The statement of cash flows for LabCorp (LH) would not report a yearly “cash outflow” for interest expense. However, the discount on the note payable of $328 ($1,000 − $672) must be amortized to interest expense each year, even though no cash is paid. The related interest expense is reported on the income statement as an expense. Since no cash is paid for interest, the interest expense must be added back to net income under the indirect method in the operating activities section of the statement of cash flows.
The payment on each note payable of $1,000 at the maturity date includes a payment for principal ($672) and interest ($328). The amount related to the principal of $672 is reported as a cash outflow in the financing activities section, while the interest portion of $328 is reported as a cash outflow in the operating activities section. Note that as described in the preceding paragraph, the amortized discount in the year of maturity is also reported in the operating activities section as an addition to net income under the indirect method.