Fortrea Holdings Inc. 10-Q

Item 1. Financial Statements (unaudited) FORTREA HOLDINGS INC. CONDENSED CONSOLIDATED BALANCE SHEETS (in millions) (unaudited) September 30, 2024 December 31, 2023 ASSETS Current assets: Cash and cash equivalents $ 105.3 $ 108.6 Accounts receivable and unbilled services, net 689.1 988.5 Prepaid expenses and other 142.5 84.6 Current assets of discontinued operations — 69.1 Total current assets 936.9 1,250.8 Property, plant and equipment, net 173.1 172.6 Goodwill, net 1,767.0 1,739.4 Intangible assets, net 691.2 728.1 Deferred income taxes 3.2 3.2 Other assets, net 92.3 69.7 Long-term assets of discontinued operations — 368.8 Total assets $ 3,663.7 $ 4,332.6 LIABILITIES AND EQUITY Current liabilities: Accounts payable $ 137.6 $ 132.9 Accrued expenses and other current liabilities 323.1 335.5 Unearned revenue 321.1 214.2 Current portion of long-term debt — 26.1 Short-term operating lease liabilities 14.0 17.2 Current liabilities of discontinued operations — 52.5 Total current liabilities 795.8 778.4 Long-term debt, less current portion 1,124.5 1,565.9 Operating lease liabilities 65.4 62.8 Deferred income taxes and other tax liabilities 126.9 147.7 Other liabilities 37.6 32.1 Long-term liabilities of discontinued operations — 31.6 Total liabilities 2,150.2 2,618.5 Commitments and contingent liabilities (Note 8) Equity Common stock, 89.7 and 88.8 shares outstanding at September 30, 2024 and December 31, 2023, respectively 0.1 0.1 Additional paid-in capital 2,027.3 1,998.0 Accumulated deficit ( 335.8 ) ( 68.5 ) Accumulated other comprehensive loss ( 178.1 ) ( 215.5 ) Total equity 1,513.5 1,714.1 Total liabilities and equity $ 3,663.7 $ 4,332.6 The accompanying notes are an integral part of these unaudited condensed consolidated and combined financial statements. 2 FORTREA HOLDINGS INC. CONDENSED CONSOLIDATED AND COMBINED STATEMENTS OF OPERATIONS (in millions, except per share data) (unaudited) Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 Revenues $ 674.9 $ 713.8 $ 1,999.4 $ 2,132.8 Costs and expenses: 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 Selling, general and administrative expenses, exclusive of depreciation and amortization 136.3 106.8 412.6 321.4 Depreciation and amortization 21.2 22.8 64.5 67.1 Restructuring and other charges 8.8 10.1 22.5 14.3 Total costs and expenses 692.9 703.5 2,105.7 2,076.8 Operating income (loss) ( 18.0 ) 10.3 ( 106.3 ) 56.0 Other income (expense): Interest expense ( 22.4 ) ( 34.6 ) ( 101.9 ) ( 35.2 ) 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 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 Income (loss) from discontinued operations, net of tax ( 9.4 ) 2.1 ( 69.7 ) 12.4 Net income (loss) $ ( 27.9 ) $ ( 14.0 ) $ ( 267.3 ) $ 29.3 Earnings (loss) per common share Basic earnings (loss) per share from continuing operations $ ( 0.21 ) $ ( 0.18 ) $ ( 2.21 ) $ 0.19 Basic earnings (loss) per share from discontinued operations ( 0.10 ) 0.02 ( 0.78 ) 0.14 Basic earnings (loss) per share $ ( 0.31 ) $ ( 0.16 ) $ ( 2.99 ) $ 0.33 Diluted earnings (loss) per share from continuing operations $ ( 0.21 ) $ ( 0.18 ) $ ( 2.21 ) $ 0.19 Diluted earnings (loss) per share from discontinued operations ( 0.10 ) 0.02 ( 0.78 ) 0.14 Diluted earnings (loss) per share $ ( 0.31 ) $ ( 0.16 ) $ ( 2.99 ) $ 0.33 The accompanying notes are an integral part of these unaudited condensed consolidated and combined financial statements. 3 FORTREA HOLDINGS INC. CONDENSED CONSOLIDATED AND COMBINED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (in millions, except per share data) (unaudited) Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 Net income (loss) $ ( 27.9 ) $ ( 14.0 ) $ ( 267.3 ) $ 29.3 Foreign currency translation adjustments 73.4 ( 55.6 ) 38.0 ( 6.6 ) Net benefit plan adjustments — — — 2.1 Unrealized gain (loss) on derivative instruments ( 3.3 ) 1.6 ( 0.8 ) 1.6 Other comprehensive income (loss) before tax 70.1 ( 54.0 ) 37.2 ( 2.9 ) Provision (benefit) for income tax related to items of comprehensive income 0.8 ( 0.4 ) 0.2 ( 0.4 ) Other comprehensive income (loss), net of tax 70.9 ( 54.4 ) 37.4 ( 3.3 ) Comprehensive income (loss) $ 43.0 $ ( 68.4 ) $ ( 229.9 ) $ 26.0 The accompanying notes are an integral part of these unaudited condensed consolidated and combined financial statements. 4 FORTREA HOLDINGS INC. CONDENSED CONSOLIDATED AND COMBINED STATEMENTS OF CHANGES IN EQUITY (in millions) (unaudited) Common Stock Shares Amounts Additional Paid-in Capital Former Parent Investment Accumulated Deficit Accumulated Other Comprehensive Loss Total Equity Balance at December 31, 2023 88.8 $ 0.1 $ 1,998.0 $ — $ ( 68.5 ) $ ( 215.5 ) $ 1,714.1 Net loss — — — — ( 101.0 ) — ( 101.0 ) Other comprehensive loss, net of tax — — — — — ( 26.1 ) ( 26.1 ) Stock compensation — — 15.1 — — — 15.1 Issuance of common stock 0.6 — — — — — — Net share settlement tax payments from issuance of stock to employees — — ( 10.4 ) — — — ( 10.4 ) Other — — 0.2 — — — 0.2 Balance at March 31, 2024 89.4 $ 0.1 $ 2,002.9 $ — $ ( 169.5 ) $ ( 241.6 ) $ 1,591.9 Net loss — — — — ( 138.4 ) — ( 138.4 ) Other comprehensive loss, net of tax — — — — — ( 7.4 ) ( 7.4 ) Stock compensation — — 15.0 — — — 15.0 Issuance of common stock 0.1 — — — — — — Balance at June 30, 2024 89.5 $ 0.1 $ 2,017.9 $ — $ ( 307.9 ) $ ( 249.0 ) $ 1,461.1 Net loss — — — — ( 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 5 FORTREA HOLDINGS INC. CONDENSED CONSOLIDATED AND COMBINED STATEMENTS OF CHANGES IN EQUITY (in millions) (unaudited) Common Stock Shares Amounts Additional Paid-in Capital Former Parent Investment Accumulated Deficit Accumulated Other Comprehensive Loss Total Equity Balance at December 31, 2022 — $ — $ — $ 3,614.8 $ — $ ( 274.8 ) $ 3,340.0 Net income — — — 12.5 — — 12.5 Other comprehensive income, net of tax — — — — — 19.1 19.1 Net transfers from Former Parent — — — 31.2 — — 31.2 Balance at March 31, 2023 — — — 3,658.5 — ( 255.7 ) 3,402.8 Net income — — — 30.8 — — 30.8 Other comprehensive income, net of tax — — — — — 32.0 32.0 Special payment to Former Parent — — — ( 1,595.0 ) — — ( 1,595.0 ) Net transfers to Former Parent — — — ( 122.9 ) — — ( 122.9 ) Reclassification of Former Parent investment to additional paid-in capital — — 1,971.4 ( 1,971.4 ) — — — Issuance of common stock 88.8 0.1 — — — — 0.1 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 The accompanying notes are an integral part of these unaudited condensed consolidated and combined financial statements. 6 FORTREA HOLDINGS INC. CONDENSED CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS (in millions) (unaudited) Nine Months Ended September 30, 2024 2023 CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ ( 267.3 ) $ 29.3 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 — Deferred income taxes ( 23.2 ) ( 13.3 ) Loss on sale of business 23.2 — Write-off of debt issuance costs 12.2 — Other, net 4.7 3.5 Changes in assets and liabilities: Decrease (Increase) in accounts receivable and unbilled services, net 290.9 ( 45.0 ) (Increase) decrease in prepaid expenses and other ( 33.3 ) 0.6 Increase in accounts payable 5.8 45.9 Increase (decrease) in deferred revenue 106.4 ( 6.0 ) Decrease in accrued expenses and other ( 39.5 ) ( 8.6 ) Net cash provided by operating activities 245.7 150.0 CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures ( 28.7 ) ( 30.9 ) Proceeds from sale of business, net 276.6 — Proceeds from sale of assets 0.2 8.1 Net cash provided by (used for) investing activities 248.1 ( 22.8 ) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from revolving credit facilities 617.0 24.0 Payments on revolving credit facilities ( 617.0 ) ( 24.0 ) Proceeds from term loans — 1,061.4 Proceeds from issuance of senior notes — 570.0 Debt issuance costs — ( 26.4 ) 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 ) Net transfers to Former Parent — ( 135.4 ) Net cash used for financing activities ( 496.7 ) ( 133.1 ) Effect of exchange rate changes on cash and cash equivalents ( 0.4 ) ( 0.7 ) Net change in cash and cash equivalents ( 3.3 ) ( 6.6 ) Cash and cash equivalents at beginning of period 108.6 110.4 Cash and cash equivalents at end of period $ 105.3 $ 103.8 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 accompanying notes are an integral part of these unaudited condensed consolidated and combined financial statements. 7 INDEX FORTREA HOLDINGS INC. NOTES TO UNAUDITED CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (dollars and shares in millions, except per share data) 1. BASIS OF FINANCIAL STATEMENT PRESENTATION Description of Business Fortrea Holdings Inc. (“Fortrea” or the “Company”), a Delaware corporation incorporated on January 31, 2023, is a leading global contract research organization (“CRO”) providing biopharmaceutical product and medical device development services to pharmaceutical, biotechnology and medical device customers. The Company offers customers highly flexible delivery models that include Full Service, Functional Service Provider, and Hybrid Service structures. The Company has a rich history of providing clinical development services for over 30 years across more than 20 therapeutic areas, first as Covance and later as Labcorp Drug Development. On June 30, 2023, the Company completed a spin-off (the “Spin” or the “Separation”) from Laboratory Corporation of America Holdings (“Labcorp” or “Former Parent”). The Company leverages its global scale, clinical data insights, scientific expertise, technology innovation, industry network and decades of experience as a standalone company and as a business unit prior to the Spin to deliver tailored solutions to its customers. With what the Company believes is a distinctive market offering, Fortrea meets growing global demand for clinical development services. The Company manages its business in one reportable segment, Clinical Services, that provides services across the clinical pharmacology and clinical development spectrum. The Company has established access to all key markets worldwide through a strategic footprint of primary office locations in five countries (the United States, the United Kingdom, China, India and Singapore) with field operations in other jurisdictions worldwide. Reportable Segment On March 9, 2024, the Company, together with its wholly-owned subsidiary, Fortrea Inc., entered into an Asset Purchase Agreement (the “Purchase Agreement”) with Endeavor Buyer LLC, an affiliate of Arsenal Capital Partners, to sell the operations of Fortrea Patient Access Inc. and its subsidiaries and Endpoint Clinical, Inc. and its subsidiaries; which are all collectively referred to as the Enabling Services Segment. Refer to Note 2 - Discontinued Operations for further discussion . 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. Discontinued Operations In accordance with the definition of discontinued operations, the Company's decision to sell the assets relating to the Enabling Services Segment represented a strategic shift that had a major effect on the Company's results of operations and assets and liabilities for the periods presented. As a result, the Company has classified the assets and liabilities related to the Enabling Services Segment as assets of discontinued operations and liabilities of discontinued operations on the condensed consolidated balance sheet as of December 31, 2023. The operations of the Enabling Services Segment have been classified as income (loss) from discontinued operations on the condensed consolidated and combined statements of operations for all periods presented. Unless otherwise noted, discussion within these notes to the condensed consolidated and combined financial statements relates to the Company’s continuing operations. 8 INDEX FORTREA HOLDINGS INC. NOTES TO UNAUDITED CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (dollars and shares in millions, except per share data) Agreements with Labcorp On June 30, 2023, the Company completed the Spin from Labcorp. 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 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. Basis of Financial Statement Presentation Prior to June 30, 2023, Fortrea existed and functioned as part of the consolidated business of Former Parent. 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 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.” The Company’s condensed consolidated and combined financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information. Accordingly, they do not include all of the information and notes required by U.S. GAAP for complete financial statements. 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, and additionally, condensed consolidated and combined financial statements do not necessarily reflect what the financial position, results of operations, and cash flows would have been had it operated as a standalone company during the prior periods presented. As such, the information included in this Quarterly Report on Form 10-Q should be read in conjunction with the Company’s audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2023. The condensed consolidated and combined statements of operations include all revenues and costs directly attributable to Fortrea’s business. The combined statements of operations for prior periods also include costs for certain centralized functions and programs provided and administered by Labcorp that were allocated to Fortrea. These centralized functions and programs include, but are not limited to legal, tax, treasury, risk management, sales expenses, information technology, human resources, finance, supply chain, executive leadership and stock-based compensation. These expenses were allocated to Fortrea based on direct usage when identifiable or, when not directly identifiable, on the basis of proportional net revenues or headcount or another reasonable driver, as applicable. Fortrea considers the basis on which the expenses have been allocated to reasonably reflect the utilization of services provided to, or the benefit received by, Fortrea during the prior periods presented. However, the allocations may not reflect the expenses Fortrea would have incurred as an independent company for the prior periods presented and may not be representative of future expenses that may be incurred. Actual costs that may have been incurred if Fortrea had been a standalone company would depend on a number of factors, including, but not limited to, the organizational structure, whether functions were outsourced or performed by employees, and strategic decisions made in areas such as information technology and infrastructure. For a period following the Spin some of these functions are provided by Labcorp. 9 INDEX 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. The total net effect of the settlement of the transactions between the Company and Labcorp, exclusive of those historically settled in cash, is reflected in the condensed combined statements of cash flows in cash flows from financing activities as net transfers (to) from Former Parent. 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 statements. The Former Parent investment and all due from or due to Former Parent were settled at the time of the Spin. Refer to Note 12 - Transactions with Former Parent for further information. Concentration of Credit Risk Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents, accounts receivable and unbilled services. The Company maintains cash and cash equivalents with various major financial institutions. These financial institutions are generally highly rated and geographically dispersed. The Company evaluates the relative credit standing of these financial institutions and has not sustained credit losses from instruments held at financial institutions. Substantially all the Company’s accounts receivable and unbilled services are with companies in the pharmaceutical, biotechnology and medical device industries. 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 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. Additionally, the Company applies assumptions and judgments, including historical collection experience and reasonable and supportable forecasts, for assessing collectability and determining allowances for doubtful accounts. Reclassification Certain previously reported amounts have been reclassified to conform to the current year presentation. 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 $ 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 nine months ended September 30, 2023 . 10 INDEX 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 In connection with the preparation of the Company’s financial statements for the quarter ended March 31, 2024, the Company identified errors impacting previously reported financial information, including to periods prior to the June 30, 2023 Spin. 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. 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. 99, Materiality , codified in Accounting Standards Codification (“ASC”) Topic 250, Accounting Changes and Error Corrections . Based on this assessment, the Company concluded that these errors and the related impacts did not result in a material misstatement of the previously issued consolidated and combined financial statements as of and for the fiscal years ended December 31, 2022 and 2023, and the previously issued unaudited condensed consolidated and combined interim financial statements for the quarters ended March 31, June 30, and September 30, 2023. However, correcting the cumulative effect of these errors in the first quarter of 2024 would have had a significant effect on the results of operations for that period. Therefore, the relevant prior periods’ financial statements and related footnotes, for these and other immaterial errors for comparative purposes, have been corrected. Previously reported financial information for such immaterial errors will continue to be corrected in future filings, as applicable. A summary of the corrections to the impacted financial statement line items from the previously issued financial statements are presented in Note 14 - Immaterial Financial Restatement and Reclassifications to Prior Period Financial Statements . Recently Issued and Adopted Accounting Standards In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, to improve reportable segment disclosure requirements. The new guidance requires disclosure of significant segment expenses that are regularly provided to the chief operating decision maker and included in the reported measure of segment profit or loss. It does not change the definition of a segment or the guidance for determining reportable segments. 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 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. This guidance is effective for fiscal years beginning after December 15, 2024, with early adoption permitted. The amendments should be applied prospectively; however, retrospective application is also permitted. The Company is currently evaluating the impact this guidance will have on its financial statement disclosures. 2. DISCONTINUED OPERATIONS On March 9, 2024, the Company entered into the Purchase Agreement with Endeavor Buyer LLC, an affiliate of Arsenal Capital Partners, pursuant to which Fortrea Inc. agreed to sell, and to cause its affiliates to sell, net assets relating to its Enabling Services Segment (the “Transaction”), specifically its Patient Access and Endpoint businesses, including the sale of equity interests of Fortrea Patient Access Inc. and its subsidiaries and Endpoint Clinical, Inc. and its subsidiaries. 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 11 INDEX FORTREA HOLDINGS INC. 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 nine months ended September 30, 2024 and 2023: Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 Revenues $ — $ 63.4 $ 106.4 $ 198.0 Costs and expenses: Direct costs, exclusive of depreciation and amortization — 44.8 66.4 135.2 Selling, general and administrative expenses, exclusive of depreciation and amortization — 12.1 25.4 39.9 Depreciation and amortization — 2.2 1.6 6.5 Long-lived and goodwill asset impairments — — 24.0 — Restructuring and other charges — 1.5 0.5 2.4 Total costs and expenses — 60.6 117.9 184.0 Operating income (loss) — 2.8 ( 11.5 ) 14.0 Other expense: Foreign exchange gain (loss) — 0.1 0.1 ( 0.2 ) Loss on sale of a business — — ( 23.2 ) — Other, net — — 0.1 ( 0.1 ) Income (loss) from discontinued operations before income taxes — 2.9 ( 34.5 ) 13.7 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 September 30, Nine Months Ended September 30, 2024 2023 2024 2023 Gain (loss) from operations of discontinued component $ ( 9.4 ) $ 2.1 $ ( 46.5 ) $ 12.4 Loss on disposal of discontinued operations — — ( 23.2 ) — Gain (loss) on discontinued operations $ ( 9.4 ) $ 2.1 $ ( 69.7 ) $ 12.4 In the first quarter of 2024, as a result of the negotiated sale price of the Patient Access and Endpoint businesses, the Company evaluated the Enabling Services Segment for impairment and determined that it was more likely than not that the carrying value of the assets exceeded its fair value. Accordingly, an impairment analysis was performed, which resulted in a goodwill impairment charge of $ 24.0 . 12 INDEX FORTREA HOLDINGS INC. NOTES TO UNAUDITED CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (dollars and shares in millions, except per share data) The following table summarizes the carrying value of the significant classes of assets and liabilities classified as discontinued operations as of December 31, 2023: December 31, 2023 ASSETS Current assets: Cash and cash equivalents $ — Accounts receivable and unbilled services, net 60.4 Prepaid expenses and other 8.7 Total current assets 69.1 Property, plant and equipment, net 40.6 Goodwill, net 276.5 Intangible assets, net 43.1 Other assets, net 8.6 Total assets of discontinued operations $ 437.9 LIABILITIES Current liabilities: Accounts payable $ 4.5 Accrued expenses and other current liabilities 17.3 Unearned revenue 28.4 Short-term operating lease liabilities 2.3 Total current liabilities 52.5 Operating lease liabilities 3.7 Other liabilities 27.9 Total liabilities of discontinued operations $ 84.1 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 nine months ended September 30, 2024 and 2023: Nine months ended September 30, 2024 2023 Depreciation and amortization $ 1.6 $ 6.5 Goodwill impairment 24.0 — Loss on sale of business 23.2 — Capital expenditures 7.4 12.0 There are no significant operating or investing noncash items related to discontinued operations for the nine months ended September 30, 2024 and 2023. 13 INDEX FORTREA HOLDINGS INC. NOTES TO UNAUDITED CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (dollars and shares in millions, except per share data) 3. REVENUES 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 Revenues $ 319.7 $ 191.8 $ 163.4 $ 674.9 $ 349.5 $ 204.3 $ 160.0 $ 713.8 Nine Months Ended September 30, 2024 Nine Months Ended September 30, 2023 North America Europe Other Total North America Europe Other Total Revenues $ 944.4 $ 595.1 $ 459.9 $ 1,999.4 $ 1,073.6 $ 600.7 $ 458.5 $ 2,132.8 Revenue from the United States comprises substantially all revenue in North America. Contract Costs The following table provides information about contract asset balances: September 30, 2024 December 31, 2023 Sales commission assets $ 20.6 $ 15.8 Deferred contract costs 1.4 2.0 Total $ 22.0 $ 17.8 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. Accounts Receivable, Unbilled Services and Unearned Revenue The following table provides information about accounts receivable, unbilled services and unearned revenue from contracts with customers: September 30, 2024 December 31, 2023 Accounts receivable $ 156.2 $ 420.2 Unbilled services 569.9 600.0 Less: allowance for credit losses ( 37.0 ) ( 31.7 ) Total $ 689.1 $ 988.5 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 $ 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. 14 INDEX FORTREA HOLDINGS INC. NOTES TO UNAUDITED CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (dollars and shares in millions, except per share data) Credit Loss Rollforward 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 nine months ended September 30, 2024 is as follows: Accounts Receivable Allowance for credit losses as of December, 2023 $ 31.7 Credit loss expense 17.0 Write-offs ( 11.6 ) Foreign currency impact ( 0.1 ) Allowance for credit losses as of September 30, 2024 $ 37.0 Performance Obligations Under Long-Term Contracts 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 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 On June 23, 2023, Fortrea entered into an accounts receivable purchase program (“ARPP”) with a financial institution (the “Financial Institution”). The ARPP established a receivables factoring facility whereby the Company could sell up to $ 80.0 in customer receivables based on the availability of certain eligible receivables and the satisfaction of certain conditions. Under the facility, the Company could sell eligible receivables and retain no interest in the transferred receivables other than collection and administrative functions for the Financial Institution. The Company accounted for these receivable transfers as sales and derecognized the sold receivables from its balance sheets. The fair value of the sold receivables approximated their book value due to their short-term nature. The Company continued to service, administer and collect the receivables on behalf of the Financial Institution and did not receive a servicing fee as part of the arrangement. On June 28, 2023, $ 17.5 of receivables were sold with net proceeds of $ 17.3 . The ARPP was terminated in May 2024, and there were no receivables outstanding as of the date of termination. 15 INDEX FORTREA HOLDINGS INC. NOTES TO UNAUDITED CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (dollars and shares in millions, except per share data) Receivables Securitization Program On May 6, 2024, the Company entered into a three-year $ 300.0 accounts receivable securitization program (the “Receivables Facility”). Under this program, Fortrea Inc. conveys receivable balances to a wholly-owned, bankruptcy-remote special purpose entity (“SPE”), who in turn, may sell receivables to a third-party financial institution in exchange for cash. The facility is without recourse to the Company or any subsidiaries of the Company, other than with respect to limited indemnity obligations of Fortrea Inc., in respect to the character of the receivables sold and as to the performance of its duties as servicer and a limited performance guaranty by the Company. All unsold accounts receivables held by the SPE are pledged as collateral to secure the collectability of the sold receivables. The Receivables Facility is scheduled to terminate on May 6, 2027, unless terminated earlier pursuant to its terms. 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. 4. RESTRUCTURING AND OTHER CHARGES During 2023, the Company took actions to reduce overcapacity, align resources, and restructure certain operations. 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 represents the Company’s restructuring accrual activities for the periods indicated: Severance and Other Employee Costs Facility Costs Total Balance as of December 31, 2023 $ 1.1 $ 3.2 $ 4.3 Restructuring charges 16.0 0.7 16.7 Reduction of prior restructuring accruals ( 0.9 ) ( 3.0 ) ( 3.9 ) Cash payments and other adjustments ( 14.2 ) ( 0.6 ) ( 14.8 ) Balance as of September 30, 2024 $ 2.0 $ 0.3 $ 2.3 Severance and Other Employee Costs Facility Costs Total Balance as of December 31, 2022 $ 1.8 $ 4.5 $ 6.3 Restructuring charges 9.7 0.9 10.6 Cash payments and other adjustments ( 8.4 ) ( 1.2 ) ( 9.6 ) 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 restructuring liabilities as of September 30, 2024 and December 31, 2023, was $ 0.0 and $ 2.4 , respectively. 16 INDEX FORTREA HOLDINGS INC. NOTES TO UNAUDITED CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (dollars and shares in millions, except per share data) 5. EARNINGS (LOSS) PER SHARE On June 30, 2023, the Separation from Labcorp was effected through a pro-rata distribution of one share of the Company’s common stock for every share of Labcorp common stock held at the close of business on the record date of June 20, 2023. As a result, on June 30, 2023, the Company had 88.8 shares of common stock outstanding. 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. Basic earnings per share is computed by dividing net earnings attributable to the Company 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 (“RSUs”), and performance share awards. The following represents a reconciliation of basic earnings (loss) per share to diluted earnings (loss) from continuing operations per share. Three Months Ended September 30, 2024 2023 Earnings Shares Per Share Amount Earnings Shares Per Share Amount Basic earnings (loss) from continuing operations per share: Net earnings (loss) $ ( 18.5 ) 89.6 $ ( 0.21 ) $ ( 16.1 ) 88.8 $ ( 0.18 ) Dilutive effect of employee stock options and awards — — — — — — Net earnings (loss) from continuing operations including impact of dilutive adjustments $ ( 18.5 ) 89.6 $ ( 0.21 ) $ ( 16.1 ) 88.8 $ ( 0.18 ) Nine Months Ended September 30, 2024 2023 Earnings Shares Per Share Amount Earnings Shares Per Share Amount Basic earnings (loss) from continuing operations per share: Net earnings (loss) $ ( 197.6 ) 89.4 $ ( 2.21 ) $ 16.9 88.8 $ 0.19 Dilutive effect of employee stock options and awards — — — — 0.2 — Net earnings (loss) from continuing operations including impact of dilutive adjustments $ ( 197.6 ) 89.4 $ ( 2.21 ) $ 16.9 89.0 $ 0.19 17 INDEX FORTREA HOLDINGS INC. 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 September 30, 2024 2023 Earnings Shares Per Share Amount Earnings Shares Per Share Amount Basic earnings (loss) from discontinued operations per share: Net earnings (loss) $ ( 9.4 ) 89.6 $ ( 0.10 ) $ 2.1 88.8 $ 0.02 Dilutive effect of employee stock options and awards — — — — — — Net earnings (loss) from discontinued operations including impact of dilutive adjustments $ ( 9.4 ) 89.6 $ ( 0.10 ) $ 2.1 88.8 $ 0.02 Nine Months Ended September 30, 2024 2023 Earnings Shares Per Share Amount Earnings Shares Per Share Amount Basic earnings (loss) from discontinued operations per share: Net earnings (loss) $ ( 69.7 ) 89.4 $ ( 0.78 ) $ 12.4 88.8 $ 0.14 Dilutive effect of employee stock options and awards — — — — 0.2 — Net earnings (loss) from discontinued operations including impact of dilutive adjustments $ ( 69.7 ) 89.4 $ ( 0.78 ) $ 12.4 89.0 $ 0.14 Diluted earnings per share represent the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. These potential shares include dilutive stock options and unissued restricted stock awards. Potential common shares are also considered antidilutive in the event of a net loss from operations. 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 September 30, Nine Months Ended September 30, 2024 2023 2024 2023 Employee stock options and awards 2.8 0.5 2.0 1.5 Antidilutive employee stock options and awards excluded based on reporting a net loss for the period 0.5 0.4 0.9 — 6. DEBT 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. Fortrea also entered into a $ 450.0 senior secured revolving credit facility. Fortrea used the proceeds from 18 INDEX FORTREA HOLDINGS INC. 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 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 Current portion of senior secured term loan B facility due 2030 — 5.7 Debt issuance discount and fees — ( 4.6 ) Total short-term borrowings and current portion of long-term debt $ — $ 26.1 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 $ 570.0 $ 570.0 Senior secured term loan A due 2028 417.3 462.5 Senior secured term loan B due 2030 154.7 561.5 Debt issuance discount and fees ( 17.5 ) ( 28.1 ) Total long-term debt $ 1,124.5 $ 1,565.9 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. Senior Notes On June 27, 2023, the Company issued $ 570.0 aggregate principal amount of 7.50 % senior notes due 2030 (the “Notes”). Interest on these notes is payable semi-annually on January 1 and July 1 of each year. Net proceeds from the offering of the Notes were $ 560.2 after deducting expenses of the offering. Credit Facilities On June 30, 2023, Fortrea entered into a credit agreement (as amended, the “Credit Agreement”) providing for (i) a senior secured revolving credit facility in the principal amount of up to $ 450.0 ; (ii) a five-year $ 500.0 first lien senior secured term A loan facility; and (iii) a seven-year $ 570.0 first lien senior secured term B loan facility. The initial revolving facility includes a $ 75.0 swingline sub-facility and a $ 75.0 letter of credit sub-facility. The Company drew on the term A and term B loans on June 30, 2023. The net proceeds received for the term A and term B loans were $ 491.8 and $ 552.9 , respectively after deducting underwriting discounts and other expenses. The term A and term B loans will mature on June 30, 2028 and June 30, 2030, respectively. 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 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 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 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). The credit facility matures on June 30, 2028. 19 INDEX FORTREA HOLDINGS INC. NOTES TO UNAUDITED CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (dollars and shares in millions, except per share data) Under the Credit Agreement, the Company is subject to negative covenants limiting subsidiary indebtedness and certain other covenants typical for similarly rated borrowers, and the Company is required to maintain certain net leverage and interest coverage ratios. 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 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. 7. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES Summary of Derivative Instruments 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 instruments such as foreign currency forward contracts and interest rate swap agreements. The Company does not hold or issue derivative instruments for trading purposes. The derivative 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. The fair value of the Company’s interest rate swaps and foreign currency forward contracts are determined based on observable market inputs (Level 2). The table below presents the fair value of the Company’s derivatives on a gross basis and the balance sheet classification of those instruments: Fair Value of Derivatives At September 30, 2024 December 31, 2023 Balance Sheet Classification Asset Liability Asset Liability Derivatives designated as hedging instruments: Interest rate swaps Accrued expenses and other $ 0.1 $ ( 0.7 ) $ — $ — Other liabilities — ( 2.2 ) 0.7 ( 2.6 ) Derivatives not designated as hedging instruments: Foreign currency forward contracts Prepaid expenses and other $ 1.5 $ — $ 0.8 $ — 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 September 30, Nine Months Ended September 30, 2024 2023 2024 2023 Interest rate swaps $ ( 2.9 ) $ — $ 0.4 $ — The following table presents amounts reclassified out of accumulated other comprehensive loss and recognized in condensed consolidated and combined statements of operations: 20 INDEX FORTREA HOLDINGS INC. NOTES TO UNAUDITED CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (dollars and shares in millions, except per share data) Amounts Reclassified from Other Comprehensive Loss into Earnings 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 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. The following table presents a summary of the loss for derivative contracts not designated as hedges included in the Company’s condensed consolidated and combined statements of operations: Gain (Loss) on Derivatives Recognized in Earnings Three Months Ended September 30, Nine Months Ended September 30, Statement of Operations Classification 2024 2023 2024 2023 Foreign currency forward contracts Foreign exchange gain (loss) $ 1.0 $ — $ 0.6 $ — 8. COMMITMENTS AND CONTINGENT LIABILITIES The Company is involved from time to time in various claims and legal actions arising in the ordinary course of business. These matters may include commercial and contract disputes, employee-related matters, and professional liability claims. In accordance with FASB ASC 450, Contingencies , the Company establishes reserves for claims and legal actions when those matters present loss contingencies that are both probable and estimable. When loss contingencies are not both probable and estimable, the Company does not establish reserves. The Company does not believe that any liabilities related to such claims and legal actions will have a material effect on its financial condition, results of operations or cash flows. The Company believes that it is in compliance in all material respects with all statutes, regulations, and other requirements applicable to its drug development support services. The drug development industry is, however, subject to extensive regulation, and the courts have not interpreted many of the applicable statutes and regulations. Therefore, the applicable statutes and regulations could be interpreted or applied by a prosecutorial, regulatory, or judicial authority in a manner that would adversely affect the Company. Potential sanctions for violation of these statutes and regulations include significant civil and criminal penalties, fines, the loss of various licenses, certificates and authorizations, and/or additional liabilities from third-party claims. Fortrea obtains insurance coverage for certain catastrophic exposures as well as those risks required to be insured by law or contract. The Company is covered by those policies but 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. 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 $ 0.9 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. 21 INDEX FORTREA HOLDINGS INC. NOTES TO UNAUDITED CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (dollars and shares in millions, except per share data) 9. PREFERRED STOCK AND COMMON SHAREHOLDERS’ EQUITY The Company is authorized to issue up to 265.0 shares of common stock, par value $ 0.001 per share. 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 September 30, 2024 and December 31, 2023. Accumulated Other Comprehensive Income (Loss) The components of accumulated other comprehensive income (loss) are as follows: Foreign Currency Translation Adjustments Net Benefit Plan Adjustments Unrealized Gain (Loss) on Derivative Instruments Accumulated Other Comprehensive Income (Loss) Balance at December 31, 2023 $ ( 206.7 ) $ ( 7.4 ) $ ( 1.4 ) $ ( 215.5 ) Current quarter foreign exchange adjustments ( 27.7 ) — — ( 27.7 ) Unrealized gain on derivative instrument — — 2.5 2.5 Amounts reclassified from other accumulated income (loss) — — ( 0.4 ) ( 0.4 ) Tax effect of adjustments — — ( 0.5 ) ( 0.5 ) Balance at March 31, 2024 ( 234.4 ) ( 7.4 ) 0.2 ( 241.6 ) Current quarter foreign exchange adjustments ( 7.7 ) — — ( 7.7 ) Unrealized gain on derivative instrument — — 0.8 0.8 Amounts reclassified from other accumulated income (loss) — — ( 0.4 ) ( 0.4 ) Tax effect of adjustments — — ( 0.1 ) ( 0.1 ) 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 ) 22 INDEX 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) Balance at December 31, 2022 $ ( 266.0 ) $ ( 8.8 ) $ — $ ( 274.8 ) Current quarter foreign exchange adjustments 19.1 — — 19.1 Tax effect of adjustments — — — — Balance at March 31, 2023 ( 246.9 ) ( 8.8 ) — ( 255.7 ) Current quarter foreign exchange adjustments 29.9 — — 29.9 Net benefit plan adjustments — 2.1 — 2.1 Tax effect of adjustments — — — — Balance at June 30, 2023 ( 217.0 ) ( 6.7 ) — ( 223.7 ) 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 ) 10. INCOME TAXES 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. 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 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. 11. STOCK COMPENSATION PLANS 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: 23 INDEX FORTREA HOLDINGS INC. NOTES TO UNAUDITED CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (dollars and shares in millions, except per share data) Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 Direct costs $ 11.2 $ 6.6 $ 32.5 $ 15.4 Selling, general and administrative expenses 1.8 3.8 9.4 10.1 Total stock compensation expense $ 13.0 $ 10.4 $ 41.9 $ 25.5 Income tax benefits $ 2.1 $ 1.7 $ 6.4 $ 4.4 12. TRANSACTIONS WITH FORMER PARENT Prior to the Separation on June 30, 2023, the condensed consolidated and combined financial statements were prepared on a standalone basis and were derived from the condensed consolidated financial statements and accounting records of Labcorp. The following discussion summarizes activity between the Company and Labcorp. This activity, which occurred prior to the Separation, is included in the condensed combined financial statements in 2023. Allocation of General Corporate and Other Expenses Prior to the Separation, the Company’s condensed consolidated and combined statements of operations included expenses for certain centralized functions and other programs provided and administered by Labcorp that were charged directly to the Company. 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 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 nine months ended September 30, 2023: Three Months Ended September 30, 2023 Nine Months Ended September 30, 2023 Direct costs $ — $ 86.6 Selling, general and administrative expenses — 105.0 Restructuring and other charges — 0.2 Foreign exchange gain (loss) — 2.2 Corporate and other allocations $ — $ 194.0 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 $ 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 $ 0.0 and $ 48.8 for the three and nine months ended September 30, 2023, respectively. 24 INDEX FORTREA HOLDINGS INC. NOTES TO UNAUDITED CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (dollars and shares in millions, except per share data) Hedging Activities Prior to the Separation, the Company did not enter into any derivative contracts with external counterparties. However, Labcorp entered into foreign currency forward contracts with external counterparties to hedge certain foreign currency transactions with exposure predominantly to the Euro and British Pound. These contracts did not qualify for hedge accounting and the changes in fair value are recorded directly to earnings. Earnings related to these contracts were included in the condensed consolidated and combined statements of operations as part of corporate allocations. Refer to Note 7 - Derivative Instruments and Hedging Activities , for information regarding derivative contracts entered into after Separation. Net Transfers To and From Labcorp 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 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 ) General financing activities — ( 286.8 ) Corporate allocations — 184.9 Stock compensation expense — 10.2 Total net transfers (to) from Former Parent $ — $ ( 1,686.7 ) 13. SUPPLEMENTAL CASH FLOW INFORMATION Nine Months Ended September 30, 2024 2023 Supplemental schedule of cash flow information: Cash paid during period for: Interest $ 98.3 $ 22.9 Income taxes, net of refunds 56.8 21.9 Disclosure of non-cash investing activities: 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: Change in right-of-use lease assets — 13.9 Change in property, plant and equipment, net — ( 27.7 ) 25 INDEX FORTREA HOLDINGS INC. NOTES TO UNAUDITED CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (dollars and shares in millions, except per share data) 14. 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 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, 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. 26 INDEX FORTREA HOLDINGS INC. NOTES TO UNAUDITED CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (dollars and shares in millions, except per share data) CONSOLIDATED BALANCE SHEET As of December 31, 2023 As Previously Reported Adjustments As Restated Discontinued Operations Reclassifications As Restated and Reclassified ASSETS Current assets: Cash and cash equivalents $ 108.6 $ — $ 108.6 $ — $ 108.6 Accounts receivable and unbilled services, net 1,052.1 ( 3.2 ) 1,048.9 ( 60.4 ) 988.5 Prepaid expenses and other 92.4 0.9 93.3 ( 8.7 ) 84.6 Current assets held for sale from discontinued operations — — — 69.1 69.1 Total current assets 1,253.1 ( 2.3 ) 1,250.8 — 1,250.8 Property, plant and equipment, net 220.9 ( 7.7 ) 213.2 ( 40.6 ) 172.6 Goodwill, net 2,029.3 ( 13.4 ) 2,015.9 ( 276.5 ) 1,739.4 Intangible assets, net 771.2 — 771.2 ( 43.1 ) 728.1 Deferred income taxes 3.2 — 3.2 — 3.2 Other assets, net 79.5 ( 1.2 ) 78.3 ( 8.6 ) 69.7 Long-term assets held for sale from discontinued operations — — — 368.8 368.8 Total assets $ 4,357.2 $ ( 24.6 ) $ 4,332.6 $ — $ 4,332.6 LIABILITIES AND EQUITY Current liabilities: Accounts payable $ 132.8 $ 4.6 $ 137.4 $ ( 4.5 ) $ 132.9 Accrued expenses and other current liabilities 356.1 ( 3.3 ) 352.8 ( 17.3 ) 335.5 Unearned revenue 241.4 1.2 242.6 ( 28.4 ) 214.2 Current portion of long-term debt 26.1 — 26.1 — 26.1 Short-term operating lease liabilities 19.5 — 19.5 ( 2.3 ) 17.2 Current liabilities held for sale from discontinued operations — — — 52.5 52.5 Total current liabilities 775.9 2.5 778.4 — 778.4 Long-term debt, less current portion 1,565.9 — 1,565.9 — 1,565.9 Operating lease liabilities 66.5 — 66.5 ( 3.7 ) 62.8 Deferred income taxes and other tax liabilities 148.8 ( 1.1 ) 147.7 — 147.7 Other liabilities 61.3 ( 1.3 ) 60.0 ( 27.9 ) 32.1 Long-term liabilities held for sale from discontinued operations — — — 31.6 31.6 Total liabilities 2,618.4 0.1 2,618.5 — 2,618.5 Commitments and contingent liabilities Equity Former parent investment — — — — — Common stock 0.1 — 0.1 — 0.1 Additional paid-in capital 2,006.2 ( 8.2 ) 1,998.0 — 1,998.0 Accumulated deficit ( 49.1 ) ( 19.4 ) ( 68.5 ) — ( 68.5 ) Accumulated other comprehensive loss ( 218.4 ) 2.9 ( 215.5 ) — ( 215.5 ) Total equity 1,738.8 ( 24.7 ) 1,714.1 — 1,714.1 Total liabilities and equity $ 4,357.2 $ ( 24.6 ) $ 4,332.6 $ — $ 4,332.6 27 INDEX FORTREA HOLDINGS INC. NOTES TO UNAUDITED CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (dollars and shares in millions, except per share data) 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 Revenues $ 776.4 $ 0.8 $ 777.2 $ ( 63.4 ) $ — $ 713.8 Costs and expenses: Direct costs, exclusive of depreciation and amortization 647.3 1.4 648.7 ( 44.8 ) ( 40.1 ) 563.8 Selling, general and administrative expenses, exclusive of depreciation and amortization 78.9 ( 0.1 ) 78.8 ( 12.1 ) 40.1 106.8 Depreciation and amortization 24.6 0.4 25.0 ( 2.2 ) — 22.8 Restructuring and other charges 11.6 — 11.6 ( 1.5 ) — 10.1 Total costs and expenses 762.4 1.7 764.1 ( 60.6 ) — 703.5 Operating income (loss) 14.0 ( 0.9 ) 13.1 ( 2.8 ) — 10.3 Other income (expense): Interest expense ( 34.6 ) — ( 34.6 ) — — ( 34.6 ) Foreign exchange gain (loss) ( 0.9 ) ( 0.2 ) ( 1.1 ) ( 0.1 ) — ( 1.2 ) Other, net 3.6 — 3.6 — — 3.6 Income (loss) before income taxes ( 17.9 ) ( 1.1 ) ( 19.0 ) ( 2.9 ) — ( 21.9 ) 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 ) Basic - discontinued operations — — 0.02 Basic $ ( 0.15 ) $ ( 0.16 ) $ ( 0.16 ) Diluted - continuing operations $ ( 0.15 ) $ ( 0.16 ) $ ( 0.18 ) Diluted - discontinued operations — — 0.02 Diluted $ ( 0.15 ) $ ( 0.16 ) $ ( 0.16 ) 28 INDEX FORTREA HOLDINGS INC. 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 Nine Months Ended September 30, 2023 As Previously Reported Adjustments As Restated Discontinued Operations Reclassifications Change in Basis of Presentation As Restated and Reclassified Revenues $ 2,333.6 $ ( 2.8 ) $ 2,330.8 $ ( 198.0 ) $ — $ 2,132.8 Costs and expenses: Direct costs, exclusive of depreciation and amortization 1,932.9 0.2 1,933.1 ( 135.2 ) ( 123.9 ) 1,674.0 Selling, general and administrative expenses, exclusive of depreciation and amortization 237.7 ( 0.3 ) 237.4 ( 39.9 ) 123.9 321.4 Depreciation and amortization 72.5 1.1 73.6 ( 6.5 ) — 67.1 Restructuring and other charges 16.7 — 16.7 ( 2.4 ) — 14.3 Total costs and expenses 2,259.8 1.0 2,260.8 ( 184.0 ) — 2,076.8 Operating income (loss) 73.8 ( 3.8 ) 70.0 ( 14.0 ) — 56.0 Other income (expense): Interest expense ( 35.3 ) — ( 35.3 ) — 0.1 ( 35.2 ) Foreign exchange gain (loss) ( 1.0 ) ( 0.4 ) ( 1.4 ) 0.2 — ( 1.2 ) Other, net 4.6 — 4.6 0.1 ( 0.1 ) 4.6 Income (loss) before income taxes 42.1 ( 4.2 ) 37.9 ( 13.7 ) — 24.2 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 Earnings per common share: Basic - continuing operations $ 0.37 $ 0.33 $ 0.19 Basic - discontinued operations — — 0.14 Basic $ 0.37 $ 0.33 $ 0.33 Diluted - continuing operations $ 0.37 $ 0.33 $ 0.19 Diluted - discontinued operations — — 0.14 Diluted $ 0.37 $ 0.33 $ 0.33 29 INDEX FORTREA HOLDINGS INC. NOTES TO UNAUDITED CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (dollars and shares in millions, except per share data) CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (LOSS) Three Months Ended September 30, 2023 As Previously Reported Adjustments As Restated Net loss $ ( 13.1 ) $ ( 0.9 ) $ ( 14.0 ) Foreign currency translation adjustments ( 56.0 ) 0.4 ( 55.6 ) 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) Nine Months Ended September 30, 2023 As Previously Reported Adjustments As Restated Net income $ 32.6 $ ( 3.3 ) $ 29.3 Foreign currency translation adjustments ( 7.6 ) 1.0 ( 6.6 ) Net benefit plan adjustments 2.1 — 2.1 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 30 INDEX FORTREA HOLDINGS INC. NOTES TO UNAUDITED CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (dollars and shares in millions, except per share data) CONDENSED CONSOLIDATED AND COMBINED STATEMENT OF CHANGES IN EQUITY Common Stock Shares Amounts Additional Paid-in Capital Former Parent Investment Accumulated Deficit Accumulated Other Comprehensive Loss Total Equity Previously reported Balance at December 31, 2022 — $ — $ — $ 3,618.6 $ — $ ( 276.0 ) $ 3,342.6 Net income — — — 17.4 — — 17.4 Other comprehensive income, net of tax — — — — — 18.9 18.9 Net transfers from Former Parent — — — 26.6 — — 26.6 Balance at March 31, 2023 — — — 3,662.6 — ( 257.1 ) 3,405.5 Net income — — — 28.3 — — 28.3 Other comprehensive income, net of tax — — — — — 31.6 31.6 Special payment to Former Parent — — — ( 1,595.0 ) — — ( 1,595.0 ) Net transfers to Former Parent — — — ( 119.4 ) — — ( 119.4 ) Reclassification of Former Parent investment to additional paid-in capital — — 1,976.5 ( 1,976.5 ) — — — Issuance of common stock 88.8 0.1 — — — — 0.1 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 Adjustments Balance at December 31, 2022 — $ — $ — $ ( 3.8 ) $ — $ 1.2 $ ( 2.6 ) Net income — — — ( 4.9 ) — — ( 4.9 ) Other comprehensive income, net of tax — — — — — 0.2 0.2 Net transfers from Former Parent — — — 4.6 — — 4.6 Balance at March 31, 2023 — — — ( 4.1 ) — 1.4 ( 2.7 ) Net income — — — 2.5 — — 2.5 Other comprehensive income, net of tax — — — — — 0.4 0.4 Net transfers to Former Parent — — — ( 3.5 ) — — ( 3.5 ) Reclassification of Former Parent investment to additional paid-in capital — — ( 5.1 ) 5.1 — — — 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 ) 31 INDEX FORTREA HOLDINGS INC. NOTES TO UNAUDITED CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (dollars and shares in millions, except per share data) Common Stock Shares Amounts Additional Paid-in Capital Former Parent Investment Accumulated Deficit Accumulated Other Comprehensive Loss Total Equity As Restated Balance at December 31, 2022 — $ — $ — $ 3,614.8 $ — $ ( 274.8 ) $ 3,340.0 Net income — — — 12.5 — — 12.5 Other comprehensive income, net of tax — — — — — 19.1 19.1 Net transfers from Former Parent — — — 31.2 — — 31.2 Balance at March 31, 2023 — — — 3,658.5 — ( 255.7 ) 3,402.8 Net income — — — 30.8 — — 30.8 Other comprehensive income, net of tax — — — — — 32.0 32.0 Special payment to Former Parent — — — ( 1,595.0 ) — — ( 1,595.0 ) Net transfers to Former Parent — — — ( 122.9 ) — — ( 122.9 ) Reclassification of Former Parent investment to additional paid-in capital — — 1,971.4 ( 1,971.4 ) — — — Issuance of common stock 88.8 0.1 — — — — 0.1 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 32 INDEX FORTREA HOLDINGS INC. 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 Nine Months Ended September 30, 2023 As Previously Reported Adjustments As Restated CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 32.6 $ ( 3.3 ) $ 29.3 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 72.5 1.1 73.6 Stock compensation 27.2 — 27.2 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 ) Other, net 3.5 — 3.5 Change in assets and liabilities (net of effects of acquisitions): 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 ) Decrease in accrued expenses and other ( 0.1 ) ( 8.5 ) ( 8.6 ) Net cash provided by operating activities 155.0 ( 5.0 ) 150.0 CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures ( 30.9 ) — ( 30.9 ) Proceeds from sale of assets 8.1 — 8.1 Net cash used for investing activities ( 22.8 ) — ( 22.8 ) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from revolving credit facilities 24.0 — 24.0 Payments on revolving credit facilities ( 24.0 ) — ( 24.0 ) Proceeds from term loans 1,061.4 — 1,061.4 Proceeds from issuance of senior notes 570.0 — 570.0 Debt issuance costs ( 26.4 ) — ( 26.4 ) Principal payments of long-term debt ( 7.7 ) — ( 7.7 ) Special payment to Former Parent ( 1,595.0 ) — ( 1,595.0 ) Net transfers from Parent ( 136.7 ) 1.3 ( 135.4 ) Net cash used for financing activities ( 134.4 ) 1.3 ( 133.1 ) Effect of exchange rate changes on cash and cash equivalents ( 2.3 ) 1.6 ( 0.7 ) Net change in cash and cash equivalents ( 4.5 ) ( 2.1 ) ( 6.6 ) Cash and cash equivalents at beginning of period 112.0 ( 1.6 ) 110.4 Cash and cash equivalents at end of period $ 107.5 $ ( 3.7 ) $ 103.8 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. 33 INDEX FORTREA HOLDINGS INC. NOTES TO UNAUDITED CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (dollars and shares in millions, except per share data)