Market Overview

LabCorp Announces 2018 Second Quarter Results and Updates 2018 Guidance

Share:
  • Q2 revenue of $2.9 billion, up 13% over $2.5 billion last year
  • Q2 diluted EPS of $2.27, up 28% from $1.78 last year; Q2 adjusted EPS
    of $2.98, up 23% over $2.43 last year
  • Q2 free cash flow of $280 million, up 16% over $241 million last year
  • 2018 adjusted EPS guidance of $11.35 to $11.65, up 23% to 26% over 2017
  • 2018 free cash flow guidance of $1.1 billion to $1.2 billion

LabCorp® (or the Company) (NYSE:LH) today announced results
for the second quarter ended June 30, 2018, and updated 2018 guidance.

"We delivered another quarter of strong growth and disciplined capital
deployment across our integrated enterprise, with double-digit increases
in revenue and adjusted EPS over last year," said David P. King,
chairman and CEO. "The Drug Development business drove continued organic
revenue growth and strong margin improvement, while winning and
expanding strategic partnerships that will contribute to future study
awards. The Diagnostics business expanded opportunities with key
partners, and achieved solid results despite the negative impact from
the implementation of PAMA. As a global leader in the expanding life
sciences industry, our differentiated offering strengthens our ability
to overcome segment-specific challenges, and create significant value
for stakeholders now and for years to come."

Effective January 1, 2018, the Company adopted the FASB-issued converged
standard on revenue recognition (ASC 606), using the full retrospective
method. Unless otherwise indicated, all financial results in 2017 and
comparisons to financial results in 2017 have been restated in this
press release as if the Company had adopted ASC 606 on January 1, 2017.

Consolidated Results

Second Quarter Results

Revenue for the quarter was $2.87 billion, an increase of 13.4% compared
to $2.53 billion in the second quarter of 2017. The increase in revenue
was due to growth from acquisitions of 10.5%, organic growth of 2.1%,
and the benefit from foreign currency translation of approximately 80
basis points.

Operating income for the quarter was $369.2 million, or 12.9% of
revenue, compared to $329.8 million, or 13.0%, in the second quarter of
2017. The increase in operating income was primarily due to
acquisitions, organic revenue growth, and the Company's LaunchPad
business process improvement initiative, partially offset by lower
Medicare pricing as a result of the implementation of PAMA and personnel
costs. The Company recorded restructuring charges, special items, and
amortization which together totaled $94.3 million in the quarter,
compared to $101.3 million during the same period in 2017. Adjusted
operating income (excluding amortization, restructuring charges, and
special items) for the quarter was $463.5 million, or 16.2% of revenue,
compared to $431.1 million, or 17.1%, in the second quarter of 2017. The
decline in adjusted operating margin was due to the implementation of
PAMA, and the mix impact from the acquisition of Chiltern.

Net earnings in the quarter were $233.8 million, compared to $184.8
million in the second quarter of 2017. Diluted EPS were $2.27 in the
quarter, an increase of 28.0% compared to $1.78 in the same period in
2017. Adjusted EPS (excluding amortization, restructuring charges and
special items) were $2.98 in the quarter, an increase of 22.6% compared
to $2.43 in the second quarter of 2017.

Operating cash flow for the quarter was $367.2 million, compared to
$310.5 million in the second quarter of 2017, due to higher cash
earnings and favorable working capital. Capital expenditures totaled
$87.2 million, compared to $69.3 million a year ago. As a result, free
cash flow (operating cash flow less capital expenditures) was $280.0
million, compared to $241.2 million in the second quarter of 2017.

At the end of the quarter, the Company's cash balance and total debt
were $221.4 million and $6.5 billion, respectively. During the quarter,
the Company invested $79.1 million in acquisitions, paid down a net of
$310.0 million of debt, and repurchased $75.0 million of stock
representing approximately 0.5 million shares. The Company had $993.5
million of authorization remaining under its share repurchase program at
the end of the quarter.

Year-To-Date Results

Revenue was $5.71 billion, an increase of 15.6% over last year's $4.94
billion. The increase in revenue was due to growth from acquisitions of
11.9%, organic growth of 2.6%, and the benefit from foreign currency
translation of approximately 110 basis points.

Operating income was $674.6 million, or 11.8% of revenue, compared to
$647.9 million, or 13.1%, in the first half of 2017. The increase in
operating income was primarily due to acquisitions, organic revenue
growth, and the Company's LaunchPad initiative, partially offset by the
implementation of PAMA and personnel costs. The Company recorded
restructuring charges, special items, and amortization which together
totaled $224.7 million in the first half of the year, compared to $159.9
million during the same period in 2017. This increase was primarily due
to higher amortization expense, and the payment of a one-time bonus to
non-bonus-eligible employees following the implementation of the Tax
Cuts and Jobs Act of 2017 (TCJA). Adjusted operating income (excluding
amortization, restructuring charges, and special items) was $899.3
million, or 15.7% of revenue, compared to $807.8 million, or 16.3%, in
the first half of 2017. The decline in adjusted operating margin was due
to the impact from the implementation of PAMA, and the mix impact from
the acquisition of Chiltern.

Net earnings in the first half of 2018 were $407.0 million, or $3.94 per
diluted share, compared to $367.8 million, or $3.54 per diluted share,
last year. Adjusted EPS (excluding amortization, restructuring and
special items) were $5.75, an increase of 25.8% compared to $4.57 in the
first half of 2017.

Operating cash flow was $522.0 million, compared to $536.4 million in
the first half of 2017. The reduction in operating cash flow was due to
the one-time bonus payment related to the TCJA and higher working
capital to support growth, partially offset by higher cash earnings.
Capital expenditures totaled $159.7 million, compared to $141.5 million
during the same period in 2017. As a result, free cash flow (operating
cash flow less capital expenditures) was $362.3 million, compared to
$394.9 million in the first half of 2017.

***

The following segment results reflect the Company's retrospective
adoption of ASC 606 on January 1, 2017, and exclude amortization,
restructuring charges, special items and unallocated corporate expenses.

Second Quarter Segment Results

LabCorp Diagnostics

Revenue for the quarter was $1.81 billion, an increase of 5.4% over
$1.72 billion in the second quarter of 2017. The increase in revenue was
primarily driven by acquisitions, organic volume (measured by
requisitions), and the benefit from foreign currency translation of
approximately 30 basis points, partially offset by the impact from the
implementation of PAMA. Total volume (measured by requisitions)
increased by 5.8%, of which organic volume was 2.8% and acquisition
volume was 3.0%. Revenue per requisition decreased by 0.7%.

Adjusted operating income (excluding amortization, restructuring charges
and special items) for the quarter was $376.0 million, or 20.7% of
revenue, compared to $375.5 million, or 21.8%, in the second quarter of
2017. Operating income benefited from organic volume growth and
acquisitions, which were essentially offset by the negative impact from
PAMA and personnel costs. The decline in operating margin was primarily
due to the negative impact from PAMA.

Covance Drug Development

Revenue for the quarter was $1.05 billion, an increase of 30.5% over
$808 million in the second quarter of 2017. The increase was primarily
due to acquisitions, as well as organic growth and the benefit from
foreign currency translation of approximately 180 basis points.

Adjusted operating income (excluding amortization, restructuring charges
and special items) for the quarter was $123.4 million, or 11.7% of
revenue, compared to $88.5 million, or 11.0%, in the second quarter of
2017. The increase in operating income and margin were primarily due to
organic demand, LaunchPad savings and acquisitions, partially offset by
personnel costs. The Company expects to deliver $150 million of net
savings from LaunchPad by the end of 2020, and $30 million of cost
synergies from the integration of Chiltern by the end of 2019.

Net orders and net book-to-bill during the trailing twelve months were
$4.87 billion and 1.22, respectively. Backlog at the end of the quarter
was $8.97 billion, and the Company expects approximately $3.7 billion of
this backlog to convert into revenue in the next twelve months.

***

Outlook for 2018

In the following guidance, all financial results in 2017 and comparisons
to financial results in 2017 have been restated in this press release as
if the Company had adopted ASC 606 on January 1, 2017. The guidance
assumes foreign exchange rates effective as of June 30, 2018 for the
remainder of the year, and includes capital allocation.

  • Revenue growth of 10.5% to 11.5% over 2017 revenue of $10.31 billion,
    which includes the benefit of approximately 50 basis points of foreign
    currency translation. This is in-line with the prior guidance of 10.0%
    to 12.0%, as the increased revenue guidance in Covance Drug
    Development is offset by the previously-announced divestiture of the
    Food Solutions business.
  • Revenue growth in LabCorp Diagnostics of 3.0% to 4.5% over 2017
    revenue of $6.86 billion, which includes the negative impact of PAMA
    as well as the benefit of approximately 20 basis points of foreign
    currency translation. This is lower than the prior guidance of 3.5% to
    5.5% due to the previously-announced divestiture of the Food Solutions
    business.
  • Revenue growth in Covance Drug Development of 23.0% to 26.0% over 2017
    revenue of $3.45 billion, which includes the benefit of approximately
    110 basis points of foreign currency translation. This is an increase
    over the prior guidance of 21.0% to 25.0% due to higher investigator
    and other pass-through revenues, partially offset by the change in
    foreign currency translation.
  • Adjusted EPS of $11.35 to $11.65, which is an increase of
    approximately 22.7% to 25.9% over 2017 adjusted EPS of $9.25, and a
    narrowing of the range compared to prior guidance of $11.30 to $11.70.
  • Free cash flow (operating cash flow less capital expenditures) of $1.1
    billion to $1.2 billion, compared to $1.1 billion in 2017, unchanged
    from prior guidance.

Use of Adjusted Measures

The Company has provided in this press release and accompanying tables
"adjusted" financial information that has not been prepared in
accordance with GAAP, including adjusted EPS, adjusted operating income,
free cash flow, and certain segment information. The Company believes
these adjusted measures are useful to investors as a supplement to, but
not as a substitute for, GAAP measures, in evaluating the Company's
operational performance. The Company further believes that the use of
these non-GAAP financial measures provides an additional tool for
investors in evaluating operating results and trends, and growth and
shareholder returns, as well as in comparing the Company's financial
results with the financial results of other companies. However, the
Company notes that these adjusted measures may be different from and not
directly comparable to the measures presented by other companies.
Reconciliations of these non-GAAP measures to the most comparable GAAP
measures are included in the tables accompanying this press release.

The Company today is furnishing a Current Report on Form 8-K that will
include additional information on its business and operations. This
information will also be available in the investor relations section of
the Company's website at www.labcorp.com.
Analysts and investors are directed to the Current Report on Form 8-K
and the website to review this supplemental information.

A conference call discussing LabCorp's quarterly results will be held
today at 9:00 a.m. Eastern Time and is available by dialing 844-634-1444
(615-247-0253 for international callers). The access code is 8281087. A
telephone replay of the call will be available through August 8, 2018
and can be heard by dialing 855-859-2056 (404-537-3406 for international
callers). The access code for the replay is 8281087. A live online
broadcast of LabCorp's quarterly conference call on July 25, 2018, will
be available at http://www.labcorp.com/
or at http://www.streetevents.com/
beginning at 9:00 a.m. Eastern Time. This webcast will be archived and
accessible through July 18, 2019.

About LabCorp

LabCorp (NYSE:LH), an S&P 500 company, is a leading global life
sciences company that is deeply integrated in guiding patient care,
providing comprehensive clinical laboratory and end-to-end drug
development services. With a mission to improve health and improve
lives, LabCorp delivers world-class diagnostic solutions, brings
innovative medicines to patients faster and uses technology to improve
the delivery of care. LabCorp reported net revenues of over $10 billion
in 2017. To learn more about LabCorp, visit www.labcorp.com,
and to learn more about Covance Drug Development, visit www.covance.com.

This press release contains forward-looking statements including but
not limited to statements with respect to estimated 2018 guidance and
the related assumptions, the impact of various factors on operating and
financial results, expected savings and synergies (including from the
LaunchPad initiative and from acquisitions), and the opportunities for
future growth. Each of the forward-looking statements is subject to
change based on various important factors, including without limitation,
competitive actions and other unforeseen changes and general
uncertainties in the marketplace, changes in government regulations,
including healthcare reform, customer purchasing decisions, including
changes in payer regulations or policies, other adverse actions of
governmental and third-party payers, changes in testing guidelines or
recommendations, adverse results in material litigation matters, the
impact of changes in tax laws and regulations, failure to maintain or
develop customer relationships, our ability to develop or acquire new
products and adapt to technological changes, failure in information
technology, systems or data security, employee relations, and the effect
of exchange rate fluctuations. Actual results could differ materially
from those suggested by these forward-looking statements. The Company
has no obligation to provide any updates to these forward-looking
statements even if its expectations change. Further information on
potential factors, risks and uncertainties that could affect operating
and financial results is included in the Company's Form 10-K for the
year ended December 31, 2017, and subsequent Forms 10-Q, including in
each case under the heading risk factors, and in the Company's other
filings with the SEC. The information in this press release should be
read in conjunction with a review of the Company's filings with the SEC
including the information in the Company's Form 10-K for the year ended
December 31, 2017, and subsequent Forms 10-Q, under the heading
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.

- End of Text -

- Tables to Follow -

 
LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in Millions, except per share data)
         
 
For the Three Months Ended For the Six Months Ended
June 30, June 30,
 
2018 2017 2018 2017
 
Revenues $ 2,866.3 $ 2,528.2 $ 5,714.6 $ 4,941.9
 
Cost of revenues   2,031.2     1,750.2     4,100.5     3,451.4  
 
Gross profit 835.1 778.0 1,614.1 1,490.5
 
Selling, general and administrative expenses 395.2 357.7 792.2 700.6
Amortization of intangibles and other assets 58.5 51.4 120.8 99.0
Restructuring and other special charges   12.2     39.1     26.5     43.0  
 
Operating income 369.2 329.8 674.6 647.9
 
Other income (expense):
Interest expense (63.1 ) (55.0 ) (126.6 ) (107.4 )
Equity method income, net 3.0 4.5 5.5 6.8
Investment income 0.8 0.4 1.4 0.7
Other, net   2.8     (0.5 )   (0.7 )   (3.6 )
 
Earnings before income taxes 312.7 279.2 554.2 544.4
 
Provision (benefit) for income taxes   78.6     94.1     147.6     176.0  
 
Net earnings 234.1 185.1 406.6 368.4

Less: Net earnings attributable to the noncontrolling interest

  (0.3 )   (0.3 )   0.4     (0.6 )
 

Net earnings attributable to Laboratory Corporation of America
Holdings

$ 233.8   $ 184.8   $ 407.0   $ 367.8  
 
 
Basic earnings per common share $ 2.29   $ 1.80   $ 3.99   $ 3.59  
 
Diluted earnings per common share $ 2.27   $ 1.78   $ 3.94   $ 3.54  
 
 
Weighted average basic shares outstanding 101.9 102.4 101.9 102.5
 
Weighted average diluted shares outstanding 103.0 103.7 103.3 104.0
 
 
LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in Millions, except per share data)
       
June 30, December 31,
2018 2017
ASSETS
 
Current assets:
Cash and cash equivalents $ 221.4 $ 316.6
Accounts receivable 1,520.3 1,531.0
Unbilled services 351.3 316.5
Inventory 230.7 227.2
Prepaid expenses and other 286.1 308.8
Current assets held for sale 411.4   33.7  
Total current assets 3,021.2 2,733.8
 
Property, plant and equipment, net 1,710.9 1,706.6
Goodwill 7,423.3 7,400.9
Intangible assets, net 4,049.5 4,166.1
Joint venture partnerships and equity method investments 58.9 58.4
Deferred income tax assets 1.7 1.9
Other assets, net 239.0 217.5
Long-term assets held for sale -   387.8  
Total assets $ 16,504.5   $ 16,673.0  
 
LIABILITIES AND SHAREHOLDERS' EQUITY
 
Current liabilities:
Accounts payable $ 488.1 $ 573.9
Accrued expenses and other 739.9 793.3
Unearned revenue 393.3 380.8
Current portion of long-term debt 417.8 417.5
Current liabilities held for sale 82.4   20.2  
Total current liabilities 2,121.5 2,185.7
 
Long-term debt, less current portion 6,039.4 6,344.6
Deferred income taxes and other tax liabilities 914.1 875.5
Other liabilities 371.8 376.0
Long-term liabilities held for sale -   66.3  
Total liabilities 9,446.8   9,848.1  
 
Commitments and contingent liabilities - -
Noncontrolling interest 20.0 20.8
 
Shareholders' equity:
Common stock 12.0 12.0
Additional paid-in capital 1,934.8 1,989.8
Retained earnings 6,603.1 6,196.1
Less common stock held in treasury (1,105.2 ) (1,060.1 )
Accumulated other comprehensive income (407.0 ) (333.7 )
Total shareholders' equity 7,037.7   6,804.1  
Total liabilities and shareholders' equity $ 16,504.5   $ 16,673.0  
 
             
LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Millions)
     
For the For the For the For the
Three Months Ended Three Months Ended Six Months Ended Six Months Ended
June 30, June 30, June 30, June 30,
2018 2017   2018 2017
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 234.1 $ 185.1 $ 406.6 $ 368.4
 

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

Depreciation and amortization 138.5 127.0 281.3 255.1
Stock compensation 26.2 25.0 52.0 52.7
Loss / (Gain) on sale of assets (2.0 ) 0.1 (0.3 ) 0.6
Accreted interest on zero-coupon subordinated notes 0.1 - 0.1 0.2

Cumulative earnings less than (in excess of) distributions from
equity affiliates

(0.8 ) (4.1 ) (1.3 ) (4.0 )
Asset impairment - 15.1 2.3 15.1
Deferred income taxes - (23.3 ) 36.0 (4.6 )
Change in assets and liabilities:
Decrease (Increase) in accounts receivable 66.8 (23.5 ) 13.2 (50.2 )
Increase in unbilled services (13.7 ) (27.5 ) (36.5 ) (37.1 )
Increase in inventories (6.1 ) (5.6 ) (4.7 ) (0.7 )
Decrease (Increase) in prepaid expenses and other 6.6 21.0 (27.2 ) 4.8
(Decrease) Increase in accounts payable (31.5 ) 7.0 (91.3 ) 8.6
(Decrease) Increase in unearned revenue (17.9 ) (7.2 ) 8.3 (10.0 )
(Decrease) Increase in accrued expenses and other   (33.1 )   21.4     (116.5 )   (62.5 )
Net cash provided by operating activities   367.2     310.5     522.0     536.4  
 
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (87.2 ) (69.3 ) (159.7 ) (141.5 )
Proceeds from sale of assets 0.6 0.2 0.7 1.0
Proceeds from sale of held for sale assets 49.1 - 49.1 -
Acquisition of licensing technology - (1.1 ) - (2.3 )
Investments in equity affiliates (5.4 ) (5.0 ) (7.3 ) (26.1 )
Acquisitions of businesses, net of cash acquired   (79.1 )   (416.2 )   (79.1 )   (568.0 )
Net cash used for investing activities   (122.0 )   (491.4 )   (196.3 )   (736.9 )
 
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on term loan (295.0 ) - (295.0 ) -
Proceeds from revolving credit facilities 165.0 520.0 394.7 749.7
Payments on revolving credit facilities (180.0 ) (307.0 ) (394.7 ) (440.7 )
Payments on zero-coupon subordinated notes - (0.3 ) - (23.2 )
Payments on long-term lease obligations (2.3 ) (2.0 ) (5.1 ) (4.3 )
Noncontrolling interest distributions (0.3 ) (0.2 ) (5.9 ) (0.5 )
Deferred acquisition costs - (0.1 ) - (1.5 )
Net proceeds from issuance of stock to employees 14.6 4.4 43.0 31.4
Purchase of common stock   (75.0 )   (108.0 )   (150.0 )   (256.0 )
 
Net cash provided by (used for) financing activities   (373.0 )   106.8     (413.0 )   54.9  
 
Effect of exchange rate changes on cash and cash equivalents   (12.6 )   8.4     (7.9 )   11.8  
 
Net decrease in cash and cash equivalents (140.4 ) (65.7 ) (95.2 ) (133.8 )
Cash and cash equivalents at beginning of period 361.8 365.3 316.6 433.6
Cash and cash equivalents included in assets held for sale   -     -     -     (0.2 )
 
Cash and cash equivalents at end of period $ 221.4   $ 299.6   $ 221.4   $ 299.6  
 
   
LABORATORY CORPORATION OF AMERICA HOLDINGS
Condensed Combined Non-GAAP Pro Forma Segment Information
(Dollars in millions)
   
 
Three Months Ended Six Months Ended
June 30, June 30,
2018 2017 2018 2017

LabCorp Diagnostics

Revenue $ 1,814.0 $ 1,721.1 $ 3,584.2 $ 3,360.8
 
Adjusted Operating Income $ 376.0 $ 375.5 $ 740.0 $ 717.3
Adjusted Operating Margin 20.7 % 21.8 % 20.6 % 21.3 %
 

Covance Drug Development

Revenue $ 1,054.2 $ 807.5 $ 2,132.6 $ 1,581.7
 
Adjusted Operating Income $ 123.4 $ 88.5 $ 231.4 $ 156.6
Adjusted Operating Margin 11.7 % 11.0 % 10.9 % 9.9 %
 

Consolidated

Revenue $ 2,866.3 $ 2,528.2 $ 5,714.6 $ 4,941.9
 
Adjusted Segment Operating Income $ 499.4 $ 464.0 $ 971.4 $ 873.9
Unallocated corporate expense $ (35.9 ) $ (32.9 ) $ (72.1 ) $ (66.1 )
Consolidated Adjusted Operating Income $ 463.5 $ 431.1 $ 899.3 $ 807.8
Adjusted Operating Margin 16.2 % 17.1 % 15.7 % 16.3 %
 

Results for the three months and six months ended June 30, 2017 have
been restated for the adoption of ASC 606 (Revenue Recognition) and the
application of ASU 2017-17 (Improving the Presentation of Net Periodic
Pension Cost and Net Periodic Post-Retirement Benefit Cost). The
consolidated revenue and adjusted segment operating income are presented
net of intersegment transaction eliminations. Adjusted operating income
and adjusted operating margin are non-GAAP measures. See the subsequent
footnotes for reconciliations of non-GAAP measures.

   
LABORATORY CORPORATION OF AMERICA HOLDINGS
Reconciliation of Non-GAAP Financial Measures
(Dollars in millions, except per share data)
     
 
Three Months Ended Six Months Ended
June 30, June 30,

Adjusted Operating Income

2018 2017 2018 2017
Operating income $ 369.2 $ 329.8 $ 674.6 $ 647.9
Acquisition-related costs 19.7 8.0 37.6 12.4
Restructuring and other special charges 12.2 39.1 26.5 43.0
Consulting fees and executive transition expenses 1.4 - 4.5 -
Special tax reform bonus for employees - - 31.1 -
LaunchPad system implementation costs 2.5 2.8 4.2 5.5
Amortization of intangibles and other assets   58.5     51.4     120.8     99.0  
Adjusted operating income $ 463.5   $ 431.1   $ 899.3   $ 807.8  
 

Adjusted EPS

Diluted earnings per common share $ 2.27 $ 1.78 $ 3.94 $ 3.54
Restructuring and special items 0.26 0.32 0.76 0.38
Tax reform act adjustments 0.01 - 0.15 -
Amortization expense   0.44     0.33     0.90     0.65  
Adjusted EPS $ 2.98   $ 2.43   $ 5.75   $ 4.57  
 

Free Cash Flow:

Net cash provided by operating activities (1) $ 367.2 $ 310.5 $ 522.0 $ 536.4
Less: Capital expenditures   (87.2 )   (69.3 )   (159.7 )   (141.5 )
Free cash flow $ 280.0   $ 241.2   $ 362.3   $ 394.9  
 
(1) Operating cash flow in 2017 has been reduced by $0.1 million and
$8.0 million for the three and six months ended June 30, 2017 as the
result of implementation of ASU 2016-18. These amounts represent the
historical payments made upon conversion of the Company's
zero-coupon subordinated notes deemed to be accreted interest.
 

Notes to Reconciliation of Non-GAAP Financial
Measures

1) During the second quarter of 2018, the Company recorded net
restructuring and other special charges of $12.2 million. The charges
included $11.8 million in severance and other personnel costs along with
$1.3 million in costs associated with facility closures and general
integration initiatives. The Company reversed previously established
reserves of $0.7 million in unused severance reserves and $0.2 million
in unused facility reserves.

The Company incurred integration and other related costs of $19.7
million primarily relating to the Chiltern acquisition as well as the
planned sale of the Company's Food Solutions business. The Company also
incurred $1.4 million in consulting expenses relating to fees incurred
as part of its integration and management transition costs. In addition,
the Company recorded $2.5 million of non-capitalized costs associated
with the implementation of a major system as part of its LaunchPad
business process improvement initiative. These items increased selling,
general and administrative expenses by $23.7 million.

The after tax impact of these charges decreased net earnings for the
quarter ended June 30, 2018, by $27.2 million and diluted earnings per
share by $0.26 ($27.2 million divided by 103.0 million shares).

During the first quarter of 2018, the Company recorded net restructuring
and other special charges of $14.3 million. The charges included $11.3
million in severance and other personnel costs along with $1.2 million
in costs associated with facility closures and general integration
initiatives and $2.3 million in impairment to land held for sale. The
Company reversed previously established reserves of $0.5 million in
unused facility reserves.

The Company incurred integration and other related costs of $17.9
million primarily relating to the Chiltern acquisition. The Company also
incurred $3.1 million in consulting expenses relating to fees incurred
as part of its integration and management transition costs. During the
quarter, the Company paid a special one-time bonus of $31.0 million to
its non-bonus eligible employees in recognition of the benefits the
Company is receiving from the passage of the Tax Cuts and Jobs Act of
2017 (TCJA). In addition, the Company incurred $1.7 million of
non-capitalized costs associated with the implementation of a major
system as part of its LaunchPad business process improvement initiative.
These items increased cost of sales by $24.8 million and selling,
general and administrative expenses by $28.9 million.

The after tax impact of these combined charges decreased net earnings
for the six months ended June 30, 2018, by $78.6 million and diluted
earnings per share by $0.76 ($78.6 million divided by 103.3 million
shares).

2) During the second quarter of 2017, the Company recorded net
restructuring and other special charges of $39.1 million. The charges
included $19.9 million in severance and other personnel costs along with
$4.2 million in costs associated with facility closures and general
integration initiatives. The Company reversed previously established
reserves of $0.1 million in unused facility reserves. The Company also
recognized an asset impairment loss of $15.1 million related to the
termination of a software development project.

The Company incurred legal and other costs of $5.7 million relating to
recent acquisition activity. The Company also recorded $2.3 million in
consulting expenses relating to fees incurred as part of its Covance
integration and compensation analysis. In addition, the Company incurred
$2.8 million of non-capitalized costs associated with the implementation
of a major system as part of its LaunchPad business process improvement
initiative (all recorded in selling, general and administrative
expenses).

The after tax impact of these charges decreased net earnings for the
quarter ended June 30, 2017, by $32.9 million and diluted earnings per
share by $0.32 ($32.9 million divided by 103.7 million shares).

During the first quarter of 2017, the Company recorded net restructuring
and other special charges of $3.9 million. The charges included $2.7
million in severance and other personnel costs along with $1.6 million
in costs associated with facility closures and general integration
initiatives. The Company reversed previously established reserves of
$0.4 million in unused severance reserves.

The Company incurred legal and other costs of $0.9 million relating to
recently completed acquisitions. The Company also recorded $2.6 million
in consulting expenses relating to fees incurred as part of its Covance
integration and compensation analysis, along with $0.9 million in
short-term equity retention arrangements relating to the acquisition of
Covance. In addition, the Company incurred $2.7 million of
non-capitalized costs associated with the implementation of a major
system as part of LaunchPad (all recorded in selling, general and
administrative expenses).

The after tax impact of these combined charges decreased net earnings
for the six months ended June 30, 2017, by $39.8 million and diluted
earnings per share by $0.38 ($39.8 million divided by 104.0 million
shares).

3) The Company continues to grow the business through acquisitions and
uses Adjusted EPS excluding amortization as a measure of operational
performance, growth and shareholder returns. The Company believes
adjusting EPS for amortization provides investors with better insight
into the operating performance of the business. For the quarters ended
June 30, 2018 and 2017, intangible amortization was $58.5 million and
$51.4 million, respectively ($44.9 million and $34.8 million net of tax,
respectively) and decreased EPS by $0.44 ($44.9 million divided by 103.0
million shares) and $0.33 ($34.8 million divided by 103.7 million
shares), respectively. For the six months ended June 30, 2018 and 2017,
intangible amortization was $120.8 million and $99.0 million,
respectively ($92.5 million and $67.2 million net of tax, respectively)
and decreased EPS by $0.90 ($92.5 million divided by 103.3 million
shares) and $0.65 ($67.2 million divided by 104.0 million shares),
respectively.

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