.1 ) 88.8 $ ( 0.18 )

Six Months Ended June 30,

Nine Months Ended September 30,

Earnings Shares Per Share Amount Earnings Shares Per Share Amount

5 unchanged sentences

FORTREA HOLDINGS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED AND COMBI NED FINANCIAL STATEMENTS

NOTES TO UNAUDITED CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

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

The following represents a reconciliation of basic earnings (loss) per share to diluted earnings (loss) from discontinued operations per share.

Three Months Ended June 30,

Three Months Ended September 30,

Per Share Amount

6 unchanged sentences

$ ( 9.4 ) 89.6 $ ( 0.10 ) $ 2.1 88.8 $ 0.02

Six Months Ended June 30,

Nine Months Ended September 30,

Earnings Shares Per Share Amount Earnings Shares Per Share Amount

3 unchanged sentences

Dilutive effect of employee stock options and awards

— — — — 0.2 —

Net earnings (loss) from discontinued operations including impact of dilutive adjustments

4 unchanged sentences

The following table summarizes the potential common shares not included in the computation of diluted earnings per share because their impact would have been antidilutive:

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2024 2023 2024 2023

1 unchanged sentence

Antidilutive employee stock options and awards excluded based on reporting a net loss for the period 0.5 0.4 0.9 —

GOODWILL AND INTANGIBLE ASSETS

The Company’s goodwill and intangible assets are the result of historical acquisitions;

primarily the acquisition of Covance in 2015 by Labcorp.

Subsequent acquisitions of businesses were allocated to Fortrea based on the inclusion of the business activities using valuations at the time of acquisition.

FORTREA HOLDINGS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED AND COMBI NED FINANCIAL STATEMENTS

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

The changes in the carrying amount of goodwill for the six months ended June 30, 2024 and 2023 are as follows:

June 30, 2024 June 30, 2023

Balance as of December 31 $ 1,739.4 $ 1,707.4

Foreign currency impact ( 13.7 ) 27.9

Balance as of June 30 $ 1,725.7 $ 1,735.3

The Company assesses goodwill for impairment at least annually or whenever events or changes in circumstances indicate that the carrying amount of goodwill may not be recoverable.

The Company recognizes an impairment charge for the amount by which the reporting unit’s carrying amount exceeds its fair value.

Although the Company believes that the current assumptions and estimates used in its goodwill analysis are reasonable, supportable and appropriate, the Company’s business could be impacted by unfavorable changes, including those that impact the existing assumptions used in the impairment analysis.

Various factors could reasonably be expected to unfavorably impact existing assumptions;

primarily a worsening economic environment and protracted economic downturn and related impacts, including delays in revenue from new customers, increases in customer termination activity, or increases in operating costs.

Accordingly, there can be no assurance that the estimates and assumptions made for the purposes of the goodwill impairment analysis will prove to be accurate predictions of future performance.

The Company will continue to monitor the financial performance of and assumptions for its reporting units.

A significant increase in the discount rate, decrease in the revenue and terminal growth rates, decreased operating margin or substantial reductions in end markets and volume assumptions could have a negative impact on the estimated fair value of the reporting units.

A future impairment charge for goodwill or intangible assets could have a material effect on the Company’s consolidated financial position and results of operations.

The components of identifiable intangible assets are as follows:

June 30, 2024 December 31, 2023

Gross Carrying Amount Accumulated Amortization Net Carrying Amount Gross Carrying Amount Accumulated Amortization Net Carrying Amount

Customer relationships $ 1,134.2 $ ( 445.1 ) $ 689.1 $ 1,143.5 $ ( 420.1 ) $ 723.4

Technology 27.7 ( 25.9 ) 1.8 27.7 ( 24.5 ) 3.2

Other 12.5 ( 11.5 ) 1.0 12.5 ( 11.0 ) 1.5

Total $ 1,174.4 $ ( 482.5 ) $ 691.9 $ 1,183.7 $ ( 455.6 ) $ 728.1

Amortization of intangible assets for the three and six months ended June 30, 2024 was $ 15.1 and $ 30.4 , respectively, and for the three and six months ended June 30, 2023 was $ 15.4 and $ 30.4 , respectively.

Amortization expense of intangible assets is estimated to be $ 30.4 for the remainder of 2024, $ 58.1 in 2025, $ 57.3 in 2026, $ 57.3 in 2027, $ 49.6 in 2028 and $ 439.2 thereafter.

In connection with the Spin, Fortrea incurred indebtedness in an aggregate principal amount of approximately $ 1,640.0 , which consisted of borrowings under senior secured term loan facilities and senior secured notes.

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FORTREA HOLDINGS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED AND COMBI NED FINANCIAL STATEMENTS

NOTES TO UNAUDITED CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

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

these debt transactions to make a cash distribution to Labcorp as consideration for the assets that were contributed to the Company in connection with the Spin.

The current portion of long-term debt at June 30, 2024 and December 31, 2023 consisted of the following:

June 30, 2024 December 31, 2023

The current portion of long-term debt at September 30, 2024 and December 31, 2023 consisted of the following:

September 30, 2024 December 31, 2023

Current portion of senior secured term loan A facility due 2028 $ — $ 25.0

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Total short-term borrowings and current portion of long-term debt $ — $ 26.1

Long-term debt at June 30, 2024 and December 31, 2023 consisted of the following:

June 30, 2024 December 31, 2023

Long-term debt at September 30, 2024 and December 31, 2023 consisted of the following:

September 30, 2024 December 31, 2023

7.5 % senior notes due 2030

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Total long-term debt $ 1,124.5 $ 1,565.9

During the three and six months ended June 30, 2024, the Company paid down $ 64.0 and $ 70.2 , respectively, on term loan A and $ 411.0 and $ 412.5 , respectively, on term loan B.

Additionally, the Company wrote off $ 12.2 of unamortized debt issuance costs associated with the pay down of debt, which were recorded in Interest expense in the condensed consolidated and combined statements of operations, during the three and six months ended June 30, 2024.

During the three and nine months ended September 30, 2024, the Company paid down $ 0.0 and $ 70.2 , respectively, on our senior secured term loan A due 2028 (“term loan A”) and $ 0.0 and $ 412.5 , respectively, on our senior secured term loan B due 2030 (“term loan B”).

Additionally, in the second quarter of 2024, the Company wrote off $ 12.2 of unamortized debt issuance costs associated with the pay down of debt, which were recorded in Interest expense in the condensed consolidated and combined statements of operations during the nine months ended September 30, 2024.

On June 27, 2023, the Company issued $ 570.0 aggregate principal amount of 7.50 % senior notes due 2030 (the “Notes”).

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The term loans accrue interest at a per annum rate equal to the sum of, at the option of the Company, a Base Rate or a Term SOFR Rate and the Applicable Margin as defined by the Credit Agreement.

As of June 30, 2024, the effective interest rate on the term A loan and term B loan was 7.59 % and 9.09 %, respectively.

As of September 30, 2024, the effective interest rate on the term A loan and term B loan was 6.82 % and 8.49 %, respectively.

The revolving credit facility is permitted, subject to certain covenant restrictions, to be used for general corporate purposes, including working capital and capital expenditures.

There were no balances outstanding on the Company’s current revolving credit facility as of June 30, 2024, and $ 450.0 was available for borrowing as of June 30, 2024.

There were no balances outstanding on the Company’s current revolving credit facility as of September 30, 2024, and $ 450.0 was available for borrowing as of September 30, 2024.

No balances were outstanding as of December 31, 2023.

As of June 30, 2024, the effective interest rate on the revolving credit facility was 7.59 %, assuming one-month interest election.

As of September 30, 2024, the effective interest rate on the revolving credit facility was 6.82 %, assuming one-month interest election.

There is a commitment fee associated with the revolving credit facility of 0.35 % (per annum and paid quarterly) and an annual $ 0.1 agency fee (paid in quarterly installments).

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FORTREA HOLDINGS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED AND COMBI NED FINANCIAL STATEMENTS

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

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The Company is permitted to make adjustments, such as excluding certain costs, from the calculation of leverage and interest coverage ratios for compliance purposes.

On May 3, 2024, the Company entered into an amendment to modify certain financial covenants for additional flexibility under the Company’s Credit Agreement.

The Company was in compliance with all covenants in the Credit Agreement at June 30, 2024 and believes it will be in compliance with all covenants for a period of at least 12 months from the date these financial statements are issued.

There were no outstanding letters of credit under the Credit Agreement as of June 30, 2024.

On May 3, 2024, the Company entered into an amendment to modify certain financial covenants for additional flexibility under the Credit Agreement.

The Company was in compliance with all covenants in the Credit Agreement at September 30, 2024 and believes it will be in compliance with all covenants for a period of at least 12 months from the date these financial statements are issued.

There were no outstanding letters of credit under the Credit Agreement as of September 30, 2024.

DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

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Fair Value of Derivatives At

June 30, 2024 December 31, 2023

Balance Sheet Classification Asset Liability Notional

Asset Liability Notional

September 30, 2024 December 31, 2023

Balance Sheet Classification Asset Liability Asset Liability

Derivatives designated as hedging instruments:

Interest rate swaps Prepaid expenses and other/

Interest rate swaps

Accrued expenses and other $ 0.1 $ ( 0.7 ) $ — $ —

Other liabilities — ( 2.2 ) 0.7 ( 2.6 )

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Other current liabilities — ( 0.2 ) — —

The notional amounts of the Company’s interest rate swaps and foreign currency forward contracts were $ 150.0 and $ 502.0 as of September 30, 2024 and $ 150.0 and $ 458.3 as of December 31, 2023, respectively.

The following table presents the pre-tax effects of cash flow hedges included in the Company’s condensed consolidated and combined statements of comprehensive income (loss):

Pre-Tax Gain (Loss) Included in Other Comprehensive Income

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2024 2023 2024 2023

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FORTREA HOLDINGS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED AND COMBI NED FINANCIAL STATEMENTS

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

Amounts Reclassified from Other Comprehensive Loss into Earnings

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

Statement of Operations Classification 2024 2023 2024 2023

Deferred gain (loss) reclassified into earnings Interest expense $ ( 0.4 ) $ — $ ( 1.2 ) $ —

The estimated amount of pre-tax net losses included in other comprehensive loss that is expected to be reclassified into earnings over the twelve months following June 30, 2024, is $ 1.1 .

The estimated amount of pre-tax net losses included in other comprehensive loss that is expected to be reclassified into earnings over the twelve months following September 30, 2024, is $ 0.6 .

Refer to Note 9 - Preferred Stock and Common Shareholders' Equity for the impact of the Company’s derivative instruments included in accumulated other comprehensive loss.

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Gain (Loss) on Derivatives Recognized in Earnings

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

Statement of Operations Classification 2024 2023 2024 2023

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It was previously disclosed that there was an issue in a customer’s trial caused by a third-party vendor not affiliated with the Company.

As part of working with this customer, the Company agreed to make concessions and provide discounts and other consideration to the customer in the amount of $ 12.5 as part of a multi-party solution to facilitate the ongoing trials, of which $ 0.4 and $ 2.1 was recorded as a reduction of revenue during the three and six months ended June 30, 2024, respectively, and $ 8.7 was recorded as a reduction in revenue in the fourth quarter of 2023.

As part of working with this customer, the Company agreed to make concessions and provide discounts and other consideration to the customer in the amount of $ 12.5 as part of a multi-party solution to facilitate the ongoing trials, of which $ 0.9 and $ 3.0 was recorded as a reduction of revenue during the three and nine months ended September 30, 2024, respectively, and $ 8.7 was recorded as a reduction in revenue in the fourth quarter of 2023.

FORTREA HOLDINGS INC.

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

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

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The Company is authorized to issue up to 30.0 shares of preferred stock, par value $ 0.001 per share.

There were no preferred shares outstanding as of June 30, 2024 and December 31, 2023.

There were no preferred shares outstanding as of September 30, 2024 and December 31, 2023.

Accumulated Other Comprehensive Income (Loss)

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Balance at June 30, 2024 ( 242.1 ) ( 7.4 ) 0.5 ( 249.0 )

Current quarter foreign exchange adjustments 73.4 — — 73.4

Unrealized gain on derivative instrument — — ( 2.9 ) ( 2.9 )

Amounts reclassified from other accumulated income (loss) — — ( 0.4 ) ( 0.4 )

Tax effect of adjustments — — 0.8 0.8

Balance at September 30, 2024 $ ( 168.7 ) $ ( 7.4 ) $ ( 2.0 ) $ ( 178.1 )

FORTREA HOLDINGS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

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

Foreign Currency Translation Adjustments Net Benefit Plan Adjustments Unrealized Gain (Loss) on Derivative Instruments Accumulated Other Comprehensive Income (Loss)

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Balance at June 30, 2023 ( 217.0 ) ( 6.7 ) — ( 223.7 )

For the three months ended June 30, 2024, the Company’s effective tax rate was ( 12.1 )% compared to 31.7 % for the three months ended June 30, 2023.

The effective tax rate for the three months ended June 30, 2024 was lower than the Company’s statutory tax rate primarily due to a change in the valuation allowance, earnings mix, and non-deductible compensation expenses.

The effective tax rate for the three months ended June 30, 2023 was higher than the Company’s statutory tax rate primarily due to the geographic mix of earnings partially offset by U.S.

Current quarter foreign exchange adjustments ( 55.6 ) — — ( 55.6 )

Unrealized gain on derivative instrument — — 1.6 1.6

Tax effect of adjustments — — ( 0.4 ) ( 0.4 )

Balance at September 30, 2023 $ ( 272.6 ) $ ( 6.7 ) $ 1.2 $ ( 278.1 )

For the three months ended September 30, 2024 and 2023, the Company recognized income tax benefits of $ 17.3 and $ 5.8 , respectively, which resulted in effective tax rates of 48.3 % and 26.5 %, respectively.

The effective tax rate for the three months ended September 30, 2024 was higher than the Company’s statutory tax rate primarily due to the geographic mix of earnings, partially offset by a forecasted valuation allowance on the deferred tax asset for the carryforward of disallowed interest expense, which impacts the annualized effective tax rate of the Company by approximately 14.8 %.

This deferred tax asset exists due to limitations imposed under the Internal Revenue Code on the annual deductibility of business interest expense.

The effective tax rate for the three months ended September 30, 2023 was higher than the Company’s statutory tax rate primarily due to the geographic mix of earnings partially offset by U.S.

taxes on foreign earnings.

More specifically, for the quarter ended June 30, 2024, the Company included income tax expense of approximately $ 10.7 primarily due to a forecasted valuation allowance on the deferred tax asset for the carryforward of disallowed interest expense.

This deferred tax asset exists due to limitations imposed under the Internal Revenue

FORTREA HOLDINGS INC.

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

Code on the annual deductibility of business interest expense.

This amount resulted in a significant impact to the effective tax rate.

For the six months ended June 30, 2024, the Company’s effective tax rate was ( 9.0 )% compared to 28.4 % for the six months ended June 30, 2023.

The effective tax rate for the six months ended June 30, 2024 was lower than the Company’s statutory tax rate primarily due to a change in the valuation allowance, earnings mix, and non-deductible compensation expenses.

The effective tax rate for the six months ended June 30, 2023 was higher than the Company’s statutory tax rate primarily due to the geographic mix of earnings partially offset by U.S.

For the nine months ended September 30, 2024, the Company recognized an income tax benefit of $ 2.5 resulting in an effective tax rate of 1.2 %.

For the nine months ended September 30, 2023, the Company recognized income tax expense of $ 7.3 resulting in an effective tax rate of 30.2 % for the nine months ended September 30, 2023.

The effective tax rate for the nine months ended September 30, 2024 was lower than the Company’s statutory tax rate primarily due to the valuation allowance recognized on the deferred tax asset for the carryforward of disallowed interest expense and non-deductible compensation expenses.

The effective tax rate for the nine months ended September 30, 2023 was higher than the Company’s statutory tax rate primarily due to the geographic mix of earnings partially offset by U.S.

taxes on foreign earnings.

During the six months ended June 30, 2024, the amount of net unrecognized tax positions increased by $ 0.1 .

Management believes it is likely that none of the unrecognized income tax benefits and interest will decrease during the next 12 months.

During the nine months ended September 30, 2024, the amount of net unrecognized tax positions increased by less than $ 0.1 .

Management believes it is unlikely that the unrecognized income tax benefits and interest will decrease during the next 12 months.

STOCK COMPENSATION PLANS

Stock Incentive Plans

Prior to the Separation, certain Company employees were covered by the Former Parent-sponsored stock compensation arrangements.

The stock compensation expense for the period prior to the Separation has been derived from the equity awards granted by Labcorp to the Company’s employees who are specifically identified in the plans, as well as an allocation of expense related to corporate employees of Labcorp.

The Former Parent-sponsored stock compensation arrangements are approved under the Laboratory Corporation of America Holdings 2016 Omnibus Incentive Plan.

In June of 2023, Fortrea’s pre-Spin Board of Directors approved Fortrea’s Omnibus Incentive Plan and Employee Stock Purchase Plan (the “Plans”) and the post-Spin Board of Directors of Fortrea ratified the Plans by a unanimous written consent dated July 3, 2023.

Under the Plans, the Company may grant incentive stock options, RSUs, and performance shares, as well as other forms of stock-based compensation to the Company’s employees, officers, and non-employee directors.

On July 18, 2023, all Labcorp equity incentive awards held by Fortrea employees that were outstanding on the distribution date were converted to 2.5 shares of Fortrea RSUs and 0.1 shares of Fortrea performance shares.

Additionally, during the three and six months ended June 30, 2024, the Company granted awards under the Plans, including RSUs and performance stock units, as indicated below.

As of June 30, 2024, 11.0 and 1.8 shares were authorized for future grants under Fortrea’s Omnibus Incentive Plan and Employee Stock Purchase Plan, respectively.

The Company measures stock compensation cost for all equity awards at fair value on the date of grant and recognizes compensation expense over the service period for awards expected to vest.

The fair value of RSUs is determined based on the number of shares granted and the quoted price of Fortrea’s common stock on the grant date.

The grant date fair value of performance awards is based on a Monte Carlo simulated fair value for the relative (as compared to the peer companies) total shareholder return component of the performance awards.

Such value is recognized as an expense over the service period, net of estimated forfeitures and Fortrea’s determination of whether it is probable that the performance targets will be achieved.

At the end of each reporting period, the Company reassesses the probability of achieving performance targets.

The estimation of equity awards that will ultimately vest requires judgment and Fortrea considers many factors when estimating expected forfeitures, including types of awards, employee class, and historical experience.

Stock Options

The following table summarizes grants of non-qualified options made by the Company to officers, key employees, or non-employee directors under all plans.

Stock options are generally granted at an exercise price equal to or greater than the fair market price per share on the date of grant.

Options vest ratably over a period of 3 years on the anniversaries of the grant date and have a contractual exercise period of 10 years subject to their earlier expiration or termination.

FORTREA HOLDINGS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED AND COMBI NED FINANCIAL STATEMENTS

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

Changes in options outstanding under the plans for the three and six months ended June 30, 2024, were as follows:

Number of Options Weighted-Average Exercise Price per Option Weighted-Average Remaining Contractual Term Aggregate Intrinsic Value

Outstanding at December 31, 2023

Granted — $ —

Cancelled — $ —

Outstanding at March 31, 2024 0.8 $ 26.52 9.4 years $ 10.9

Granted — $ —

Cancelled — $ —

Outstanding at June 30, 2024 0.8 $ 26.52 9.1 years $ —

Exercisable at June 30, 2024 — $ — 0.0 years $ —

The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (the difference between the Company’s closing stock price on the last trading day of the period and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on June 30, 2024.

The Company uses the Black-Scholes model to calculate the fair value of stock options.

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

Six Months Ended June 30, 2024

Weighted-average grant date fair value per option $ 12.51

Weighted-average expected life (in years) 6.3

Risk free interest rate 4.4 %

Expected volatility 40.4 %

Expected dividend yield — %

The volatility used in the determination of the fair value of the stock options was based on analysis of the historical volatility of guideline public companies and factors specific to the Company.

Restricted Stock Units and Performance Shares

The Company grants RSUs to officers, key employees, and non-employee directors.

RSUs typically vest annually in equal one-third increments beginning on the first anniversary of the grant (e.g., a share grant in the first quarter of 2024 represents a three-year award opportunity for the period of 2024-2026 and, if earned, vests fully (to the extent earned) in the first quarter of 2027).

The Company grants performance shares (non-vested shares) to officers and key employees.

Performance share awards are subject to a 3-year cliff vesting period in addition to certain revenue and adjusted EBITDA targets and a total shareholder return multiplier, the achievement of which may increase or decrease the number of shares which the grantee earns and therefore receives upon vesting.

Unearned RSU and performance share compensation is amortized to expense, when probable, over the applicable vesting periods.

The Company granted 0.1 and 1.1 restricted stock units during the three and nine months ended September 30, 2024, respectively, with a weighted average grant date fair value of $ 21.39 and $ 37.62 per share.

Total stock-based compensation expense and the associated income tax benefits recognized by the Company in the condensed consolidated and combined statements of operations were as follows:

FORTREA HOLDINGS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED AND COMBI NED FINANCIAL STATEMENTS

NOTES TO UNAUDITED CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

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

The following table shows a summary of non-vested shares for the three and six months ended June 30, 2024:

Number of Shares Weighted-Average Grant Date Fair Value

Restricted Stock Units Performance Shares Restricted Stock Units Performance Shares

Non-vested at December 31, 2023

3.6 0.1 $ 28.24 $ 43.78

Converted — — — —

Granted 1.0 0.1 39.31 43.68

Vested ( 0.7 ) ( 0.1 ) 35.14 48.89

Cancelled — — — —

Non-vested at March 31, 2024

3.9 0.1 $ 29.62 $ 41.58

Converted — — — —

Granted — — — —

Vested ( 0.1 ) — 30.53 —

Cancelled ( 0.1 ) — 34.05 —

Non-vested at June 30, 2024 3.7 0.1 $ 32.75 $ 41.58

Total stock-based compensation expense and the associated income tax benefits recognized by the Company in the condensed consolidated and combined statements of operations were as follows:

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2024 2023 2024 2023

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Income tax benefits $ 2.1 $ 1.7 $ 6.4 $ 4.4

Unrecognized Compensation Cost

As of June 30, 2024, there was $ 102.0 of total unrecognized compensation cost related to non-vested stock options, RSUs and performance share-based compensation arrangements granted under the Plans.

That cost is expected to be recognized over a weighted average period of 1.7 years and will be included in cost of revenues and Selling, general and administrative expenses, exclusive of depreciation and amortization.

TRANSACTIONS WITH FORMER PARENT

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In addition, for purposes of preparing these condensed consolidated and combined financial statements on a carve-out basis, a portion of Labcorp’s total corporate expenses were allocated to the Company.

See Note 1 - Basis of Financial Statement Presentation for a discussion of the methodology used to

FORTREA HOLDINGS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED AND COMBI NED FINANCIAL STATEMENTS

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

allocate corporate-related costs for purposes of preparing these financial statements on a carve-out basis.

See Note 1 - Basis of Financial Statement Presentation for a discussion of the methodology used to allocate corporate-related costs for purposes of preparing these financial statements on a carve-out basis.

Some of these services continue to be provided by Labcorp to the Company on a temporary basis under the Transition Services Agreement with Labcorp.

The following table is a summary of corporate and other allocations for the three and six months ended June 30, 2023:

Three Months Ended June 30, 2023 Six Months Ended

June 30, 2023

The following table is a summary of corporate and other allocations for the three and nine months ended September 30, 2023:

Three Months Ended September 30, 2023

Nine Months Ended September 30, 2023

Direct costs $ — $ 86.6

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Corporate and other allocations $ — $ 194.0

Included in the aforementioned amou nts are $ 74.2 and $ 147.6 related to costs for certain centralized functions and programs provided and administered by Labcorp that were charged directly to the Company for the three and six months ended June 30, 2023, respectively .

Included in the aforementioned amou nts are $ 0.0 and $ 147.6 related to costs for certain centralized functions and programs provided and administered by Labcorp that were charged directly to the Company for the three and nine months ended September 30, 2023, respectively .

In addition, a portion of Labcorp’s total corporate expenses were allocated to the Company for services from Labcorp.

These costs were $ 24.4 and $ 46.4 for the three and six months ended June 30, 2023, respectively .

These costs were $ 0.0 and $ 46.4 for the three and nine months ended September 30, 2023, respectively .

The allocations of foreign exchange gain (loss) represent the allocation of the results of hedging activities performed by Labcorp on behalf of the Company prior to the Separation.

The Company had arrangements with third parties where the services are subcontracted to Labcorp (and its affiliates that were not part of the transaction).

The Company’s direct costs include services purchased from Labcorp for commercial contracts totaling $ 27.0 and $ 48.8 for the three and six months ended June 30, 2023, respectively.

The Company’s direct costs include services purchased from Labcorp for commercial contracts totaling $ 0.0 and $ 48.8 for the three and nine months ended September 30, 2023, respectively.

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Hedging Activities

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Net transfers to and from Labcorp are included within Former Parent company investment on the condensed consolidated and combined statements of changes in equity.

The components of the transfers to and from Labcorp during the three and six months ended June 30, 2023 were as follows:

Three Months Ended June 30, 2023 Six Months Ended

June 30, 2023

The components of the transfers to and from Labcorp during the three and nine months ended September 30, 2023 were as follows:

Three Months Ended September 30, 2023

Nine Months Ended September 30, 2023

Special Payment to Former Parent $ — $ ( 1,595.0 )

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Total net transfers (to) from Former Parent $ — $ ( 1,686.7 )

FORTREA HOLDINGS INC.

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SUPPLEMENTAL CASH FLOW INFORMATION

Six Months Ended June 30,

Nine Months Ended September 30,

Supplemental schedule of cash flow information:

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Change in accrued property, plant and equipment ( 0.5 ) ( 1.5 )

Fair value of contingent consideration related to the sale of assets 39.6 —

Disclosure of non-cash transfers to (from) Parent:

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FORTREA HOLDINGS INC.

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

IMMATERIAL FINANCIAL RESTATEMENT AND RECLASSIFICATIONS TO PRIOR PERIOD FINANCIAL STATEMENTS

As discussed in Note 1 - Basis of Financial Statement Presentation the Company identified errors in the consolidated and combined financial statements of prior periods during the preparation of the condensed consolidated and combined financials for the first quarter of 2024.

A summary of the corrections to the impacted financial statement line items in the previously issued Consolidated Balance Sheet as of December 31, 2023, is provided below.

A summary of the corrections to the impacted financial statement line items in the previously issued Consolidated and Combined Statements of Operations, Comprehensive Income, Changes in Stockholders’ Equity, and Cash Flows as of and for the years ended December 31, 2023 and 2022, included in the previously filed Annual Report on Form 10-K, was provided in the previously filed Quarterly Report on Form 10-Q for the three months ended, March 31, 2024.

A summary of the corrections to the impacted financial statement line items in the Company’s previously issued Condensed Consolidated and Combined Statements of Operations, Comprehensive Income, Changes in Stockholders’ Equity, and Cash Flows for the three and six month periods ended June 30, 2023 and Consolidated Balance Sheet as of December 31, 2023, which were previously filed in 2023, are provided below.

A summary of the corrections to the impacted financial statement line items in the previously issued Consolidated Balance Sheet as of December 31, 2023, and the Consolidated and Combined Statements of Operations, Comprehensive Income, Changes in Stockholders’ Equity, and Cash Flows as of and for the years ended December 31, 2023 and 2022, included in the previously filed Annual Report on Form 10-K, was provided in the previously filed Quarterly Report on Form 10-Q for the three months ended March 31, 2024.

A summary of the corrections to the impacted financial statement line items in the Company’s previously issued Condensed Consolidated and Combined Statements of Operations, Comprehensive Income, Changes in Stockholders’ Equity, and Cash Flows for the three and nine month periods ended September 30, 2023 and Consolidated Balance Sheet as of December 31, 2023, which were previously filed in 2023, are also provided below.

FORTREA HOLDINGS INC.

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FORTREA HOLDINGS INC.

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CONDENSED CONSOLIDATED AND COMBINED STATEMENT OF OPERATIONS

Three Months Ended June 30, 2023

CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

Three Months Ended September 30, 2023

As Previously Reported Adjustments As Restated Discontinued Operations Reclassifications Change in Basis of Presentation As Restated and Reclassified

12 unchanged sentences

Income (loss) before income taxes ( 17.9 ) ( 1.1 ) ( 19.0 ) ( 2.9 ) — ( 21.9 )

Provision for (benefit from) income taxes 10.6 0.4 11.0 0.6 — 11.6

Net income $ 28.3 $ 2.5 $ 30.8 $ ( 5.8 ) $ — $ 25.0

Earnings per common share:

Income tax (benefit) expense

( 4.8 ) ( 0.2 ) ( 5.0 ) ( 0.8 ) — ( 5.8 )

Net loss $ ( 13.1 ) $ ( 0.9 ) $ ( 14.0 ) $ ( 2.1 ) $ — $ ( 16.1 )

Earnings (loss) per common share:

Basic - continuing operations $ ( 0.15 ) $ ( 0.16 ) $ ( 0.18 )

5 unchanged sentences

FORTREA HOLDINGS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED AND COMBI NED FINANCIAL STATEMENTS

NOTES TO UNAUDITED CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

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

CONDENSED CONSOLIDATED AND COMBINED STATEMENT OF OPERATIONS

Six Months Ended June 30, 2023

Nine Months Ended September 30, 2023

As Previously Reported Adjustments As Restated Discontinued Operations Reclassifications Change in Basis of Presentation As Restated and Reclassified

12 unchanged sentences

Income (loss) before income taxes 42.1 ( 4.2 ) 37.9 ( 13.7 ) — 24.2

Provision for (benefit from) income taxes 14.3 ( 0.7 ) 13.6 ( 0.5 ) — 13.1

Income tax (benefit) expense

9.5 ( 0.9 ) 8.6 ( 1.3 ) — 7.3

Net income $ 32.6 $ ( 3.3 ) $ 29.3 $ ( 12.4 ) $ — $ 16.9

7 unchanged sentences

FORTREA HOLDINGS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED AND COMBI NED FINANCIAL STATEMENTS

NOTES TO UNAUDITED CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

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

CONDENSED CONSOLIDATED AND COMBINED STATEMENT OF COMPREHENSIVE INCOME (LOSS)

Three Months Ended June 30, 2023

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (LOSS)

Three Months Ended September 30, 2023

As Previously Reported Adjustments As Restated

Net income $ 28.3 $ 2.5 $ 30.8

Net loss $ ( 13.1 ) $ ( 0.9 ) $ ( 14.0 )

Foreign currency translation adjustments ( 56.0 ) 0.4 ( 55.6 )

Net benefit plan adjustments 2.1 — 2.1

Other comprehensive income, before tax 31.6 0.4 32.0

Provision for income tax related to items of comprehensive income — — —

Other comprehensive income, net of tax 31.6 0.4 32.0

Comprehensive income $ 59.9 $ 2.9 $ 62.8

Unrealized gain on derivative instruments 1.6 — 1.6

Other comprehensive loss, before tax ( 54.4 ) 0.4 ( 54.0 )

Income tax expense related to items of comprehensive loss

( 0.4 ) — ( 0.4 )

Other comprehensive loss, net of tax ( 54.8 ) 0.4 ( 54.4 )

Comprehensive loss $ ( 67.9 ) $ ( 0.5 ) $ ( 68.4 )

CONDENSED CONSOLIDATED AND COMBINED STATEMENT OF COMPREHENSIVE INCOME (LOSS)

Six Months Ended June 30, 2023

Nine Months Ended September 30, 2023

As Previously Reported Adjustments As Restated

2 unchanged sentences

Net benefit plan adjustments 2.1 — 2.1

Other comprehensive income, before tax 50.5 0.6 51.1

Provision for income tax related to items of comprehensive income — — —

Other comprehensive income, net of tax 50.5 0.6 51.1

Unrealized gain on derivative instruments 1.6 — 1.6

Other comprehensive loss, before tax ( 3.9 ) 1.0 ( 2.9 )

Income tax expense related to items of comprehensive loss ( 0.4 ) — ( 0.4 )

Other comprehensive loss, net of tax ( 4.3 ) 1.0 ( 3.3 )

Comprehensive income $ 28.3 $ ( 2.3 ) $ 26.0

FORTREA HOLDINGS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED AND COMBI NED FINANCIAL STATEMENTS

NOTES TO UNAUDITED CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

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

15 unchanged sentences

Balance at June 30, 2023 88.8 0.1 1,976.5 — — ( 225.5 ) 1,751.1

Net loss — — — — ( 13.1 ) — ( 13.1 )

Other comprehensive loss, net of tax — — — — — ( 54.8 ) ( 54.8 )

Stock compensation — — 11.1 — — — 11.1

Balance at September 30, 2023 88.8 $ 0.1 $ 1,987.6 $ — $ ( 13.1 ) $ ( 280.3 ) $ 1,694.3

Balance at December 31, 2022 — $ — $ — $ ( 3.8 ) $ — $ 1.2 $ ( 2.6 )

8 unchanged sentences

Balance at June 30, 2023 — — ( 5.1 ) — — 1.8 ( 3.3 )

Net loss — — — — ( 0.9 ) — ( 0.9 )

Other comprehensive loss, net of tax — — — — — 0.4 0.4

Balance at September 30, 2023 — $ — $ ( 5.1 ) $ — $ ( 0.9 ) $ 2.2 $ ( 3.8 )

FORTREA HOLDINGS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED AND COMBI NED FINANCIAL STATEMENTS

NOTES TO UNAUDITED CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

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

13 unchanged sentences

Balance at June 30, 2023 88.8 0.1 1,971.4 — — ( 223.7 ) 1,747.8

Net loss — — — — ( 14.0 ) — ( 14.0 )

Other comprehensive loss, net of tax — — — — — ( 54.4 ) ( 54.4 )

Stock compensation — — 11.1 — — — 11.1

Balance at September 30, 2023 88.8 $ 0.1 $ 1,982.5 $ — $ ( 14.0 ) $ ( 278.1 ) $ 1,690.5

FORTREA HOLDINGS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED AND COMBI NED FINANCIAL STATEMENTS

NOTES TO UNAUDITED CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

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

CONDENSED CONSOLIDATED AND COMBINED STATEMENT OF CASH FLOWS

Six Months Ended June 30, 2023

Nine Months Ended September 30, 2023

As Previously Reported Adjustments As Restated

5 unchanged sentences

Operating lease right-of-use asset expense 20.9 — 20.9

Goodwill and other asset impairments — — —

Deferred income taxes ( 12.7 ) ( 0.6 ) ( 13.3 )

1 unchanged sentence

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

Decrease in accounts receivable and unbilled services, net 7.8 3.6 11.4

Increase in prepaid expenses and other ( 16.0 ) ( 1.2 ) ( 17.2 )

Increase in accounts receivable and unbilled services, net ( 26.6 ) 3.5 ( 23.1 )

Decrease in prepaid expenses and other

( 3.1 ) 3.7 0.6

Increase in accounts payable 47.3 ( 1.4 ) 45.9

Decrease in deferred revenue ( 6.5 ) 0.5 ( 6.0 )

Increase in accrued expenses and other 19.8 ( 4.6 ) 15.2

Decrease in accrued expenses and other ( 0.1 ) ( 8.5 ) ( 8.6 )

Net cash provided by operating activities 155.0 ( 5.0 ) 150.0

18 unchanged sentences

The cash flows related to discontinued operations have not been segregated and are included in the adjusted and restated statements of cash flows included above.

FORTREA HOLDINGS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

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

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements