Fortrea Holdings Inc. 10-K

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA FORTREA HOLDINGS INC. INDEX TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS Index to Audited Consolidated and Combined Financial Statements Page Report of Independent Registered Public Accounting Firm Deloitte & Touche LLP PCAOB ID No. 34 69 Consolidated Balance Sheets 73 Consolidated and Combined Statements of Operations 74 Consolidated and Combined Statements of Comprehensive Income (Loss) 75 Consolidated and Combined Statements of Changes in Equity 76 Consolidated and Combined Statements of Cash Flows 77 Notes to Consolidated and Combined Financial Statements 78 68 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the shareholders and the Board of Directors of Fortrea Holdings Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Fortrea Holdings Inc. and subsidiaries (the "Company") as of December 31, 2024, and 2023, the related consolidated and combined statements of operations, comprehensive income (loss), changes in equity, and cash flows for each of the three years in the period ended December 31, 2024, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2024, and 2023, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2024, in conformity with accounting principles generally accepted in the United States of America. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 3, 2025, expressed an unqualified opinion on the Company's internal control over financial reporting. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Emphasis of a Matter As disclosed in Note 2 to the consolidated and combined financial statements, prior to June 30, 2023, the accompanying financial statements were derived from the consolidated financial statements and accounting records of Labcorp Holdings Inc. These financial statements reflect the historical financial position, results of operations and cash flows of the Company for the periods prior to June 30, 2023, as the Company was historically managed within Labcorp Holdings Inc. For the periods after June 30, 2023, including the current year ended December 31, 2024, the financial statements reflect the financial position, results of operations, and cash flows of the Company as an independent entity. These financial statements may not be indicative of the Company’s future performance and do not necessarily reflect what the results of operations, financial position and cash flows would have been had it operated as an independent company during the periods prior to June 30, 2023. Our opinion is not modified with respect to this matter. 69 Table of Contents Critical Audit Matter The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Revenue - Full-Service Clinical Trial Contracts— Refer to Notes 2 and 3 to the financial statements Critical Audit Matter Description Within the Clinical Services segment, the Company provides Phase I through Phase IV clinical development services to pharmaceutical, biotechnology, and medical device companies worldwide. A majority of the Company’s revenues are earned under contracts that are long term in nature, ranging in duration from a few months to many years. The majority of the Company's contracts contain a single performance obligation, as the Company provides a significant service of integrating all promises in the contract and the promises are highly interdependent and interrelated with one another. Fixed-price contracts are typically recognized as revenue over time based on a proportional-performance basis, using either input or output methods that are specific to the service provided. When using an input method, revenue is recognized by dividing the actual costs incurred by the total estimated contract costs expected to complete the contract and multiplying that percentage by the total contract value. Contract costs principally include direct labor and reimbursable out-of-pocket costs. The estimate of total costs expected to complete the contract requires significant judgment and estimates are based on various assumptions of events that often span several years. These estimates are reviewed periodically, and any adjustments are recognized on a cumulative catch-up basis in the period they become known. Given the judgments necessary to recognize revenue for fixed-price contracts that use an input method based on estimated total costs, auditing such estimates required extensive audit effort due to the complexity of these contracts and a high degree of auditor judgment when performing audit procedures and evaluating the results of those procedures. How the Critical Audit Matter Was Addressed in the Audit Our audit procedures related to management’s estimates of costs for purposes of revenue recognition for full-service contracts which use an input method based on estimated total contract costs included the following, among others: • We tested the effectiveness of controls over fixed-price contract revenue, including those over the estimates of total costs related to the performance obligation. • We selected a sample of fixed-price contracts and performed the following: ◦ Evaluated whether the contracts were appropriately accounted for by management based on the terms and conditions of each contract, including whether over time revenue recognition was appropriate. ◦ Compared the transaction prices to the consideration expected to be received based on current rights and obligations under the contracts and any contract modifications that were agreed upon with the customers. ◦ Evaluated management’s identification of distinct performance obligations, including assessing whether the underlying services were highly interdependent or highly interrelated. ◦ Tested the accuracy and completeness of the total contract costs incurred to date for the performance obligation. 70 Table of Contents ◦ Evaluated the estimates of total contract cost for the performance obligation by: – Comparing costs incurred to date to the costs management estimated to be incurred to date. – Assessing management’s ability to achieve the estimates of total contract costs by performing corroborating inquiries with the Company’s project managers and project financial analysts and comparing the estimates to management’s work plans and cost estimates. – Comparing management’s estimates for the selected contracts to historical experience and original budgets, when applicable. ◦ Tested the mathematical accuracy of management’s calculation of revenue for the performance obligation. • We evaluated management’s ability to accurately estimate total contract costs and revenue by comparing actual costs to management’s historical estimates for performance obligations that have been fulfilled. /s/ Deloitte & Touche LLP Raleigh, North Carolina March 3, 2025 We have served as the Company’s auditor since 2022. REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the shareholders and the Board of Directors of Fortrea Holdings Inc. Opinion on Internal Control over Financial Reporting We have audited the internal control over financial reporting of Fortrea Holdings Inc. and subsidiaries (the “Company”) as of December 31, 2024, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2024, of the Company and our report dated March 3, 2025, expressed an unqualified opinion on those financial statements. 71 Table of Contents Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Report of Management on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ Deloitte & Touche LLP Raleigh, North Carolina March 3, 2025 72 Table of Contents FORTREA HOLDINGS INC. CONSOLIDATED BALANCE SHEETS (in millions) December 31, 2024 December 31, 2023 ASSETS Current assets: Cash and cash equivalents $ 118.5 $ 108.6 Accounts receivable and unbilled services, net 659.5 988.5 Prepaid expenses and other 170.2 84.6 Current assets of discontinued operations — 69.1 Total current assets 948.2 1,250.8 Property, plant and equipment, net 156.3 172.6 Goodwill, net 1,710.4 1,739.4 Intangible assets, net 655.7 728.1 Deferred income taxes 5.2 3.2 Other assets, net 103.4 69.7 Long-term assets of discontinued operations — 368.8 Total assets $ 3,579.2 $ 4,332.6 LIABILITIES AND EQUITY Current liabilities: Accounts payable $ 138.2 $ 132.9 Accrued expenses and other current liabilities 369.8 335.5 Unearned revenue 353.3 214.2 Current portion of long-term debt 74.8 26.1 Short-term operating lease liabilities 13.4 17.2 Current liabilities of discontinued operations — 52.5 Total current liabilities 949.5 778.4 Long-term debt, less current portion 1,049.7 1,565.9 Operating lease liabilities 60.6 62.8 Deferred income taxes and other tax liabilities 121.7 147.7 Other liabilities 35.3 32.1 Long-term liabilities of discontinued operations — 31.6 Total liabilities 2,216.8 2,618.5 Commitments and contingent liabilities (Note 16) Equity: Common stock, 89.7 and 88.8 shares outstanding at December 31, 2024 and December 31, 2023, respectively 0.1 0.1 Additional paid-in capital 2,042.2 1,998.0 Accumulated deficit ( 397.0 ) ( 68.5 ) Accumulated other comprehensive loss ( 282.9 ) ( 215.5 ) Total equity 1,362.4 1,714.1 Total liabilities and equity $ 3,579.2 $ 4,332.6 The accompanying notes are an integral part of these consolidated and combined financial statements. 73 Table of Contents FORTREA HOLDINGS INC. CONSOLIDATED AND COMBINED STATEMENTS OF OPERATIONS (in millions, except per share data) Years Ended December 31, 2024 2023 2022 Revenues $ 2,696.4 $ 2,842.5 $ 2,837.0 Costs and expenses: Direct costs, exclusive of depreciation and amortization (including costs incurred from related parties of $ 48.8 and $ 87.1 during the years ended December 31, 2023 and 2022) 2,162.2 2,251.9 2,112.6 Selling, general and administrative expenses, exclusive of depreciation and amortization 560.7 448.1 416.1 Depreciation and amortization 85.3 89.3 85.5 Goodwill and other asset impairments — — 9.8 Restructuring and other charges 50.1 21.2 25.9 Total costs and expenses 2,858.3 2,810.5 2,649.9 Operating income (loss) ( 161.9 ) 32.0 187.1 Other income (expense): Interest expense ( 123.8 ) ( 69.7 ) ( 0.2 ) Foreign exchange gain (loss) ( 10.6 ) 0.3 ( 2.0 ) Other, net 21.3 6.9 2.1 Income (loss) from continuing operations before income taxes ( 275.0 ) ( 30.5 ) 187.0 Income tax (benefit) expense ( 3.5 ) 1.2 41.1 Income (loss) from continuing operations ( 271.5 ) ( 31.7 ) 145.9 Income (loss) from discontinued operations, net of tax ( 57.0 ) 6.5 40.3 Net income (loss) $ ( 328.5 ) $ ( 25.2 ) $ 186.2 Earnings (loss) per common share Basic and diluted earnings (loss) per share from continuing operations $ ( 3.03 ) $ ( 0.36 ) $ 1.64 Basic and diluted earnings (loss) per share from discontinued operations ( 0.64 ) 0.07 0.45 Basic and diluted earnings (loss) per share $ ( 3.67 ) $ ( 0.29 ) $ 2.09 The accompanying notes are an integral part of these consolidated and combined financial statements. 74 Table of Contents FORTREA HOLDINGS INC. CONSOLIDATED AND COMBINED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (in millions, except per share data) Years Ended December 31, 2024 2023 2022 Net income (loss) $ ( 328.5 ) $ ( 25.2 ) $ 186.2 Foreign currency translation adjustments ( 69.3 ) 59.3 ( 126.1 ) Net benefit plan adjustments 1.1 1.2 ( 0.6 ) Unrealized gain (loss) on derivative instruments 1.4 ( 1.9 ) — Other comprehensive income (loss) before tax ( 66.8 ) 58.6 ( 126.7 ) (Provision) benefit for income tax related to items of comprehensive income ( 0.6 ) 0.7 — Other comprehensive income (loss), net of tax ( 67.4 ) 59.3 ( 126.7 ) Comprehensive income (loss) $ ( 395.9 ) $ 34.1 $ 59.5 The accompanying notes are an integral part of these consolidated and combined financial statements. 75 Table of Contents FORTREA HOLDINGS INC. CONSOLIDATED AND COMBINED STATEMENTS OF CHANGES IN EQUITY (in millions) Common Stock Additional Paid-in Capital Former Parent Investment Accumulated Deficit Accumulated Other Comprehensive Loss Total Equity Shares Amount Balance at December 31, 2021 — $ — $ — $ 3,409.5 $ — $ ( 148.1 ) $ 3,261.4 Net income — — — 186.2 — — 186.2 Other comprehensive loss, net of tax — — — — — ( 126.7 ) ( 126.7 ) Net transfers from Former Parent — — — 19.1 — — 19.1 Balance at December 31, 2022 — $ — $ — $ 3,614.8 $ — $ ( 274.8 ) $ 3,340.0 Net loss — — — 43.3 ( 68.5 ) — ( 25.2 ) Other comprehensive income, net of tax — — — — — 59.3 59.3 Special payment to Former Parent — — — ( 1,595.0 ) — — ( 1,595.0 ) Net transfers to Former Parent — — — ( 91.7 ) — — ( 91.7 ) 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 Stock compensation — — 26.6 — — — 26.6 Balance at December 31, 2023 88.8 $ 0.1 $ 1,998.0 $ — $ ( 68.5 ) $ ( 215.5 ) $ 1,714.1 Net loss — — — — ( 328.5 ) — ( 328.5 ) Other comprehensive loss, net of tax — — — — — ( 67.4 ) ( 67.4 ) Stock compensation — — 58.4 — — — 58.4 Issuance of common stock under employee stock plan 0.9 — — — — — — Net share settlement tax payments from issuance of stock to employees — — ( 14.4 ) — — — ( 14.4 ) Other — — 0.2 — — — 0.2 Balance at December 31, 2024 89.7 $ 0.1 $ 2,042.2 $ — $ ( 397.0 ) $ ( 282.9 ) $ 1,362.4 The accompanying notes are an integral part of these consolidated and combined financial statements. 76 Table of Contents FORTREA HOLDINGS INC. CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS (in millions) Years Ended December 31, 2024 2023 2022 CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ ( 328.5 ) $ ( 25.2 ) $ 186.2 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 86.9 98.0 93.6 Stock compensation 58.4 42.7 25.4 Credit loss expense 22.2 27.8 3.4 Operating lease right-of-use asset expense 14.0 27.4 24.9 Operating lease right-of-use asset impairment 4.8 — — Goodwill and other asset impairments 24.0 13.4 9.8 Deferred income taxes ( 24.6 ) ( 41.6 ) ( 16.5 ) Loss on sale of business 19.6 — — Write-off of debt issuance costs 12.2 — — Other, net 9.3 ( 1.0 ) 4.1 Change in assets and liabilities: Decrease (increase) in accounts receivable and unbilled services, net 309.9 ( 53.4 ) ( 108.4 ) (Increase) in prepaid expenses and other ( 78.1 ) ( 3.4 ) ( 9.1 ) Increase in accounts payable 7.2 55.3 24.8 Increase (decrease) in deferred revenue 140.0 ( 2.2 ) ( 30.1 ) (Decrease) increase in accrued expenses and other ( 14.5 ) 30.6 ( 125.4 ) Net cash provided by operating activities 262.8 168.4 82.7 CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures ( 25.5 ) ( 40.3 ) ( 54.4 ) Proceeds from sale of business, net 276.6 — — Proceeds from sale of assets 0.5 8.5 0.4 Net cash provided by (used for) investing activities 251.6 ( 31.8 ) ( 54.0 ) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from revolving credit facilities 826.5 164.0 — Payments on revolving credit facilities ( 826.5 ) ( 164.0 ) — Proceeds from term loans — 1,061.4 — Proceeds from issuance of senior notes — 570.0 — Debt issuance costs ( 0.7 ) ( 26.4 ) — Principal payments on long-term debt ( 482.7 ) ( 15.4 ) — Payments for taxes related to net share settlement of stock awards ( 14.4 ) — — Special payment to Former Parent — ( 1,595.0 ) — Net transfers to Former Parent — ( 135.4 ) ( 6.3 ) Net cash used for financing activities ( 497.8 ) ( 140.8 ) ( 6.3 ) Effect of exchange rate changes on cash and cash equivalents ( 6.7 ) 2.4 ( 6.6 ) Net change in cash and cash equivalents 9.9 ( 1.8 ) 15.8 Cash and cash equivalents at beginning of period 108.6 110.4 94.6 Cash and cash equivalents at end of period $ 118.5 $ 108.6 $ 110.4 The cash flows related to discontinued operations have not been segregated and are included in the consolidated and combined statements of cash flows. The accompanying notes are an integral part of these consolidated and combined financial statements. 77 Table of Contents FORTREA HOLDINGS INC NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (in millions, except per share data) 1. BUSINESS 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 solutions 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 more than 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 Labcorp Holdings Inc. (“Labcorp” or “Former Parent”). The Company leverages its global scale, clinical data insights, scientific and therapeutic 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 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 The Company manages its business in one reportable segment - Clinical Services, that provides development and consulting services across the clinical pharmacology and clinical development spectrum. 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. The Transaction closed during the second quarter of 2024. Refer to Note 3, “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. For further financial information about the segment, see Note 21, “Business Segment Information”. 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 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 consolidated and combined statements of operations for all periods presented. Unless otherwise noted, discussion within these notes to the consolidated and combined financial statements relates to the Company’s continuing operations. 78 Table of Contents FORTREA HOLDINGS INC NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (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. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 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 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 consolidated financial statements subsequent to June 30, 2023 reflect the financial position, results of operations, and cash flows of Fortrea as a standalone company, whereas all prior periods included consolidated and combined financial statements. The Company’s consolidated and combined financial statements for all periods presented are referred to throughout this document as “financial statements.” The Company’s financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The 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. The 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. As of December 31, 2022, a Former Parent investment is shown in lieu of common stock and retained earnings accounts in the 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 combined statements of cash flows in cash flows from financing activities as net transfers to Former Parent. 79 Table of Contents FORTREA HOLDINGS INC NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (in millions, except per share data) All intercompany transactions within the Company have been eliminated. All transactions between the Company and Former Parent have been included in these 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 19, “Transactions with Former Parent” for further information. 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 was made to include information technology costs and certain facility costs in selling, general and administrative expenses to improve comparability of costs against peer companies in the clinical research industry. As a result, the Company reclassified $ 152.1 and $ 175.7 from direct costs, exclusive of depreciation and amortization, to selling, general and administrative expenses, exclusive of depreciation and amortization in the consolidated and combined statement of operations for the years ended December 31, 2023 and December 31,2022, respectively, relating to information technology costs and certain facility costs. There is no impact on total operating expenses, operating income or net income during the years ended December 31, 2023 and December 31, 2022 . 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 consolidated and combined statement of operations for the year ended December 31, 2023. 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. A summary of the corrections to the impacted financial statement line items from the previously issued financial statements are presented in Note 22, “Immaterial Financial Restatement and Reclassifications to Prior Period Financial Statements.” 80 Table of Contents FORTREA HOLDINGS INC NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (in millions, except per share data) Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported periods. Significant estimates include revenue recognition, deferred tax assets, restructuring reserves, stock based compensation, valuation of goodwill and intangibles, amortization lives for acquired intangible assets, and the fair values of assets acquired and liabilities assumed in business combinations. Actual results could materially differ from those estimates. Recognition of Revenues The Company provides phase I through phase IV clinical development services to pharmaceutical, biotechnology, and medical device companies worldwide. A majority of the Company’s revenues are earned under contracts that are long term in nature, ranging in duration from a few months to many years. The majority of the Company's contracts contain a single performance obligation, as the Company provides a significant service of integrating all promises in the contract and the promises are highly interdependent and interrelated with one another. For contracts that include multiple performance obligations, the Company allocates the contract value to the goods and services proportionately based on the determined stand-alone selling price. The Company uses an observable price, typically a price list. If a price list is not available, the Company will estimate the stand-alone selling price using either market prices or an “expected cost plus margin” approach. The total contract value is estimated at the beginning of the contract and is equal to the amount expected to be billed to the customer. Other payments and billing adjustments may also factor into the calculation of total contract value, such as the reimbursement of out-of-pocket costs and volume-based rebates. These contracts generally take the form of fixed-price, fee-for-service or software-as-a-service arrangements subject to pricing adjustments based on changes in scope. Fixed-price contracts are typically recognized as revenue over time based on a proportional-performance basis, using either input or output methods that are specific to the service provided. In an output method, revenue is determined by dividing the actual units of output achieved by the total units of output required under the contract and multiplying that percentage by the total contract value. When using an input method, revenue is recognized by dividing the actual costs incurred by the total estimated cost expected to complete the contract and multiplying that percentage by the total contract value. Contract costs principally include direct labor and reimbursable out-of-pocket costs. The estimate of total costs expected to complete the contract requires significant judgment and estimates are based on various assumptions of events that often span several years. These estimates are reviewed periodically and any adjustments are recognized on a cumulative catch-up basis in the period they become known. Fee-for-service contracts are typically priced based on transaction volume or time and materials. For volume-based contracts the contract value is entirely variable and revenue is recognized as the specific product or service is completed. For services billed based on time and materials, revenue is recognized using the right to invoice practical expedient. Software as a service (“SaaS”) arrangements represent a single promise to provide continuous access to a hosted software platform. As each day of providing access to the platform is substantially the same, and the customer simultaneously receives and consumes the benefits as access is provided, the Company recognizes revenue using an output method based on time elapsed, which is on a straight-line basis over the course of the contracted SaaS hosting period. Contracts are often modified to account for changes in contract specifications and requirements. Generally, when contract modifications create new performance obligations, the modification is considered to be a separate contract and revenue is recognized prospectively. When contract modifications change existing performance obligations, the impact on the existing transaction price and measure of progress for the performance obligation to which it relates is generally recognized as an adjustment to revenue (either as an increase in or a reduction of revenue) on a cumulative catch-up basis. 81 Table of Contents FORTREA HOLDINGS INC NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (in millions, except per share data) Most contracts are terminable with or without cause by the customer, either immediately or upon notice. These contracts typically require payment to the Company of expenses to wind-down the study or project, fees earned to date and, in some cases, a termination fee or a payment to the Company of some portion of the fees or profits that could have been earned by the Company under the contract if it had not been terminated early. Termination fees are included in revenues when services are performed and realization is assured. Contract costs The Company incurs sales commissions in the process of obtaining contracts with customers, which are recoverable through the service fees in the contract. Sales commissions that are payable upon contract award are recognized as assets and amortized over the expected contract term, along with the related payroll tax expense. The amortization of commission expense is based on the weighted average contract duration for all commissionable awards in the respective business in which the commission expense is paid, which approximates the period over which goods and services are transferred to the customer. The amortization period of sales commissions ranges from approximately 1 to 4 years, depending on the business. For short-term contracts, the Company applies the practical expedient which allows costs to obtain a contract to be expensed when incurred if the amortization period of the assets that would otherwise have been recognized is one year or less. Amortization of assets from sales commissions is included in selling, general, and administrative expense. The Company incurs costs to fulfill contracts with customers, which are recoverable through the service fees in the contract. Contract fulfillment costs include software implementation costs and setup costs for certain services. These costs are recognized as assets and amortized to direct costs over the expected term of the contract to which the implementation relates, which is the period over which services are expected to be provided to the customer. This period typically ranges from 2 to 5 years. Accounts Receivable, Unbilled Services and Unearned Revenue Differences in the timing of revenue recognition and associated billing and cash collections result in recording accounts receivable, unbilled services and unearned revenue in the consolidated and combined balance sheets. Payments received in advance of services being provided are contract liabilities recognized as unearned revenue. Revenue recognized in advance of billing is recognized as unbilled services. Once a customer is invoiced, the contract asset is reduced for the amount billed, and a corresponding accounts receivable is recognized. All contract assets are billable to customers within one year from the respective balance sheet date. Allowance for Credit Losses The Company maintains current receivable amounts with most of its customers. Fluctuations in accounts receivable, net are attributable to a variety of factors including, but not limited to, the timing of cash receipts from customers, the Company’s assessment of collectability and corresponding provision for bad debt expense and the inception, transition, modification or termination of customer relationships. The Company regularly monitors and assesses its risk of not collecting amounts owed by customers. This evaluation is based upon an analysis of current and past due amounts, along with relevant history and facts particular to the customer and the evaluation of the recoverability of amounts due. The Company records its allowance for credit losses based on the results of this analysis. The analysis requires the Company to make significant estimates and, as such, changes in facts and circumstances could result in material changes in the allowance for credit losses. Reimbursed Expenses The Company is reimbursed by its customers for certain costs, including fees paid to principal investigators and for other out-of-pocket costs (such as travel expenses for the Company’s clinical monitors). The Company includes these costs in total operating expenses, and the related reimbursements result in revenue, as the Company is the principal in the applicable arrangements and is responsible for fulfilling the promise to provide the specified services. 82 Table of Contents FORTREA HOLDINGS INC NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (in millions, except per share data) Costs and Expenses Direct costs include payroll and related benefits for project-related employees, reimbursable expenses (pass through costs), transition services agreement costs, information technology costs and other direct costs. Selling, general and administrative expenses consist primarily of administrative payroll and related benefit charges, transition services agreement costs, information technology costs, other facility charges, advertising and promotional expenses, and administrative travel. 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 of the Company’s accounts receivable and unbilled services are with companies in the pharmaceutical, biotechnology and medical device industries. As of December 31, 2024, two pharmaceutical customers accounted for approximately 22.2 % and 13.8 % of the Company’s combined gross accounts receivable and unbilled services. As of December 31, 2023, two pharmaceutical customers accounted for approximately 17.0 % and 11.2 % of the Company's combined gross accounts receivable and unbilled services. Additionally, for the year ended December 31, 2024, two customers accounted for approximately 14.3 % and 10.5 % of revenue, for the year ended December 31, 2023, two customers accounting for approximately 11.6 % and 11.4 % of revenue, and for the year ended December 31, 2022, no customer accounted for more than 10% 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. Stock Compensation Plans Certain employees participate in the stock compensation plans sponsored by Fortrea. The Company’s stock compensation awards consist of stock options, restricted stock unit awards and performance share awards and are based on its common shares. Compensation expense for all stock-based employee grants are recognized based on the fair value of the Company`s shares on the date of grant. Stock-based compensation expense is recognized net of an estimated forfeiture rate on a straight-line basis over the requisite service period of the award. The estimation of equity awards that will ultimately vest requires judgment, and the Company considers many factors when estimating expected forfeitures, including types of awards and historical experience. Forfeitures are recognized as a reduction of compensation expense in earnings in the period in which they occur. The consolidated and combined statements of operations also include an allocation of the Former Parent’s corporate and shared employee stock-based compensation expenses. See Note 15, “Stock Compensation Plans” for additional information. Cash Equivalents Cash and cash equivalents consist of highly liquid instruments, such as commercial paper, time deposits, and other money market instruments, which have maturities when purchased of three months or less. 83 Table of Contents FORTREA HOLDINGS INC NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (in millions, except per share data) Property, Plant and Equipment Property, plant and equipment are recorded at cost. Depreciation and amortization expense is computed on all classes of assets based on their estimated useful lives, as indicated below, using the straight-line method. Years Buildings and building improvements 10 - 40 Machinery and equipment 5 - 10 Furniture and fixtures 3 - 10 Software 3 - 10 Leasehold improvements are amortized over the shorter of their estimated useful lives or the term of the related leases. Expenditures for repairs and maintenance are expensed as incurred. Retirements, sales and other disposals of assets are recorded by removing the cost and accumulated depreciation from the related accounts with any resulting gain or loss reflected in the consolidated and combined statements of operations. Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable. If the carrying value is no longer recoverable based upon the undiscounted future cash flows of the asset, the amount of the impairment is the difference between the carrying amount and the fair value of the asset. Capitalized Software Costs The Company capitalizes purchased software that is ready for service and capitalizes software development costs incurred on significant projects starting from the time that the preliminary project stage is completed and the Company commits to funding a project until the project is substantially complete and the software is ready for its intended use. Other computer software maintenance costs related to software development are expensed as incurred. Capitalized software costs are amortized using the straight-line method over the estimated useful life of the underlying system ranging from three to ten years , generally five years . Amortization begins once the underlying system is substantially complete and ready for its intended use. Cloud Computing Arrangements The Company defers costs incurred with the implementation of a cloud computing arrangement that is a service contract, consistent with its policy for software developed or obtained for internal use. Deferred cloud computing arrangement implementation costs are amortized using the straight-line method over the remaining term of the related hosting contract. As of December 31, 2024 the Company has a current asset of $ 2.5 included in prepaid expenses and other and a non-current asset of $ 18.7 included in other assets, net in the consolidated balance sheets that have been deferred in conjunction with implementations. There were no deferred costs for cloud computing arrangements as of December 31, 2023. Goodwill 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 annual impairment test for goodwill includes an option to perform a qualitative assessment of whether it is more likely than not that a reporting unit's fair value is less than its carrying value. Reporting units are businesses with discrete financial information that is available and reviewed by management. If the Company determines that it is more likely than not that the fair value of a reporting unit is less than its carrying value, then the Company performs a quantitative goodwill impairment test. The Company may also choose to bypass the qualitative assessment for any reporting unit in its goodwill assessment and proceed directly to performing the quantitative assessment. The Company recognizes an impairment charge for the amount by which the reporting unit's carrying amount exceeds its fair value. 84 Table of Contents FORTREA HOLDINGS INC NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (in millions, except per share data) In the qualitative assessment, the Company considers relevant events and circumstances for each reporting unit, including (i) current year results, (ii) financial performance versus management’s annual and five-year strategic plans, (iii) changes in the reporting unit carrying value since prior year, (iv) industry and market conditions in which the reporting unit operates, (v) macroeconomic conditions, including discount rate changes, and (vi) changes in products or services offered by the reporting unit. If applicable, performance in recent years is compared to forecasts included in prior quantitative valuations. Based on the results of the qualitative assessment, if the Company concludes that it is not more likely than not that the fair value of the reporting unit is less than its carrying values of the reporting unit, then no quantitative assessment is performed. The quantitative assessment includes the estimation of the fair value of each reporting unit as compared to the carrying value of the reporting unit. The Company estimates the fair value of a reporting unit using both income-based and market-based valuation methods. The income-based approach is based on the reporting unit's forecasted future cash flows that are discounted to the present value using the reporting unit's weighted average cost of capital. For the market-based approach, the Company utilizes a number of factors such as operating results, business plans, market multiples, and present value techniques. Based upon the range of estimated values developed from the income and market-based methods, the Company determines the estimated fair value for the reporting unit. If the estimated fair value of the reporting unit exceeds the carrying value, the goodwill is not impaired and no further review is required. Goodwill is reviewed for impairment whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable. Recoverability of assets to be held and used is determined by the Company at the level for which there are identifiable cash flows, by comparison of the carrying amount of the assets to future undiscounted net cash flows before interest expense and income taxes expected to be generated by the assets. Impairment, if any, is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets (based on market prices in an active market or on discounted cash flows). Assets to be disposed of are reported at the lower of the carrying amount or fair value. Management performed its annual goodwill impairment testing as of October 1, 2024. Based upon the results of the quantitative assessment, the Company concluded that the fair values of each of its reporting units were greater than the carrying values. Intangible Assets Intangible assets are amortized on a straight-line basis over the expected periods to be benefited, as set forth in the table below. Years Customer relationships 9 - 25 Technology 2 - 13 Non-compete agreements 3 - 5 Intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable. If the carrying value is no longer recoverable based upon the undiscounted future cash flows of the asset, the amount of the impairment is the difference between the carrying amount and the fair value of the asset. Leases All leases with a lease term greater than 12 months, regardless of lease type classification, are recorded as an obligation on the balance sheet with a corresponding right-of-use asset. Leases are reflected as liabilities on the commencement date of the lease based on the present value of the lease payments to be made over the lease term. Right-of-use assets are valued at the initial measurement of the lease liability, plus any initial direct costs or rent prepayments, minus lease incentives and any deferred lease payments. The classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease. 85 Table of Contents FORTREA HOLDINGS INC NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (in millions, except per share data) A certain number of these leases contain rent escalation clauses either fixed or adjusted periodically for inflation or market rates that are factored into the Company's determination of lease payments. As most of the Company's leases do not provide an implicit rate, the Company estimates an incremental borrowing rate based on the credit quality of the Company and by comparing interest rates available in the market for similar debt financing, and adjusting this amount based on the impact of collateral over the term of each lease. The Company uses this rate to discount payments to present value. Some operating leases contain renewal options, some of which also include options to early terminate the leases. The exercise of these options is at the Company's discretion and the Company evaluates each renewal option to determine if it is reasonably possible to be exercised and should be included in the accounting lease term. See Note 8, “Leases” to the consolidated and combined financial statements. Restructuring Restructuring charges consist primarily of severance and facility charges, including right-of-use asset impairments. The Company evaluates the nature of these costs to determine if they relate to ongoing benefit arrangements which are accounted for under ASC 712, Compensation - Nonretirement Postemployment Benefits , or one-time benefit arrangements which are accounted for under ASC 420, Exit or Disposal Cost Obligations . The Company records a liability for ongoing employee termination benefits when it is probable that an employee is entitled to the benefit and the amount can be reasonably estimated. One-time employee termination costs are recognized upon notification to the impacted employees, unless future service is required, in which case the costs are recognized ratably over the future service period. All other related costs are recognized when incurred. Income Taxes During the periods prior to 2023, the operations of the Company were included in the consolidated U.S. federal, certain state and local, and foreign income tax returns filed by Labcorp. In 2023, for U.S. federal and state purposes, the Company was included in the tax returns filed by Labcorp for the period prior to the Spin. For the periods after the Spin, the Company will file its U.S. federal and state filings as a separate taxpayer. The Company filed its foreign income tax returns for 2023 inclusive of activity for the entire year. The income tax provision in the combined financial statements for the year ended December 31, 2022 was calculated using the separate return basis, as if the Company was a separate taxpayer for the full year. For the year ended December 31, 2023, the activity prior to the Spin was calculated on a carve-out basis while the post Spin period was based on as-reported amounts. For the year ended December 31, 2024, the income tax provision was calculated based on full year, as-reported amounts. The provision for income taxes is determined using the asset and liability approach. Under this approach, deferred income taxes represent the expected future tax consequences of temporary differences between the carrying amounts and tax basis of assets and liabilities. The Company records a valuation allowance to reduce its deferred tax assets when uncertainty regarding their realizability exists. The Company recognizes and measures its uncertain tax positions based on the rules under Accounting Standards Codification (“ASC”) 740, “Income Taxes”. Interest and penalties related to these unrecognized tax benefits are reported in income tax expense. 86 Table of Contents FORTREA HOLDINGS INC NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (in millions, except per share data) Derivative Financial Instruments The Company addresses its exposure to market risks, principally the market risk associated with changes in interest rates and currency exchange rates, through a program of risk management that includes, from time to time, the use of derivative financial instruments. The Company does not hold or issue derivative financial instruments for trading purposes. The Company does not believe that its exposure to market risk is material to the Company’s financial position or results of operations. Interest rate swap agreements, which are used by the Company from time to time in the management of interest rate exposure, are accounted for at fair value. These derivative instruments are accounted for as cash flow hedges and recognized as assets and liabilities, as applicable, and classified as current or noncurrent based on the swap’s settlement dates. The derivative instruments have been assessed and are considered to be perfectly effective hedges and accordingly, changes in the fair value of the interest rate swaps are initially recorded in the consolidated and combined statements of comprehensive income (loss). Cash flows from the interest rate swaps are included in operating activities. Foreign currency forward contracts, which are used by the Company to hedge the Company’s foreign currency exposure, are accounted for at fair value. These contracts are short-term in nature and are not designated hedging instruments; therefore changes in the fair value of the Company’s foreign currency forward contracts are recognized directly in earnings. Cash flows from the foreign currency forward contracts are included in operating activities. Fair Value of Financial Instruments Fair value measurements for financial assets and liabilities are determined based on the assumptions that a market participant would use in pricing an asset or liability. A three-tiered fair value hierarchy draws distinctions between market participant assumptions based on (i) observable inputs such as quoted prices in active markets (Level 1), (ii) inputs other than quoted prices in active markets that are observable either directly or indirectly (Level 2), and (iii) unobservable inputs that require the Company to use present value and other valuation techniques in the determination of fair value (Level 3). The carrying amounts of cash and cash equivalents, accounts receivable, income taxes receivable, and accounts payable are considered to be representative of their respective fair values due to their short-term nature. Foreign Currencies For subsidiaries outside of the U.S. that operate in a local currency environment, income and expense items are translated to U.S. dollars at the monthly average rates of exchange prevailing during the period, assets and liabilities are translated at period-end exchange rates and equity accounts are translated at historical exchange rates. Translation adjustments are accumulated in a separate component of equity in the balance sheets and are included in the determination of comprehensive income in the combined statements of comprehensive income (loss) and combined statements of changes in equity. Transaction gains and losses are included in the determination of net income in the consolidated and combined statements of operations. Earnings Per Share Basic earnings per share is computed by dividing net earnings 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 stock options, restricted stock units, and performance share awards. 87 Table of Contents FORTREA HOLDINGS INC NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (in millions, except per share data) 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 Company has adopted this ASU, see Note 21, “Business Segment Information.” The adoption of this standard did not have a material impact on the Company’s 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 income taxes paid by jurisdiction. 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. In November 2024, the FASB issued ASU 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40), Disaggregation of Income Statement Expenses. The new guidance requires disclosure of certain costs and expenses in the notes to the financial statements. This guidance is effective for fiscal years beginning after December 15, 2026 and interim reporting periods beginning after December 15, 2027. Early adoption is permitted. The disclosures required under the guidance can be applied either prospectively to financial statements issued for reporting periods after the effective date or retrospectively to any or all periods presented in the financial statements. The Company is currently evaluating the impact this guidance will have on its financial statement disclosures. . 3. 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. Estimated proceeds of $ 285.2 resulted in a loss on disposal of $ 19.6 , subject to further adjustment based on customary purchase price adjustments. 88 Table of Contents FORTREA HOLDINGS INC NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (in millions, except per share data) Financial Information of Discontinued Operations The following table summarizes the significant line items included in income (loss) from discontinued operations, net of income tax in the consolidated and combined statements of operations for the years ended December 31, 2024, 2023 and 2022: Years Ended December 31, 2024 2023 2022 Revenues $ 106.4 $ 263.3 $ 259.1 Costs and expenses: Direct costs, exclusive of depreciation and amortization 66.4 176.8 155.5 Selling, general and administrative expenses, exclusive of depreciation and amortization 25.4 52.9 50.2 Depreciation and amortization 1.6 8.7 8.1 Long-lived and goodwill asset impairments 24.0 13.4 — Restructuring and other charges 0.5 3.1 4.6 Total costs and expenses 117.9 254.9 218.4 Operating income (loss) ( 11.5 ) 8.4 40.7 Other expense: Foreign exchange gain (loss) 0.1 ( 0.2 ) 0.4 Loss on sale of a business ( 19.6 ) — — Other, net 0.1 ( 0.1 ) 0.1 Income (loss) from discontinued operations before income taxes ( 30.9 ) 8.1 41.2 Income tax expense 26.1 1.6 0.9 Income (loss) from discontinued operations, net of tax $ ( 57.0 ) $ 6.5 $ 40.3 Years Ended December 31, 2024 2023 2022 Gain (loss) from operations of discontinued component $ ( 37.4 ) $ 6.5 $ 40.3 Loss on disposal of discontinued operations ( 19.6 ) — — Gain (loss) on discontinued operations $ ( 57.0 ) $ 6.5 $ 40.3 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 . In addition, an impairment charge of $ 13.4 was recognized specific to the Enabling Services Segment in the fourth quarter of 2023 as part of the Company’s annual impairment testing where it was determined that it was more likely than not that the carrying value of the assets exceeded its fair value. 89 Table of Contents FORTREA HOLDINGS INC NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (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 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 years ended December 31, 2024, 2023 and 2022: Years Ended December 31, 2024 2023 2022 Depreciation and amortization $ 1.6 $ 8.7 $ 8.1 Goodwill impairment 24.0 13.4 — Loss on sale of business 19.6 — — Capital expenditures 7.4 15.9 10.3 There are no significant operating or investing noncash items related to discontinued operations for the years ended December 31, 2024, 2023 and 2022. 4. REVENUES The Company’s revenues by geography for the years ended December 31, 2024, 2023 and 2022 are as follows: 90 Table of Contents FORTREA HOLDINGS INC NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (in millions, except per share data) Years Ended December 31, 2024 North America Europe Other Total Revenues $ 1,269.5 $ 800.0 $ 626.9 $ 2,696.4 Years Ended December 31, 2023 North America Europe Other Total Revenues $ 1,398.4 $ 827.5 $ 616.6 $ 2,842.5 Years Ended December 31, 2022 North America Europe Other Total Revenues $ 1,415.5 $ 841.9 $ 579.6 $ 2,837.0 Revenue from the United States comprises substantially all revenue in North America. Contract costs The following table provides information about contract asset balances: December 31, 2024 December 31, 2023 Sales commission assets $ 22.1 $ 15.8 Deferred contract costs 1.1 2.0 Total $ 23.2 $ 17.8 Amortization related to sales commission assets for the years ended December 31, 2024, 2023 and 2022, was $ 12.0 , $ 11.5 and $ 12.6 , respectively. Amortization related to deferred contract costs for the years ended December 31, 2024, 2023 and 2022, was $ 1.9 , $ 2.1 and $ 5.3 , respectively. The Company applies the practical expedient to not recognize the effect of financing in its contracts with customers, when the difference in timing of payment and performance is one year or less. Accounts Receivable, Unbilled Services and Unearned Revenue The following table provides information about accounts receivable, unbilled services, and unearned revenue from contracts with customers: December 31, 2024 December 31, 2023 Accounts receivable $ 156.5 $ 420.2 Unbilled services 542.3 600.0 Less: allowance for credit losses ( 39.3 ) ( 31.7 ) Total $ 659.5 $ 988.5 Unearned revenue $ 353.3 $ 214.2 Revenue recognized during the period, that was included in the unearned revenue balance at the beginning of the period, was $ 155.5 , $ 176.4 and $ 199.2 for the years ended December 31, 2024, 2023 and 2022, respectively. Additionally, as of the year ended December 31, 2024, the Company had sold $ 300.0 of receivables as described in the Receivables Securitization Program section below. Credit Loss Rollforward The Company estimates future expected losses on accounts receivable and unbilled services over the remaining collection period of the instrument. 91 Table of Contents FORTREA HOLDINGS INC NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (in millions, except per share data) The rollforward for the allowance for credit losses for the years ended December 31, 2024 and 2023, is as follows: Allowance for credit losses as of December 31, 2022 $ 12.7 Credit loss expense 27.8 Write-offs ( 8.8 ) Allowance for credit losses as of December 31, 2023 $ 31.7 Credit loss expense 22.2 Write-offs ( 14.6 ) Allowance for credit losses as of December 31, 2024 $ 39.3 Performance Obligations Under Long-Term Contracts As of December 31, 2024, approximately $ 4,430.5 of revenues are expected to be recognized from remaining performance obligations. The Company expects to recognize approximately 27.5 % of the existing performance obligations as of December 31, 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 year ended December 31, 2024, there were reductions of approximately $ 61 in revenue related to performance obligations partially satisfied in previous periods. For the year ended December 31, 2024, the change was associated with both changes in estimated effort to complete customer contract obligations and changes in scope or price. For the year ended December 31, 2024, the change in estimate resulted in an estimated reduction to revenue of $ 29 , and an increase in loss from continuing operations of $ 29 and in loss per share of $ 0.33 . During the year ended December 31, 2023, there were reductions of approximately $ 60 in revenue related to performance obligations partially satisfied in previous periods. During the year ended December 31, 2022, there was recognition of approximately $ 72 in revenue related to performance obligations partially satisfied in previous periods. Substantially all of these adjustments were associated with changes in scope or price for full service clinical studies. The gross and net amounts of revenue recognized solely from changes in estimates were not material. 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. 92 Table of Contents FORTREA HOLDINGS INC NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (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 December 31, 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 $ 12.3 for the year ended December 31, 2024 and are included within selling, general and administrative costs in the consolidated statement of operations for the year ended December 31, 2024. The proceeds related to the Receivables Facility are reflected in cash from operating activities in the consolidated statement of cash flows. 5. RESTRUCTURING AND OTHER CHARGES The Company regularly undertakes various programs aimed at increasing efficiency, utilizing lower cost locations and adapting to changes in the needs of its customers. These programs include the regular review of the number and location of the Company’s existing employees and facilities compared to the shifting needs of its customers, developments in technology and remote working, and its capabilities to utilize lower cost locations. Restructuring and other charges are not allocated to the Company’s reportable segment as they are not part of the segment performance measures regularly reviewed by management. During 2023, the Company took actions to reduce overcapacity, align resources, and restructure certain operations. These actions, which primarily relate to employee severance benefits accounted for under ASC 420, Exit or Disposal Cost Obligations and right-of-use asset impairment charges, included eliminating redundant positions and aligning resources and facilities for cost improvements and to meet customer requirements. In addition, in the fourth quarter of 2024, the Company approved a restructuring plan to streamline its operations and eliminate redundant positions. The Company recorded a restructuring charge of $ 21.3 related to this 2024 plan, which relate primarily to severance benefits and are accounted for under ASC 712, Compensation - Nonretirement Postemployment Benefits . Actions under these restructuring plans are expected to continue through 2025. 2024 Restructuring During 2024, the Company recorded net restructuring charges of $ 50.1 , including impairment of facility related assets of $ 4.8 and other charges of $ 7.1 , which are reflected within restructuring and other charges in the consolidated and combined statements of operations. The charges were comprised of $ 46.7 in severance and other employee costs and $ 7.2 in lease and other facility-related costs. The charges were partially offset by the reversal of the previously established liability of $ 0.8 in unused severance and $ 3.0 in unused facility-related costs. The Company expects the restructuring and other charges accrued as of December 31, 2024 will be paid within the next twelve months and are included within accrued expenses and other current liabilities on the accompanying consolidated balance sheet. 2023 Restructuring During 2023, the Company recorded net restructuring charges of $ 21.2 which were comprised of $ 17.4 in severance and other employee costs and $ 3.8 in lease and other facility-related costs. 93 Table of Contents FORTREA HOLDINGS INC NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (in millions, except per share data) 2022 Restructuring During 2022, the Company recorded net restructuring charges of $ 25.9 , including impairment of facility related assets of $ 2.0 , which are reflected within restructuring and other charges in the combined statements of operations. The charges were comprised of $ 15.0 in severance and other employee costs and $ 11.1 in lease and other facility-related costs. The charges were partially offset by the reversal of the previously established liability of $ 0.2 in unused severance. The Company recorded restructuring and other charges as follows: Years Ended December 31, 2024 2023 2022 Restructuring charges $ 45.3 $ 21.0 $ 23.2 Impairment of facility related assets 4.8 — 2.0 Restructuring charges allocated from Former Parent — 0.2 0.7 Total $ 50.1 $ 21.2 $ 25.9 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, 2022 $ 1.8 $ 4.5 $ 6.3 Restructuring charges 17.4 3.8 21.2 Cash payments and other adjustments ( 18.1 ) ( 5.1 ) ( 23.2 ) Balance as of December 31, 2023 1.1 3.2 4.3 Restructuring charges 41.2 0.8 42.0 Reduction of prior restructuring accruals ( 0.8 ) ( 3.0 ) ( 3.8 ) Cash payments and other adjustments ( 18.4 ) ( 0.4 ) ( 18.8 ) Balance as of December 31, 2024 $ 23.1 $ 0.6 $ 23.7 The current portion of the restructuring liabilities is included in the consolidated balance sheets in accrued expenses and other current liabilities. The non-current portion of the restructuring liabilities is included in the consolidated balance sheets in other liabilities. The non-current portion of the restructuring liabilities as of December 31, 2024 and 2023, was $ 0.0 and $ 2.4 , respectively. 6. 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. 94 Table of Contents FORTREA HOLDINGS INC NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (in millions, except per share data) The following represents the computation of basic and diluted earnings (loss) per share from continuing operations per share. Years Ended December 31, 2024 2023 2022 Earnings Shares Per Share Amount Earnings Shares Per Share Amount Earnings Shares Per Share Amount Basic and diluted earnings (loss) from continuing operations per share: Net earnings (loss) $ ( 271.5 ) 89.5 $ ( 3.03 ) $ ( 31.7 ) 88.8 $ ( 0.36 ) $ 145.9 88.8 $ 1.64 The following represents the computation of basic and diluted earnings (loss) per share from discontinued operations per share. Years Ended December 31, 2024 2023 2022 Earnings Shares Per Share Amount Earnings Shares Per Share Amount Earnings Shares Per Share Amount Basic and diluted earnings (loss) from discontinued operations per share: Net earnings (loss) $ ( 57.0 ) 89.5 $ ( 0.64 ) $ 6.5 88.8 $ 0.07 $ 40.3 88.8 $ 0.45 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. There were no dilutive common shares for any period presented as the inclusion would be antidilutive. The following table summarizes the potential common shares not included in the computation of diluted earnings per share because their impact would have been antidilutive: Years Ended December 31, 2024 2023 2022 Employee stock options and awards 2.2 0.3 — Antidilutive employee stock options and awards excluded based on reporting a net loss for the period 0.8 0.3 — 7. PREPAID EXPENSES AND OTHER CURRENT ASSETS The components of prepaid expense and other current assets are as follows: December 31, 2024 December 31, 2023 Prepaid expenses $ 58.5 $ 34.1 Contingent consideration 41.7 — Research and development tax credit receivables 34.5 22.0 Other 35.5 28.5 Prepaid expenses and other $ 170.2 $ 84.6 95 Table of Contents FORTREA HOLDINGS INC NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (in millions, except per share data) 8. LEASES The Company has operating leases for clinical facilities, general office spaces, vehicles, and office equipment. Leases have remaining lease terms of less than a year to 18 years, some of which include options to extend the leases for up to 6 years. The components of lease expense were as follows: Years Ended December 31, 2024 2023 2022 Operating lease cost $ 17.8 $ 26.0 $ 23.6 Supplemental cash flow information related to leases was as follows: Years Ended December 31, 2024 2023 2022 Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from operating leases $ ( 19.9 ) $ ( 27.6 ) $ ( 25.1 ) ROU assets obtained in exchange for lease obligations: Operating leases $ 15.2 $ 60.1 $ 17.5 Supplemental balance sheet information related to leases was as follows: December 31, 2024 December 31, 2023 Operating lease ROU assets (included in Property, plant and equipment, net) $ 66.2 $ 74.7 Short-term operating lease liabilities 13.4 17.2 Operating lease liabilities 60.6 62.8 Total operating lease liabilities $ 74.0 $ 80.0 Weighted Average Remaining Lease Term 10.1 years 9.6 years Weighted Average Discount Rate 5.7 % 5.1 % Maturities of lease liabilities are as follows: Year ended December 31, 2024 Operating Leases 2025 $ 16.5 2026 12.4 2027 8.9 2028 8.2 2029 7.8 Thereafter 46.1 Total lease payments $ 99.9 Less imputed interest ( 25.9 ) Less current portion ( 13.4 ) Total maturities, due beyond one year $ 60.6 96 Table of Contents FORTREA HOLDINGS INC NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (in millions, except per share data) There was $ 2.9 and $ 0.2 rent expense for short term leases with a term less than one year for the years ended December 31, 2024 and 2023 and no rent expense for short term leases with a term less than one year for the year ended December 31, 2022. Additionally, the Company earned $ 3.4 , $ 1.7 and $ 0.0 in sublease income for the years ended December 31, 2024, 2023 and 2022. Variable lease payment amounts that cannot be determined at the commencement of the lease, such as increases in lease payments based on changes in index rates or usage, are not included in the right-of-use assets or lease liabilities and are expensed as incurred. The Company records variable lease payments that do not depend on a rate index, primarily for purchase volume commitments, as variable cost when incurred. There were no variable payments for the years ended December 31, 2024, 2023 and 2022. 9. PROPERTY, PLANT AND EQUIPMENT, NET December 31, 2024 December 31, 2023 Buildings and leasehold improvements $ 82.2 $ 77.8 Software 82.3 77.8 Machinery and equipment 66.7 68.0 Furniture and fixtures 13.5 14.1 Construction in progress 9.5 9.6 Operating lease ROU assets 66.2 74.7 320.4 322.0 Less accumulated depreciation ( 164.1 ) ( 149.4 ) $ 156.3 $ 172.6 Depreciation expense of property, plant and equipment, net was $ 24.5 , $ 28.6 and $ 23.0 for the years ended December 31, 2024, 2023 and 2022, respectively, including software amortization of $ 4.3 , $ 11.7 and $ 9.0 for the years ended December 31, 2024, 2023 and 2022, respectively. The Company’s property, plant and equipment, net by geography as of December 31, 2024 and 2023 are as follows: Years Ended December 31, 2024 2023 North America $ 69.5 $ 74.1 Europe 71.3 73.2 Other 15.5 25.3 Total property, plant and equipment, net $ 156.3 $ 172.6 10. 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. 97 Table of Contents FORTREA HOLDINGS INC NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (in millions, except per share data) The changes in the carrying amount of goodwill for the years ended December 31, 2024 and 2023 are as follows: December 31, 2024 December 31, 2023 Balance as of January 1 $ 1,739.4 $ 1,707.4 Foreign currency impact and other adjustments to goodwill ( 29.0 ) 32.0 Balance at end of year $ 1,710.4 $ 1,739.4 The components of identifiable intangible assets are as follows: December 31, 2024 December 31, 2023 Gross Carrying Amount Accumulated Amortization Net Carrying Amount Gross Carrying Amount Accumulated Amortization Net Carrying Amount Customer relationships $ 1,124.1 $ ( 469.4 ) $ 654.7 $ 1,143.5 $ ( 420.1 ) $ 723.4 Technology 27.7 ( 27.3 ) 0.4 27.7 ( 24.5 ) 3.2 Other 12.5 ( 11.9 ) 0.6 12.5 ( 11.0 ) 1.5 Total $ 1,164.3 $ ( 508.6 ) $ 655.7 $ 1,183.7 $ ( 455.6 ) $ 728.1 Amortization of intangible assets was $ 60.8 , $ 60.7 and $ 62.5 for the years ended December 31, 2024, 2023 and 2022 respectively. Amortization expense of intangible assets is estimated to be $ 58.6 in 2025, $ 57.8 in 2026, $ 57.8 in 2027, $ 49.1 in 2028, $ 47.6 in 2029, and $ 384.8 thereafter. In 2022, an impairment of identifiable intangible assets of $ 9.8 was recorded for impairment of technology assets. There were no goodwill impairment losses for the years ended December 31, 2024, 2023 or 2022. 98 Table of Contents FORTREA HOLDINGS INC NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (in millions, except per share data) 11. 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 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 consisted of the following: December 31, 2024 December 31, 2023 Current portion of 7.5 % senior notes due 2030 $ 76.0 $ — 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 ( 1.2 ) ( 4.6 ) Total short-term borrowings and current portion of long-term debt $ 74.8 $ 26.1 Long-term debt consisted of the following: December 31, 2024 December 31, 2023 7.5 % senior notes due 2030 $ 494.0 $ 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 ( 16.3 ) ( 28.1 ) Total long-term debt $ 1,049.7 $ 1,565.9 During the year ended December 31, 2024, the Company paid down $ 70.2 , on its senior secured term loan A due 2028 (“term loan A”) and $ 412.5 , on its 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 consolidated and combined statements of operations for the year ended December 31, 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. The bond indenture for the Notes contains an asset sale covenant that effectively requires the Company to utilize a prorated portion of the Net Cash Proceeds from an Asset Sale, each as defined in the indenture, to retire Notes. Absent an amendment to the indenture or other transaction related to these Notes, Fortrea currently expects that the sale of net assets relating to its Enabling Services Segment will require the Company to offer to repurchase, purchase on the open market or redeem approximately $ 76.0 of the Notes during the fourth quarter of 2025, which has been classified as current portion of long-term debt in the consolidated balance sheet as of December 31, 2024. 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. 99 Table of Contents FORTREA HOLDINGS INC NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (in millions, except per share data) The Company drew on the term loan A and term loan B 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 December 31, 2024, the effective interest rate on the term loan A and term loan B was 6.71 % 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 and $ 450.0 was available for borrowing as of December 31, 2024. No balances were outstanding as of December 31, 2023. As of December 31, 2024, the effective interest rate on the revolving credit facility was 6.61 %, assuming a 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. There were no outstanding letters of credit under the Credit Agreement as of December 31, 2024. 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 December 31, 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. The covenants were modified subsequent to December 31, 2024, as described in Note 23, “Subsequent Events.” The scheduled payments of long-term debt at the end of 2024 are summarized as follows: 2025 $ 76.0 2026 4.8 2027 25.0 2028 387.5 2029 — Thereafter 648.7 Total scheduled principal payments $ 1,142.0 Less debt issuance costs ( 17.5 ) Less current portion ( 74.8 ) Long-term debt, due beyond one year $ 1,049.7 Fair Value Disclosures for Financial Instruments Not Carried at Fair Value The estimated fair values of term loans A and B and the Notes are determined based on the price that the Company would have had to pay to settle the liabilities. As these liabilities are not actively traded, they are classified as Level 2 fair value measurements. The estimated fair values of the Company’s term loans and the Notes were as follows: 100 Table of Contents FORTREA HOLDINGS INC NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (in millions, except per share data) December 31, 2024 December 31, 2023 Carrying Value Estimated Fair Value Carrying Value Estimated Fair Value 7.5 % senior notes due 2030 $ 570.0 $ 569.3 $ 570.0 $ 552.0 Senior secured term loan A due 2028 $ 417.3 $ 425.3 $ 487.5 $ 493.7 Senior secured term loan B due 2030 $ 154.7 $ 153.3 $ 567.2 $ 566.4 12. 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 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. Interest rate swap agreements, which are used by the Company from time to time in the management of interest rate exposure, are accounted for at fair value. These derivative instruments are accounted for as cash flow hedges and recognized as assets and liabilities, as applicable, and classified as current or noncurrent based on the swap’s settlement dates. The derivative instruments have been assessed and are considered to be perfectly effective hedges and accordingly, changes in the fair value of the interest rate swaps are initially recorded in the consolidated and combined statements of comprehensive income (loss). Cash flows from the interest rate swaps are included in operating activities. Foreign currency forward contracts, which are used by the Company to hedge the Company’s foreign currency exposure, are accounted for at fair value. As these contracts are short-term in nature and are not designated hedging instruments, changes in the fair value of the Company’s foreign currency forward contracts are recognized directly in earnings. Cash flows from the foreign currency forward contracts are included in operating activities. 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: December 31, 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 $ ( 0.2 ) $ — $ — Other liabilities — ( 0.4 ) 0.7 ( 2.6 ) Derivatives not designated as hedging instruments: Foreign currency forward contracts Prepaid expenses and other $ — $ — $ 0.8 $ — Other current liabilities — ( 1.2 ) — — Derivative Contracts Designated as Hedges Interest Rate Swaps 101 Table of Contents FORTREA HOLDINGS INC NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (in millions, except per share data) In August 2023, the Company entered into two variable-to-fixed interest rate swap agreements for its senior secured term loan A facilities to hedge the cash flow variability associated with the Company’s floating interest rate exposure. The interest rate swaps, both of which mature on December 31, 2026, had an aggregate notional amount of $ 150.0 and a fixed interest rate of 4.20 % as of December 31, 2024 and 2023, and each return variable interest rates based on one-month SOFR. Because these derivative instruments meet the criteria for hedge accounting, all related gains and losses are accumulated within other comprehensive income and are being reclassified to earnings as interest expense is recognized in the consolidated and combined statements of operations. The following table presents the pre-tax effects of cash flow hedges included in the Company’s consolidated and combined statements of comprehensive income (loss): Pre-Tax Gain (Loss) Included in Other Comprehensive Income Years Ended December 31, 2024 2023 2022 Interest rate swaps $ 2.9 $ ( 1.5 ) $ — The following table presents amounts reclassified out of accumulated other comprehensive loss and recognized in the consolidated and combined statements of operations: Amounts Reclassified from Other Comprehensive Loss into Earnings Years Ended December 31, Statement of Operations Classification 2024 2023 2022 Interest rate swaps Interest expense $ ( 1.5 ) $ ( 0.4 ) $ — 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 December 31, 2024, is $ 0.1 . Refer to Note 17, “Preferred Stock and Common Shareholders' Equity” for the impact of the Company’s derivative instruments included in accumulated other comprehensive loss. Derivative Contracts Not Designated as Hedges Foreign Currency Forward Contracts The Company utilizes foreign currency forward contracts to hedge the Company’s exposure to foreign currencies with exposure predominantly to the Euro and British Pound. These contracts do not qualify for hedge accounting and are recognized as assets or liabilities at their fair value with changes in fair value recorded directly to earnings. The contracts are short-term in nature and the fair value of these contracts is based on market prices for comparable contracts. The aggregate notional value of these contracts was $ 468.6 and $ 458.3 at December 31, 2024 and 2023, respectively. The following table presents a summary of the loss for derivative contracts not designated as hedges included in the Company’s consolidated and combined statements of operations: Gain (Loss) on Derivatives Recognized in Earnings Years Ended December 31, Statement of Operations Classification 2024 2023 2022 Foreign currency Forward contracts Foreign exchange gain (loss) $ ( 2.0 ) $ ( 0.8 ) $ — 102 Table of Contents FORTREA HOLDINGS INC NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (in millions, except per share data) 13. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES The components of accrued expenses and other current liabilities are as follows: December 31, 2024 December 31, 2023 Employee compensation and benefits $ 90.6 $ 107.8 Accrued pass through expenses 140.5 117.7 Accrued taxes 52.7 60.0 Accrued restructuring 23.7 1.9 Accrued interest 23.3 22.5 Other 39.0 25.6 $ 369.8 $ 335.5 14. INCOME TAXES The sources of income before taxes, classified between domestic and foreign entities are as follows: Years Ended December 31, 2024 2023 2022 Domestic $ ( 390.3 ) $ ( 141.4 ) $ 65.6 Foreign 115.3 110.9 121.4 Total pre-tax income (loss) $ ( 275.0 ) $ ( 30.5 ) $ 187.0 Income tax (benefit) expense in the accompanying consolidated and combined statements of operations consist of the following: Years Ended December 31, 2024 2023 2022 Current: Federal $ ( 2.3 ) $ 16.5 $ 14.7 State 0.2 ( 0.1 ) 8.2 Foreign 37.7 23.9 31.4 $ 35.6 $ 40.3 $ 54.3 Deferred: Federal $ ( 26.1 ) $ ( 37.4 ) $ ( 5.6 ) State — ( 3.5 ) ( 5.1 ) Foreign ( 13.0 ) 1.8 ( 2.5 ) ( 39.1 ) ( 39.1 ) ( 13.2 ) Total income tax (benefit) expense $ ( 3.5 ) $ 1.2 $ 41.1 103 Table of Contents FORTREA HOLDINGS INC NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (in millions, except per share data) The effective tax rates on earnings before income taxes are reconciled to statutory U.S. income tax rates as follows: Years Ended December 31, 2024 2023 2022 Statutory U.S. rate 21.0 % 21.0 % 21.0 % State and local income taxes, net of U.S. Federal income tax effect 5.0 12.1 0.8 Foreign earnings taxed at rates different than the statutory U.S. rate ( 1.2 ) ( 12.6 ) 0.9 Permanent non-deductible items ( 0.1 ) ( 1.2 ) ( 1.7 ) Changes in valuation allowance ( 18.7 ) 0.2 — Employee benefits ( 2.2 ) ( 5.4 ) ( 1.1 ) Changes in enacted tax rates — — 0.4 Net tax on U.S. international income inclusions ( 1.2 ) ( 7.1 ) 1.6 Change in uncertain tax positions — ( 1.0 ) 0.2 R&D credit 0.8 8.6 ( 1.2 ) Withholding tax ( 1.1 ) ( 4.9 ) 0.9 BEAT — ( 13.3 ) — Adjustment to previously capitalized expenses ( 2.2 ) — — Other 1.2 ( 0.2 ) 0.2 Effective rate 1.3 % ( 3.8 %) 22.0 % 104 Table of Contents FORTREA HOLDINGS INC NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (in millions, except per share data) The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are as follows: December 31, 2024 December 31, 2023 Deferred tax assets: Employee compensation and benefits $ 10.4 $ 12.5 Operating lease liability 5.6 7.8 Acquisition and restructuring reserves 8.4 0.9 Interest expense carryforward 42.9 14.4 Capitalized R&D costs 22.7 24.5 Loss and credit carryforwards, net 7.3 8.3 Other — 2.2 Total gross deferred tax assets 97.3 70.6 Less: valuation allowance ( 28.5 ) ( 3.0 ) Deferred tax assets, net of valuation allowance $ 68.8 $ 67.6 Deferred tax liabilities: Right-of-use asset $ ( 4.1 ) $ ( 6.6 ) Revenue recognition ( 8.6 ) ( 6.2 ) Intangible assets ( 155.1 ) ( 187.5 ) Property, plant and equipment ( 5.9 ) ( 11.8 ) Other accruals ( 11.6 ) — Total gross deferred tax liabilities ( 185.3 ) ( 212.1 ) Net deferred tax liabilities $ ( 116.5 ) $ ( 144.5 ) Management assesses the available positive and negative evidence to estimate whether sufficient future taxable income will be generated to permit use of the existing deferred tax assets (“DTAs”). We have determined that the reversal of future taxable temporary differences corresponding to our deferred tax liabilities (“DTLs”) will not provide a sufficient source of income for realization of all our DTAs. Based on this evaluation, as of December 31, 2024, a valuation allowance of $ 25.3 has been recorded against the DTA related to Sec. 163(j) interest expense carryforward DTA. The Company will continue to monitor this situation and record a valuation allowance for the portion of its DTAs that are not expected to be realized based on the available sources of income. The change in valuation allowance related to the Sec. 163(j) DTA is recorded as tax expense in continuing operations of $ 43.5 and a tax benefit in discontinued operations of $ 18.2 . The Company has no U.S. Federal Net Operating Loss (“NOL”) carryforwards and a gross State NOL carryforward of $ 1,242.8 with $ 1,007.3 expiring between 2025 and 2044 and $ 235.5 having an indefinite carryforward. As of December 31, 2024, the Company has recorded a full valuation allowance of $ 3.2 against the DTA for these state NOLs. The Company has gross foreign net operating losses of $ 11.6 , all of which are expected to be fully realized as they either expire between 2029 and 2044 or carryforward indefinitely. 105 Table of Contents FORTREA HOLDINGS INC NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (in millions, except per share data) The following table shows a reconciliation of the unrecognized income tax benefits, excluding interest and penalties, from uncertain tax positions as of December 31, 2024, 2023 and 2022: 2024 2023 2022 Balance as of January 1 $ 0.3 $ 1.4 $ 2.1 Decreases related to positions taken on prior year items ( 0.1 ) ( 1.4 ) — Increases related to positions taken on prior year items — — 2.0 Increases related to positions taken on current year items 0.2 0.3 0.2 Settlement of uncertain tax positions with tax authorities — — ( 3.1 ) Exchange (gain) loss — — 0.2 Balance as of December 31 $ 0.4 $ 0.3 $ 1.4 It is anticipated that there will be no significant changes to the unrecognized income tax benefits within the next 12 months and therefore no significant impact on the financial position, results of operations or cash flows of the Company is expected. The Company recognizes interest and penalties related to unrecognized income tax benefits in income tax expense. Accrued interest and penalties related to uncertain tax positions are immaterial to the financial statements for December 31, 2024, 2023 and 2022, respectively. During the years ended December 31, 2024 and 2023, the Company did not recognize any interest and penalties expense while recognizing a tax benefit of $ 2.2 for the year ended December 31, 2022. As of December 31, 2024, 2023 and 2022, there are $ 0.4 , $ 0.3 and $ 1.4 , respectively, of tax benefits, including interest and penalties, that, if recognized would favorably affect the effective income tax rate. The operations of the Company are subject to income tax examination by taxing authorities in the jurisdictions where Labcorp filed income tax returns previously and jurisdictions where the Company will continue to file tax returns going forward. The Company has substantially concluded all U.S. federal income tax matters for years through 2018, while it filed as part of the Labcorp consolidated group, and it is currently under IRS examination for tax years 2019 to 2022. The Company has filed its first U.S. federal tax return for 2023 as a separate taxpayer and therefore that is the only year open to examination. The Company has substantially concluded all material separate state and local and foreign income tax matters through 2018 and 2017, respectively. The Company has filed its own state and foreign tax returns for 2023 and is subject to examination for that year in all respective jurisdictions. The Company has recognized a deferred tax liability for withholding taxes associated with certain intercompany notes related to the Separation. The Company has also accrued applicable withholding taxes of $ 3.0 on its 2024 foreign earnings as these earnings are not permanently reinvested in our foreign subsidiaries. As of December 31, 2024, 2023 and 2022, the Company has unremitted earnings and profits of $ 1,449.8 , $ 1,449.8 and $ 1,572.7 , respectively, that are permanently reinvested in its foreign subsidiaries. A determination of the amount of the unrecognized deferred tax liability related to these undistributed earnings is not practicable due to the complexity and variety of assumptions necessary based on the manner in which the undistributed earnings would be repatriated. 15. STOCK COMPENSATION PLANS Stock Incentive Plans Prior to the Separation, certain Company employees were covered by the Former Parent-sponsored stock compensation arrangements. The stock compensation expense for the periods 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 (the “Labcorp Plan”). 106 Table of Contents FORTREA HOLDINGS INC NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (in millions, except per share data) 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, restricted stock units, 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 restricted stock units and 0.1 shares of Fortrea performance shares. Additionally, during the remainder of 2023 and in 2024, the Company granted awards under the Plans, as indicated below. As of December 31, 2024, there are 11.0 shares authorized for issuance and 6.2 shares available for grant under Fortrea’s Omnibus Incentive Plan, and 1.8 shares authorized for issuance and available for grant under the Employee Stock Purchase Plan. The Company measures stock compensation cost for all equity awards at fair value on the date of grant and recognizes compensation expense over the service period for awards expected to vest. The fair value of restricted stock units (“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 share awards is based on a Monte Carlo simulated fair value for the relative (as compared to the peer companies) total stockholder 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. Forfeitures are recognized as a reduction of compensation expense in earnings in the period in which they occur. 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. No stock options were issued in 2024. Number of Options Weighted-Average Exercise Price per Option Weighted-Average Remaining Contractual Term Aggregate Intrinsic Value Outstanding at December 31, 2023 0.8 $ 26.52 Granted — — Exercised — — Cancelled — — Outstanding at December 31, 2024 0.8 $ 26.52 8.6 years $ — Exercisable at December 31, 2024 0.3 $ 26.52 8.6 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 December 31, 2024. 107 Table of Contents FORTREA HOLDINGS INC NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (in millions, except per share data) 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 issued in 2023 (no options were issued in 2024) and the weighted average assumptions that the Company used to develop the fair value estimates: Year Ended December 31, 2023 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. The Company grants performance 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 stockholder 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 following table shows a summary of RSU and performance share award activity for the year ended December 31, 2024: Number of Shares Weighted-Average Grant Date Fair Value Restricted Stock Units Performance Shares Restricted Stock Units Performance Shares Outstanding at December 31, 2023 3.6 0.1 $ 28.24 $ 43.78 Granted 1.1 0.1 37.57 43.68 Vested ( 1.1 ) ( 0.1 ) 33.17 48.89 Forfeited ( 0.4 ) — 33.07 — Outstanding at December 31, 2024 3.2 0.1 $ 29.10 $ 41.55 As of December 31, 2024, there was $ 67.7 of total unrecognized compensation cost related to non-vested restricted stock, restricted stock unit and performance share-based compensation arrangements granted under the Plans. That cost is expected to be recognized over a weighted average period of 1.3 years and will be included in direct costs and selling, general and administrative expenses. 108 Table of Contents FORTREA HOLDINGS INC NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (in millions, except per share data) All Stock Awards Total stock-based compensation expense and the associated income tax benefits recognized by the Company in the consolidated and combined statements of operations was as follows: Years Ended December 31, 2024 2023 2022 Direct costs $ 43.8 $ 24.4 $ 13.8 Selling, general and administrative 13.4 15.9 10.2 Stock compensation expense $ 57.2 $ 40.3 $ 24.0 Income tax benefits $ 9.1 $ 7.1 $ 5.7 Of the total stock-based compensation expense recognized by the Company for the years ended December 31, 2024, 2023 and 2022, $ 57.2 , $ 37.8 and $ 18.9 , respectively, related directly to Company employees and $ 0.0 , $ 2.5 and $ 5.1 , respectively, related to allocations of Labcorp’s corporate and shared employee stock compensation expenses. 16. 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 outcomes of such proceedings are inherently unpredictable and subject to significant uncertainties. When the Company determines that it has a meritorious defense to any claims asserted, the Company defends itself vigorously; however the Company also considers and enters into discussions regarding settlement of disputes, and may enter into settlement agreements, if in management’s judgment, it is in the best interest of the Company to do so. For the year ended December 31, 2024, the Company recorded legal expenses of $ 2.2 related to the settlement of legal matters initiated prior to the spin. The Company does not believe that any liabilities resulting from claims and legal actions will have a material effect on its financial condition, results of operations or cash flows. 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 made concessions and provided discounts and other consideration to the customer in the amount of $ 12.5 as part of a multi-party solution to facilitate the trials, of which $ 3.8 and $ 8.7 was recorded as a reduction of revenue for the years ended December 31, 2024 and 2023, respectively. 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. 109 Table of Contents FORTREA HOLDINGS INC NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (in millions, except per share data) 17. 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 December 31, 2024 and December 31, 2023. Accumulated Other Comprehensive Loss The components of accumulated other comprehensive loss are as follows: Foreign Currency Translation Adjustments Net Benefit Plan Adjustments Unrealized Gain (Loss) on Derivative Instruments Accumulated Other Comprehensive Loss Balance at December 31, 2022 $ ( 266.0 ) $ ( 8.8 ) $ — $ ( 274.8 ) Current year foreign exchange adjustments 59.3 — — 59.3 Current year benefit plan adjustments — ( 0.9 ) — ( 0.9 ) Unrealized loss on derivative instruments — — ( 1.5 ) ( 1.5 ) Amounts reclassified from accumulated other comprehensive loss — — ( 0.4 ) ( 0.4 ) Tax effect of adjustments — 0.2 0.5 0.7 Transfers from Former Parent — 2.1 — 2.1 Balance at December 31, 2023 $ ( 206.7 ) $ ( 7.4 ) $ ( 1.4 ) $ ( 215.5 ) Current year foreign exchange adjustments ( 69.3 ) — — ( 69.3 ) Current year benefit plan adjustments — 1.1 — 1.1 Unrealized gain on derivative instruments — — 2.9 2.9 Amounts reclassified from accumulated other comprehensive loss — — ( 1.5 ) ( 1.5 ) Tax effect of adjustments — ( 0.2 ) ( 0.4 ) ( 0.6 ) Balance at December 31, 2024 $ ( 276.0 ) $ ( 6.5 ) $ ( 0.4 ) $ ( 282.9 ) 18. PENSION AND POSTRETIREMENT PLANS Defined Contribution Retirement Plans The Company has various U.S. defined contribution retirement plans (401K Plans). Under these 401K Plans, employees can contribute a portion of their salary to the plan and the Company makes minimum non-elective contributions and matching contributions, depending on the terms of the specific plan. On January 1, 2021, all of the 401K Plans were modified to provide for 100 % match of employee contributions up to 5 % of their salary. In addition to the U.S. 401K plans, there are other defined contribution plans outside of the U.S., primarily in the UK, EU and Asia-Pacific regions. Total expense for all defined contribution plans for the years ended December 31, 2024, 2023 and 2022 was $ 51.4 , $ 53.0 and $ 50.5 respectively. Defined Benefit Pension Plans Company employees participate in a funded defined benefit pension plan in the United Kingdom (the “UK Plan”). The UK Plan provides benefits based on various criteria such as years of service and salary, and is closed to new entrants and the accrual of service credits is as of December 31, 2020. 110 Table of Contents FORTREA HOLDINGS INC NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (in millions, except per share data) Net Periodic Benefit Costs The components of the net periodic benefit costs for the defined benefit pension plans are as follows: Years Ended December 31, 2024 2023 2022 Service cost for benefits earned $ 0.2 $ 0.2 $ 0.2 Interest cost on benefit obligation 1.7 1.6 1.0 Expected return on plan assets ( 1.8 ) ( 1.7 ) ( 2.2 ) Net amortization and deferral 0.2 0.2 0.1 Defined-benefit plan costs $ 0.3 $ 0.3 $ ( 0.9 ) Service costs are the only component of net periodic benefit costs recorded within operating income. The amounts recognized in accumulated other comprehensive loss are as follows: Years Ended December 31, 2024 2023 2022 Net actuarial gain (loss) in accumulated other comprehensive loss $ 0.9 $ ( 1.0 ) $ ( 0.6 ) Change in Projected Benefit Obligation The change in the accumulated benefit obligation as of December 31, 2024 and December 31, 2023, is as follows: 2024 2023 Balance at beginning of the year $ 37.6 $ 32.7 Service cost 0.2 0.2 Interest cost 1.7 1.6 Actuarial (gain) loss ( 6.2 ) 1.9 Benefits and administrative expenses paid ( 1.0 ) ( 0.7 ) Foreign currency exchange rate changes ( 0.5 ) 1.9 Balance at end of the year $ 31.8 $ 37.6 Change in Fair Value of Plan Assets The change in plan assets as of December 31, 2024 and December 31, 2023, is as follows: 2024 2023 Balances at beginning of the year $ 36.4 $ 30.7 Business contributions 2.0 2.3 Actual return on plan assets ( 3.9 ) 2.4 Benefits and administrative expenses paid ( 1.0 ) ( 0.7 ) Foreign currency exchange rate changes ( 0.6 ) 1.7 Fair value of plan assets at end of year $ 32.9 $ 36.4 111 Table of Contents FORTREA HOLDINGS INC NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (in millions, except per share data) Change in Funded Status and Reconciliation of Amounts Recorded in the Balance Sheet The change in the funded status of the plan and a reconciliation of such funded status to the amounts reported in the balance sheet as of December 31, 2024 and December 31, 2023, is as follows: 2024 2023 Funded status $ 1.1 $ ( 1.2 ) Recorded as: Other assets $ 1.1 $ — Other liabilities — ( 1.2 ) Assumptions Weighted average assumptions used to determine net periodic benefit costs are as follows: Years Ended December 31, 2024 2023 2022 Discount rate 4.5 % 4.9 % 1.9 % Salary increases N/A N/A N/A Expected long term rate of return 4.8 % 5.5 % 4.0 % Cash balance interest credit rate N/A N/A N/A A one percentage point decrease or increase in the discount rate would have resulted in no respective increase or decrease in 2024 retirement plan expense. Weighted average assumptions used to determine net periodic benefit obligations are as follows: Years Ended December 31, 2024 2023 Discount rate 5.5 % 4.5 % Salary increases N/A N/A The discount rate is determined using the weighted-average yields on high-quality fixed income securities that have maturities consistent with the timing of benefit payments. Lower discount rates increase the size of the benefit obligation and generally increase pension expense in the following year; higher discount rates reduce the size of the benefit obligation and generally reduce subsequent-year pension expense. The expected return on plan assets is the estimated long-term rate of return that will be earned on the investments used to fund the pension obligations. To determine this rate, the Company considers the composition of plan investments, historical returns earned, and expectations about the future. Actual asset over or under performance compared to expected returns will respectively decrease or increase unrecognized loss. The change in the unrecognized loss will change amortization cost in upcoming periods. A one percentage point increase or decrease in the expected return on plan assets would have resulted in a corresponding change in pension expense of $ 0.4 in 2024. The Company evaluates other assumptions periodically, such as retirement age, mortality and turnover, and updates them as necessary to reflect the Company's actual experience and expectations for the future. Differences between actual results and assumptions utilized are recorded in accumulated other comprehensive loss each period. These differences are amortized into earnings over the remaining average future service of active participating employees or the expected life of inactive participants, as applicable. 112 Table of Contents FORTREA HOLDINGS INC NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (in millions, except per share data) Plan Assets The fair values of the assets at December 31, 2024 by asset category are as follows: Asset Category Level of Valuation Input Fair Value Investments valued using NAV per share Total 2024 Cash and cash equivalents Level 1 $ 0.9 $ — $ 0.9 Annuities Level 3 9.1 — 9.1 Pooled investment funds — 22.9 22.9 Total fair value $ 10.0 $ 22.9 $ 32.9 The fair values of the assets at December 31, 2023, by asset category is as follows: Asset Category Level of Valuation Input Fair Value Investments valued using NAV per share Total 2023 Cash and cash equivalents Level 1 $ 0.3 $ — $ 0.3 Annuities Level 3 10.7 — 10.7 Pooled investment funds — 25.4 25.4 Total fair value $ 11.0 $ 25.4 $ 36.4 The fair market value of index funds and pooled investment funds are valued using the net asset value (NAV) unit price provided by the fund administrator. The NAV is based on the value of the underlying assets owned by the fund. The fair value of annuity investments is based on discounted cash flow techniques using unobservable valuation inputs such as discount rates and actuarial mortality tables. Fair Value Measurement of Level 3 Pension Assets Annuities Balance at December 31, 2022 $ 10.0 Actual return on plan assets 0.7 Balance at December 31, 2023 $ 10.7 Actual return on plan assets ( 1.6 ) Balance at December 31, 2024 $ 9.1 Investment Policies Plan fiduciaries of various plans set investment policies and strategies, based on consultation with professional advisors, and oversee investment allocation, which includes selecting investment managers and setting long-term strategic targets. The primary strategic investment objectives are balancing investment risk and return and monitoring the plan’s liquidity position in order to meet the near-term benefit payment and other cash needs. Target allocation percentages are established at an asset class level by plan fiduciaries. Target allocation ranges are guidelines, not limitations, and occasionally plan fiduciaries will approve allocations above or below a target range. 113 Table of Contents FORTREA HOLDINGS INC NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (in millions, except per share data) The weighted average asset allocation of the plan assets by asset category is as follows: December 31, 2024 Equity securities 7.3 % Debt securities 62.2 % Annuities 27.8 % Real estate — % Other 2.7 % The weighted average target asset allocation of the plan assets is as follows: December 31, 2024 Equity securities 5.0 % to 15.0 % Debt securities 55.0 % to 65.0 % Annuities 25.0 % to 35.0 % Real estate — % to 10.0 % Other — % to 5.0 % Pension Funding and Cash Flows The Company expects to make approximately $ 1.9 in required contributions to its defined benefit pension plans during 2025. The Company targets funding the minimum required contributions but may make additional contributions into the pension plans in 2025, depending upon factors such as how the funded status of those plans change or to reduce the administrative costs of the plan. The estimated benefit payments, which were used in the calculation of projected benefit obligations, are expected to be paid as follows: 2025 $ 1.2 2026 1.3 2027 1.7 2028 1.6 2029 1.6 Years 2030 to 2034 $ 10.0 19. TRANSACTIONS WITH FORMER PARENT Prior to the Separation on June 30, 2023, the consolidated and combined financial statements were prepared on a standalone basis and were derived from the 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 combined financial statements in 2023 and 2022. 114 Table of Contents FORTREA HOLDINGS INC NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (in millions, except per share data) Allocation of General Corporate and Other Expenses Prior to the Separation, the Company’s 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 combined financial statements on a carve-out basis, a portion of Labcorp’s total corporate expenses were allocated to the Company. See Note 2, “Summary of Significant Accounting Policies” 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: Years Ended December 31, 2023 2022 Direct costs $ 86.6 $ 166.6 Selling, general and administrative expenses 105.0 207.9 Restructuring and other charges 0.2 0.7 Foreign exchange gain (loss) 2.2 6.8 Total corporate and other allocations $ 194.0 $ 382.0 Included in the aforementioned amounts are $ 147.6 and $ 286.8 related to costs for certain centralized functions and programs provided and administered by Labcorp that were charged directly to the Company for the years ended December 31, 2023 and 2022, respectively. In addition, a portion of Labcorp’s total corporate expenses were allocated to the Company for services from Labcorp. These costs were $ 46.4 and $ 95.2 for the years ended December 31, 2023 and 2022, 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 $ 48.8 and $ 87.1 in 2023 and 2022, respectively. 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 combined statements of operations as part of corporate allocations. Refer to Note 12, “Derivative Instruments and Hedging Activities” for information regarding derivative contracts entered into after Separation. 115 Table of Contents FORTREA HOLDINGS INC NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (in millions, except per share data) Net Transfers To and From Labcorp Net transfers to and from Labcorp are included within Former Parent company investment on the consolidated and combined statements of changes in equity. The components of the transfers to and from Labcorp were as follows: Years Ended December 31, 2023 2022 Special Payment to Former Parent $ ( 1,595.0 ) $ — General financing activities ( 286.8 ) ( 362.9 ) Corporate allocations 184.9 356.6 Stock compensation expense 10.2 25.4 Total net transfers (to) from Former Parent $ ( 1,686.7 ) $ 19.1 20. SUPPLEMENTAL CASH FLOW INFORMATION Years Ended December 31, 2024 2023 2022 Supplemental schedule of cash flow information: Cash paid during period for: Interest $ 109.6 $ 45.1 $ 0.4 Income taxes, net of refunds 53.7 18.0 27.0 Disclosure of non-cash investing activities: Change in accrued property, plant and equipment ( 0.5 ) ( 1.3 ) 1.8 Fair value of contingent consideration related to the sale of assets 39.6 — — Disclosure of non-cash transfers to (from) Former Parent: Change in right-of-use lease assets — 13.9 — Change in property, plant and equipment net — ( 27.7 ) — 21. BUSINESS SEGMENT INFORMATION The following table is a summary of segment information for the years ended December 31, 2024, 2023 and 2022. The segment information is based upon the way the management of the Company organizes segments within an enterprise for making operating decisions and assessing performance. Financial information is reported on the basis that it is used internally by the chief operating decision maker (“CODM”) for evaluating segment performance and deciding how to allocate resources to segments. The Fortrea Chief Executive Officer has been identified as the CODM. The CODM allocates resources and assesses performance based on the underlying businesses which determines the Company's operating segments. When determining the reportable segments, the Company aggregated operating segments based on their similar economic and operating characteristics. Subsequent to the sale of the Enabling Services Segment in 2024, the Company reports its business in one reportable segment: Clinical Services, which provides phase I-IV clinical trials, including clinical pharmacology and comprehensive clinical development capabilities. The measure of segment profit or loss that the CODM uses to evaluates performance and allocate resources is segment operating income. The CODM uses segment operating income to monitor budget versus actual results and to make decisions about resources to be allocated to the segment and assess its performance. In accordance with ASU 2023-07, Improvements to Reportable Segment Disclosures, significant expenses included within segment operating income have been assessed and disclosed in the table below. Segment asset information is not presented because it is not used by the CODM at the segment level. 116 Table of Contents FORTREA HOLDINGS INC NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (in millions, except per share data) Through the Spin, the combined statements of operations included costs for certain centralized functions and programs provided and administered by Labcorp that were charged directly to the Company. These centralized functions and programs included, but were not limited to legal, tax, treasury, risk management, sales expenses, information technology, human resources, finance, supply chain, executive leadership and stock-based compensation. These additional allocations are reported as “Corporate costs not included in segment operating income” in the table below. After the Separation, corporate costs not included in the segment operating income measure provided to the CODM are included within “Corporate costs not included in segment operating income.” Segment operating income for the years ended December 31, 2024, 2023 and 2022 is reconciled to income (loss) from continuing operations before income taxes as follows: Years Ended December 31, 2024 2023 2022 Revenues $ 2,696.4 $ 2,842.5 $ 2,837.0 Less: Pass through costs 939.4 976.4 745.3 Direct costs 1,221.7 1,275.4 1,344.8 Selling, general and administrative expenses 415.8 392.3 342.0 Depreciation 24.5 28.6 23.0 Segment operating income 95.0 169.8 381.9 Corporate costs not included in segment operating income 146.0 55.9 96.6 Amortization 60.8 60.7 62.5 Goodwill and other asset impairments — — 9.8 Restructuring and other charges 50.1 21.2 25.9 Operating income (loss) ( 161.9 ) 32.0 187.1 Interest expense ( 123.8 ) ( 69.7 ) ( 0.2 ) Foreign exchange gain (loss) ( 10.6 ) 0.3 ( 2.0 ) Other, net 21.3 6.9 2.1 Income (loss) from continuing operations before income taxes $ ( 275.0 ) $ ( 30.5 ) $ 187.0 22. IMMATERIAL FINANCIAL RESTATEMENT AND RECLASSIFICATIONS TO PRIOR PERIOD FINANCIAL STATEMENTS As discussed in Note 2, “Summary of Significant Accounting Policies” 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, are provided below. 117 Table of Contents FORTREA HOLDINGS INC NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (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 $ — $ 4,332.6 118 Table of Contents FORTREA HOLDINGS INC NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (in millions, except per share data) CONSOLIDATED AND COMBINED STATEMENT OF OPERATIONS Year Ended December 31, 2023 As Previously Reported Adjustments As Restated Discontinued Operations Reclassifications Change in Basis of Presentation As Restated and Reclassified Revenues $ 3,109.0 $ ( 3.2 ) $ 3,105.8 $ ( 263.3 ) $ — $ 2,842.5 Costs and expenses: $ — Direct costs, exclusive of depreciation and amortization 2,588.6 0.9 2,589.5 ( 176.8 ) ( 160.8 ) 2,251.9 Selling, general and administrative expenses, exclusive of depreciation and amortization 336.6 3.6 340.2 ( 52.9 ) 160.8 448.1 Depreciation and amortization 96.4 1.6 98.0 ( 8.7 ) — 89.3 Goodwill and other asset impairments — 13.4 13.4 ( 13.4 ) — — Restructuring and other charges 24.3 — 24.3 ( 3.1 ) — 21.2 Total costs and expenses 3,045.9 19.5 3,065.4 ( 254.9 ) — 2,810.5 Operating income 63.1 ( 22.7 ) 40.4 ( 8.4 ) — 32.0 Other income (expense): — Interest expense ( 69.8 ) — ( 69.8 ) — 0.1 ( 69.7 ) Foreign exchange gain (loss) 0.9 ( 0.8 ) 0.1 0.2 — 0.3 Other, net 6.9 — 6.9 0.1 ( 0.1 ) 6.9 Income (loss) from continuing operations before income taxes 1.1 ( 23.5 ) ( 22.4 ) ( 8.1 ) — ( 30.5 ) Provision for income taxes 4.5 ( 1.7 ) 2.8 ( 1.6 ) — 1.2 Loss from continuing operations $ ( 3.4 ) $ ( 21.8 ) $ ( 25.2 ) $ ( 6.5 ) $ — $ ( 31.7 ) Earnings per common share Basic - continuing operations $ ( 0.04 ) $ ( 0.29 ) $ ( 0.36 ) Basic - discontinuing operations $ — $ — $ 0.07 Basic $ ( 0.04 ) $ ( 0.29 ) $ ( 0.29 ) Diluted - continuing operations $ ( 0.04 ) $ ( 0.29 ) $ ( 0.36 ) Diluted - discontinuing operations $ — $ — $ 0.07 Diluted $ ( 0.04 ) $ ( 0.29 ) $ ( 0.29 ) 119 Table of Contents FORTREA HOLDINGS INC NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (in millions, except per share data) COMBINED STATEMENT OF OPERATIONS Year-Ended December 31, 2022 As Previously Reported Adjustments As Restated Discontinued Operations Reclassifications Change in Basis of Presentation As Restated and Reclassified Revenues $ 3,096.1 $ — $ 3,096.1 $ ( 259.1 ) $ — $ 2,837.0 Costs and expenses: Direct costs, exclusive of depreciation and amortization 2,447.4 5.0 2,452.4 ( 155.5 ) ( 184.3 ) 2,112.6 Selling, general and administrative expenses, exclusive of depreciation and amortization 279.8 2.2 282.0 ( 50.2 ) 184.3 416.1 Depreciation and amortization 92.7 0.9 93.6 ( 8.1 ) — 85.5 Goodwill and other asset impairments 9.8 — 9.8 — — 9.8 Restructuring and other charges 30.5 — 30.5 ( 4.6 ) — 25.9 Total costs and expenses 2,860.2 8.1 2,868.3 ( 218.4 ) — 2,649.9 Operating income 235.9 ( 8.1 ) 227.8 ( 40.7 ) — 187.1 Other income (expense): 0.0 Interest expense ( 0.2 ) — ( 0.2 ) — — ( 0.2 ) Foreign exchange gain (loss) ( 0.9 ) ( 0.7 ) ( 1.6 ) ( 0.4 ) — ( 2.0 ) Other, net 2.2 — 2.2 ( 0.1 ) — 2.1 Income (loss) from continuing operations before income taxes 237.0 ( 8.8 ) 228.2 ( 41.2 ) — 187.0 Provision for income taxes 44.1 ( 2.1 ) 42.0 ( 0.9 ) — 41.1 Income from continuing operations $ 192.9 $ ( 6.7 ) $ 186.2 $ ( 40.3 ) $ — $ 145.9 Earnings per common share Basic - continuing operations $ 2.17 $ 2.09 $ 1.64 Basic - discontinued operations $ — $ — $ 0.45 Basic $ 2.17 $ 2.09 $ 2.09 Diluted - continuing operations $ 2.17 $ 2.09 $ 1.64 Diluted - discontinued operations $ — $ — $ 0.45 Diluted $ 2.17 $ 2.09 $ 2.09 120 Table of Contents FORTREA HOLDINGS INC NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (in millions, except per share data) CONSOLIDATED AND COMBINED STATEMENT OF COMPREHENSIVE INCOME (LOSS) Year Ended December 31, 2023 As Previously Reported Adjustments As Restated Net loss $ ( 3.4 ) $ ( 21.8 ) $ ( 25.2 ) Foreign currency translation adjustments 57.6 1.7 59.3 Net benefit plan adjustments 1.2 — 1.2 Unrealized gain (loss) on derivative instruments ( 1.9 ) — ( 1.9 ) Other comprehensive earnings (loss) before tax 56.9 1.7 58.6 Provision (benefit) for income tax related to items of comprehensive Income 0.7 — 0.7 Other comprehensive income (loss), net of tax 57.6 1.7 59.3 Comprehensive income $ 54.2 $ ( 20.1 ) $ 34.1 COMBINED STATEMENT OF COMPREHENSIVE INCOME (LOSS) Year Ended December 31, 2022 As Previously Reported Adjustments As Restated Net income $ 192.9 $ ( 6.7 ) $ 186.2 Foreign currency translation adjustments ( 127.0 ) 0.9 ( 126.1 ) Net benefit plan adjustments ( 0.6 ) — ( 0.6 ) Other comprehensive earnings (loss) before tax ( 127.6 ) 0.9 ( 126.7 ) Provision (benefit) for income tax related to items of comprehensive Income — — — Other comprehensive income (loss), net of tax ( 127.6 ) 0.9 ( 126.7 ) Comprehensive income $ 65.3 ( 5.8 ) 59.5 121 Table of Contents FORTREA HOLDINGS INC NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (in millions, except per share data) 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 (loss) — — — 45.7 ( 49.1 ) — ( 3.4 ) Other comprehensive income, net of tax — — — — — 57.6 57.6 Special payment to Former Parent — — — ( 1,595.0 ) — — ( 1,595.0 ) Net transfers to Former Parent — — — ( 89.7 ) — — ( 89.7 ) Reclassification of Former Parent investment to additional paid-in capital — — 1,979.6 ( 1,979.6 ) — — — Issuance of common stock 88.8 0.1 — — — — 0.1 Stock compensation — — 26.6 — — — 26.6 Balance at December 31, 2023 88.8 $ 0.1 $ 2,006.2 $ — $ ( 49.1 ) $ ( 218.4 ) $ 1,738.8 Adjustments Balance at December 31, 2022 — — — ( 3.8 ) — 1.2 ( 2.6 ) Net income (loss) — — — ( 2.4 ) ( 19.4 ) — ( 21.8 ) Other comprehensive income, net of tax — — — — — 1.7 1.7 Net transfers to Former Parent — — — ( 2.0 ) — — ( 2.0 ) Reclassification of Former Parent investment to additional paid-in capital — — ( 8.2 ) 8.2 — — — Balance at December 31, 2023 — $ — $ ( 8.2 ) $ — $ ( 19.4 ) $ 2.9 $ ( 24.7 ) As Restated Balance at December 31, 2022 — — — 3,614.8 — ( 274.8 ) 3,340.0 Net income (loss) — — — 43.3 ( 68.5 ) — ( 25.2 ) Other comprehensive income, net of tax — — — — — 59.3 59.3 Special payment to Former Parent — — — ( 1,595.0 ) — — ( 1,595.0 ) Net transfers to Former Parent — — — ( 91.7 ) — — ( 91.7 ) 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 Stock compensation — — 26.6 — — — 26.6 Balance at December 31, 2023 88.8 $ 0.1 $ 1,998.0 $ — $ ( 68.5 ) $ ( 215.5 ) $ 1,714.1 122 Table of Contents FORTREA HOLDINGS INC NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (in millions, except per share data) 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, 2021 — $ — $ — $ 3,409.0 $ — $ ( 148.4 ) $ 3,260.6 Net income — — — 192.9 — — 192.9 Other comprehensive loss, net of tax — — — — — ( 127.6 ) ( 127.6 ) Net transfers from Former Parent — — — 16.7 — — 16.7 Balance at December 31, 2022 — — — 3,618.6 — ( 276.0 ) 3,342.6 Adjustments Balance at December 31, 2021 — — — 0.5 — 0.3 0.8 Net income — — — ( 6.7 ) — — ( 6.7 ) Other comprehensive loss, net of tax — — — — — 0.9 0.9 Net transfers from Former Parent — — — 2.4 — — 2.4 Balance at December 31, 2022 — — — ( 3.8 ) — 1.2 ( 2.6 ) As Restated Balance at December 31, 2021 — — — 3,409.5 — ( 148.1 ) 3,261.4 Net income — — — 186.2 — — 186.2 Other comprehensive loss, net of tax — — — — — ( 126.7 ) ( 126.7 ) Net transfers from Former Parent — — — 19.1 — — 19.1 Balance at December 31, 2022 — $ — $ — $ 3,614.8 $ — $ ( 274.8 ) $ 3,340.0 123 Table of Contents FORTREA HOLDINGS INC NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (in millions, except per share data) CONSOLIDATED AND COMBINED STATEMENT OF CASH FLOWS Year Ended December 31, 2023 As Previously Reported Adjustments As Restated CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ ( 3.4 ) $ ( 21.8 ) $ ( 25.2 ) Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 96.4 1.6 98.0 Stock compensation 42.7 — 42.7 Operating lease right-of-use asset expense 27.4 — 27.4 Goodwill and other asset impairments — 13.4 13.4 Deferred income taxes ( 40.5 ) ( 1.1 ) ( 41.6 ) Other, net ( 1.0 ) — ( 1.0 ) Change in assets and liabilities (net of effects of acquisitions): Increase in accounts receivable and unbilled services, net ( 28.8 ) 3.2 ( 25.6 ) Increase in prepaid expenses and other ( 2.0 ) ( 1.4 ) ( 3.4 ) Increase in accounts payable 51.1 4.2 55.3 Decrease in deferred revenue ( 3.4 ) 1.2 ( 2.2 ) Increase in accrued expenses and other 28.9 1.7 30.6 Net cash provided by operating activities 167.4 1.0 168.4 CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures ( 40.3 ) — ( 40.3 ) Proceeds from sale of assets 8.5 — 8.5 Net cash used for investing activities ( 31.8 ) — ( 31.8 ) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from revolving credit facilities 164.0 — 164.0 Payments on revolving credit facilities ( 164.0 ) — ( 164.0 ) 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 ( 15.4 ) — ( 15.4 ) Special payment to Former Parent ( 1,595.0 ) — ( 1,595.0 ) Net transfers to Former Parent ( 133.6 ) ( 1.8 ) ( 135.4 ) Net cash provided by financing activities ( 139.0 ) ( 1.8 ) ( 140.8 ) Effect of exchange rate changes on cash and cash equivalents — 2.4 2.4 Net change in cash and cash equivalents ( 3.4 ) 1.6 ( 1.8 ) Cash and cash equivalents at beginning of period 112.0 ( 1.6 ) 110.4 Cash and cash equivalents at end of period $ 108.6 $ — $ 108.6 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. 124 Table of Contents FORTREA HOLDINGS INC NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (in millions, except per share data) COMBINED STATEMENT OF CASH FLOWS Year Ended December 31, 2022 As Previously Reported Adjustments As Restated CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 192.9 $ ( 6.7 ) $ 186.2 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 92.7 0.9 93.6 Stock compensation 25.4 — 25.4 Operating lease right-of-use asset expense 24.9 — 24.9 Goodwill and other asset impairments 9.8 — 9.8 Deferred income taxes ( 16.5 ) — ( 16.5 ) Other, net 4.1 — 4.1 Change in assets and liabilities (net of effects of acquisitions): Increase in accounts receivable and unbilled services, net ( 105.0 ) — ( 105.0 ) (Increase) decrease in prepaid expenses and other ( 12.2 ) 3.1 ( 9.1 ) Increase (decrease) in accounts payable 22.4 2.4 24.8 Increase (decrease) in deferred revenue ( 32.5 ) 2.4 ( 30.1 ) Increase (decrease) in accrued expenses and other ( 118.5 ) ( 6.9 ) ( 125.4 ) Net cash (used for) provided by operating activities 87.5 ( 4.8 ) 82.7 CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures ( 54.4 ) — ( 54.4 ) Proceeds from sale of assets 0.4 — 0.4 Net cash used for investing activities ( 54.0 ) — ( 54.0 ) CASH FLOWS FROM FINANCING ACTIVITIES: Net transfers to Former Parent ( 8.7 ) 2.4 ( 6.3 ) Net cash used for financing activities ( 8.7 ) 2.4 ( 6.3 ) Effect of exchange rate changes on cash and cash equivalents ( 7.4 ) 0.8 ( 6.6 ) Net change in cash and cash equivalents 17.4 ( 1.6 ) 15.8 Cash and cash equivalents at beginning of period 94.6 — 94.6 Cash and cash equivalents at end of period $ 112.0 $ ( 1.6 ) $ 110.4 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. 23. SUBSEQUENT EVENTS Credit Agreement Amendment On February 28, 2025, the Company entered into an amendment (the “,Second Credit Amendment”) to modify a financial covenant to provide the Company with additional flexibility under the Company’s credit agreement dated as of June 30, 2023 and as amended on May 3, 2024 (the “Existing Credit Agreement”), by and among the Company, certain subsidiaries of the Company and Goldman Sachs Bank USA (as administrative agent and collateral agent), governing the Company’s existing senior credit facility. The Second Credit Amendment increased the Company’s maximum quarterly Total Leverage Ratio (as defined in the Existing Credit Agreement) from 5.30 :1.00 to 6.00 :1.00 for the fiscal quarters ending on September 30, 2025 through June 30, 2026, decreasing to 5.75 :1.00 for the fiscal quarter ending on September 30, 2026, further decreasing to 5.50 :1.00 for the fiscal quarter ending on December 31, 2026, and reverting to 5.30 :1.00 thereafter. In consideration of this adjustment, the Company paid a fee to consenting lenders and has agreed during the covenant adjustment period to certain additional limitations with respect to investments, restricted payments and liens. 125 Table of Contents ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES None.