What changed in this filing

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Item 2. Management’s Discussion and Analysis

2020-10-29 compared with 2020-07-31 · 150 added, 148 removed, 212 unchanged (58% of the section changed)

65 unchanged sentences

global economic conditions and government and regulatory changes, including, but not limited to the U.K.'s exit from the European Union;

effects, duration, and severity of the ongoing COVID-19 pandemic, including the impact on operations, personnel, and liquidity, and the actions the Company, or governments, have taken or may take in response, and damage to the Company's reputation or loss of business resulting from the perception of the Company's response to the COVID-19 pandemic, including the availability and accuracy and timeliness of delivery of any tests that the Company develops, collaborates on or provides for the detection of COVID-19.

effects, duration, and severity of the ongoing COVID-19 pandemic, including the impact on operations, personnel, liquidity, and collections, and the actions the Company, or governments, have taken or may take in response, and damage to the Company's reputation or loss of business resulting from the perception of the Company's response to the COVID-19 pandemic, including the availability and accuracy and timeliness of delivery of any tests that the Company develops, collaborates on or provides for the detection of COVID-19.

Except as may be required by applicable law, the Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

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GENERAL (dollars in millions, except per share data)

Revenues for the six months ended June 30, 2020 were $5,592.6, a decrease of (1.4)% from $5,672.9 during the six months ended June 30, 2019.

The decrease in revenues was due to a 3.6% decline of organic revenue, 0.4% from the disposition of a business, and 0.1% from unfavorable foreign currency translation, partially offset by 2.6% from acquisitions.

The 3.6% decline of organic revenue was due to the pandemic, which reduced the Company's organic Base Business by 11.7%, partially offset by 8.1% from COVID-19 related business.

Base Business includes the Company's business operations except for molecular and serology COVID-19 testing (COVID-19 Testing).

The decline in the organic Base Business includes the negative impact from PAMA of 0.6%.

Revenues for the nine months ended September 30, 2020, were $9,488.7, an increase of 10.3% from $8,601.4 during the nine months ended September 30, 2019.

The increase in revenues was due to organic growth of 8.3%, acquisitions of 2.1%, and favorable foreign currency translation 0.1%, partially offset by the disposition of a business of 0.2%.

The 8.3% increase in organic revenue includes the 16.4% contribution from COVID-19 Testing, partially offset by the 8.1% reduction in the Company's organic Base Business due to the pandemic.

Base Business includes the Company's business operations except for PCR and antibody COVID-19 testing (COVID-19 Testing).

The decline in the organic Base Business includes the negative impact of PAMA of 0.6%.

In March 2020, COVID-19 was declared a pandemic.

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Given the continued unpredictability of the COVID-19 pandemic and the corresponding government restrictions and customer behavior, there are a wide-range of feasible financial results for 2020.

While the Company's Base Business continues to be negatively impacted by the COVID-19 pandemic, the Company's outlook has improved across the enterprise.

In LCD, demand for its Base Business continues to be below the Company's historical levels;

however, the Company's Base Business has been steadily recovering from its trough in April, while at the same time COVID-19 Testing continues to grow.

To date, the Company has performed more than 9.2 million molecular and 2.2 million antibody COVID-19 tests and has a current capacity of 180,000 molecular and 300,000 antibody tests per day.

Throughout the year, the Company's COVID-19 Testing has helped to offset the pressure experienced in the Base Business.

To date, the Company has performed more than 18 million PCR and 3.0 million antibody COVID-19 tests and has a current capacity of 210,000 PCR and 300,000 antibody tests per day.

The Company continues to increase capacity across multiple platforms for its COVID-19 Testing subject to the availability of equipment and testing supplies and key personnel.

In CDD, while the pandemic is expected to continue to negatively impact its business, this impact is expected to subside throughout the year as CDD continues to work on projects supporting global vaccine and treatment development, with additional support from COVID-19 Testing.

As a result of the impact of COVID-19, during the six months ended June 30, 2020, the Company recorded goodwill and other asset impairment charges of $437.4, $426.4 within CDD and $11.0 within LCD, all of which were recorded in the three months ended March 31, 2020.

See Note 6 Goodwill and Intangible Assets for discussion of goodwill and intangible asset impairments and Note 2 Revenue for the discussion of credit losses and additional price concessions.

The Company also wrote-off or wrote down certain of the Company's investments by $25.4 due to the impact of COVID-19, $7.1 included in Equity method earnings (loss), net (recorded in the three months ended March 31, 2020), and $18.3 included in Other, net ($13.1 recorded during the three months ended March 31, 2020 and $5.2 recorded during the three months ended June 30, 2020).

The Company instituted numerous actions to help mitigate the financial impact from the COVID-19 pandemic, which included furloughs, reduced hours, and the suspension of discretionary merit adjustments and 401(k) plan contributions in the United States (U.S.).

In response to its improved outlook, the Company has been rapidly resuming regular work schedules and is proceeding with merit adjustments and will retroactively reinstate 401(k) plan contributions in the U.S.

In April 2020, the Company received cash payments of approximately $55.9 from the Public Health and Social Services Emergency Fund for provider relief (Relief Fund) that was appropriated by Congress to the Department of Health and Human Services (HHS) in the Coronavirus Aid, Relief, and Economic Security Act (CARES Act).

During the nine months ended September 30, 2020, the Company recorded goodwill and other asset impairment charges of $437.4, as a result of the negative financial impact of COVID-19 during the first quarter of 2020.

See Note 6 Goodwill and Intangible Assets for a discussion of goodwill and intangible asset impairment and Note 2 Revenues for a discussion of credit losses and additional price concessions.

The Company also impaired certain of the Company's investments by a total of $25.4 during the nine months ended September 30, 2020, due to the impact of COVID-19;

$7.1 was included in Equity method earnings (loss), net during the three months ended March 31, 2020, and $13.1 and $5.2 were included in Other, net during the three months ended March 31, 2020, and June 30, 2020, respectively.

In April 2020, the Company received cash payments of approximately $55.9 from the Public Health and Social Services Emergency Fund for provider relief that was appropriated by Congress to the Department of Health and Human Services (HHS) in the Coronavirus Aid, Relief, and Economic Security Act (CARES Act Provider Relief Funds).

Upon receiving and satisfying the terms and conditions associated with the distributed funds, the Company accounted for the transaction by applying the guidance in ASC 450-30 Gain Contingencies, and recorded these funds in Other, net non-operating income in the Consolidated Statement of Operations as of June 30, 2020.

On July 30, the Company announced plans to create a program to offer total antibody testing at no charge through the patient’s doctor in support of increased blood plasma donations for use as a possible COVID-19 treatment.

The Company is working with public health authorities and the provider community on the details of the three-month program and is evaluating the impact this program will have on the consolidated financial statements.

In August 2020, the Company received an additional $76.2 in CARES Act Provider Relief Funds.

As the Company's Diagnostic business demonstrated recovery and demand for COVID-19 testing increased, the Company determined that the negative financial impact of COVID-19 which the CARES Act Provider Relief Funds were designed to address no longer applied to the Company.

As a result, the Company derecognized the income associated with the $55.9 received during the second quarter as a change in estimate and did not recognize any income related to the cash payment of $76.2 received in the third quarter.

The Company plans to return the CARES Act Provider Relief Funds to the government in the fourth quarter of 2020 and has recorded a liability of $132.1 in Accrued expenses and other as of September 30, 2020.

There remains significant uncertainty regarding the duration and severity of the pandemic and its impact on the Company’s business, results of operations and financial position for the balance of 2020 and beyond.

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RESULTS OF OPERATIONS (dollars in millions)

Three months ended June 30, 2020, compared with three months ended June 30, 2019

Three Months Ended June 30,

Three months ended September 30, 2020, compared with three months ended September 30, 2019

Three Months Ended September 30,

2020 2019 Change

3 unchanged sentences

Total $ 3,896.1 $ 2,928.5 33.0 %

The decrease in revenues for the three months ended June 30, 2020, as compared with the corresponding period in 2019 was 3.9%.

The decrease in revenue was due to a 5.4% decline of organic revenue, 0.3% from the disposition of a business, and 0.1% from unfavorable foreign currency translation, partially offset by 1.9% from acquisitions.

The 5.4% decline of organic revenue was due to the pandemic, which reduced the Company's organic Base Business by 20.9%, partially offset by COVID-19 Testing of 15.4%.

The increase in revenues for the three months ended September 30, 2020, as compared with the corresponding period in 2019 was 33.0%.

The increase in revenue was due to organic growth of 31.5%, acquisitions of 1.0%, and favorable foreign currency translation of 0.5%.

The 31.5% increase in organic revenue includes the 32.6% contribution from COVID-19 Testing, partially offset by the 1.1% reduction in the Company's organic Base Business due to the pandemic.

The decline in organic Base Business includes the lower Medicare and Medicaid pricing as a result of PAMA of 0.7%.

LCD revenues for the quarter were $1,692.7, a decrease of 3.9% compared to revenues of $1,760.9 in the second quarter of 2019.

The decrease in revenues was primarily due to a 4.9% decline in organic revenue and 0.1% from unfavorable foreign currency translation, partially offset by 1.1% from acquisitions.

The 4.9% organic revenue decline includes a 30.1% decline of the organic Base Business (due to the pandemic), partially offset by 25.2% from COVID-19 Testing.

The 30.1% decline of the organic Base Business includes a 0.8% negative impact from PAMA and a 1.2% reduction due to the September 2019 nonrenewal of the BeaconLBS - UnitedHealthcare contract pertaining to the Florida market.

Total volume (measured by requisitions) decreased by 19.5% as organic volume declined by 20.7%, partially offset by acquisition volume of 1.2%.

The decline in organic volume includes a 35.3% reduction of organic Base Business (due to the pandemic), partially offset by increased demand for COVID-19 Testing of 14.6%.

The organic Base Business volumes continued to improve throughout the quarter with daily volume in June averaging approximately 17.0% below June volume in 2019.

At the same time, demand for COVID-19 Testing continues to increase, contributing approximately 23.0% to total volume in June.

While total volume declined 19.5%, price/mix increased by 15.6% due to COVID-19 Testing of 10.7% and the Base Business of 4.9%.

The Base Business price includes the negative impact from PAMA of 0.8% and the non-renewal of the BeaconLBS contract of 1.2%.

CDD revenues for the second quarter were $1,093.7, a decrease of 2.9% over revenues of $1,126.3 in the second quarter of 2019.

The decrease in revenues was primarily due to a 5.2% decline in organic revenue, 0.7% from the disposition of a business, and 0.1% from unfavorable foreign currency translation, partially offset by 3.1% benefit from an acquisition.

The decline in organic revenue was primarily due to the negative impact from the pandemic, partially offset by a 1.1% increase from COVID-19 molecular testing through its Central Laboratories business.

LCD revenues for the quarter were $2,704.2, an increase of 53.7% compared to revenues of $1,759.2 in the third quarter of 2019.

The increase in revenues was primarily due to organic growth of 52.3% and acquisitions of 1.4%.

The 52.3% increase in organic revenue was due to a 54.2% contribution from COVID-19 Testing, partially offset by a 1.9% decline in the organic Base Business, which includes the negative impact from PAMA of 1.1%.

Total volume, measured by requisitions, increased by 21.8% as organic volume increased by 20.0% and acquisition volume contributed 1.8%.

The organic volume growth includes increased demand for COVID-19 Testing of 28.8%, partially offset by an 8.9% reduction of organic Base Business due to the pandemic.

Price/mix increased by 31.9% due to COVID-19 Testing of 25.4% and organic Base Business of 7.0%, which includes the negative impact from PAMA of 1.1%.

CDD revenues for the third quarter were $1,241.9, an increase of 5.7% over revenues of $1,175.4 in the third quarter of 2019.

The increase in revenues was primarily due to organic growth of 3.8%, acquisitions of 0.5%, and favorable foreign currency translation of 1.4%.

The increase in organic revenue was due to COVID-19 testing through its Central Laboratories business.

Excluding COVID-19 Testing, organic revenue was flat compared to the third quarter of 2019.

The pandemic continues to cause delays in clinical trial progression and associated testing, reductions in investigator site access, as well as interruptions to the supply chain particularly impacting the nonclinical business unit.

Cost of Revenues

Three Months Ended June 30,

Three Months Ended September 30,

2020 2019 Change

1 unchanged sentence

Cost of revenues as a % of revenues 60.0 % 72.1 %

Cost of revenues decreased 2.4% during the three months ended June 30, 2020, as compared with the corresponding period in 2019.

Cost of revenues as a percentage of revenues during the three months ended June 30, 2020, increased to 72.5% as compared to 71.4% in the corresponding period in 2019.

This increase was primarily due to the impact of COVID-19, higher personnel costs (primarily driven by merit increases), and PAMA, partially offset by LaunchPad savings.

Cost of revenues decreased 10.7% during the three months ended September 30, 2020, as compared with the corresponding period in 2019.

Cost of revenues as a percentage of revenues during the three months ended September 30, 2020, decreased to 60.0% as compared to 72.1% in the corresponding period in 2019.

This decrease was primarily due to the impact of COVID-19 testing and LaunchPad savings, partially offset by the reduction in Base Business as a result of the pandemic and PAMA and higher personnel costs primarily driven by merit increases.

Selling, General and Administrative Expenses

Three Months Ended June 30,

Three Months Ended September 30,

2020 2019 Change

1 unchanged sentence

Selling, general and administrative expenses as a % of revenues 10.8 % 13.7 %

During the three months ended June 30, 2020, the Company incurred $4.6 of acquisition and divestiture related costs and $7.8 in management transition costs.

During the three months ended September 30, 2020, the Company incurred $2.4 of acquisition and divestiture related costs, $1.9 in COVID-related costs and $1.8 in management transition costs.

In addition, the Company recorded $0.2 of non-capitalized costs associated with the implementation of a major system as part of its LaunchPad business process improvement initiative and $0.7 related to miscellaneous other items.

These charges were offset by insurance proceeds of $10.0 related to the 2018 ransomware attack.

These items increased selling, general and administrative expenses by $7.0.

During the three months ended June 30, 2019, the Company incurred $33.2 in acquisition and divestiture costs, $1.5 in management transition costs and $0.1 in costs related to the 2018 ransomware attack.

In addition, the Company recorded $2.6 of non-capitalized costs associated with the implementation of a major system as part of its LaunchPad business process improvement initiative.

During the three months ended September 30, 2019, the Company incurred $9.6 in acquisition and divestiture costs, $5.3 in management transition costs and $11.3 in costs related to the AMCA data breach.

In addition, the Company recorded $2.4 of non-capitalized costs associated with the implementation of a major system as part of its LaunchPad business process improvement initiative and reversed $13.9 related to the settlement of a contingent purchase price related to a 2016 acquisition.

These items increased selling, general and administrative expenses by $14.7.

Excluding these charges, selling, general and administrative expenses as a percentage of revenues were 14.0% and 13.1% during each of the three months ended June 30, 2020, and 2019, respectively.

Excluding these charges, selling, general and administrative expenses as a percentage of revenues were 10.6% and 13.2% during the three months ended September 30, 2020, and 2019, respectively, primarily due to leveraging the Company's infrastructure on higher revenue, partially offset by a $15.0 initial contribution to establish the LabCorp Charitable Foundation which supports the Company's strategic mission to improve health and improve lives with contributions focused on health and welfare, education and community.

Goodwill and Other Asset Impairments

Three Months Ended September 30,

2020 2019 Change

Goodwill and other asset impairments $ 23.5 $ — N/A

During the three months ended September 30, 2020, the Company recorded goodwill and other asset impairment charges of $10.1 and $17.7 for customer relationships and technology intangible assets, respectively, due to the loss of a contract from a CDD prior acquisition.

The Company reversed the $5.0 charge for the estimated loss related to the CDD floating rate secured note receivable due 2022 from Envigo.

The Company also recorded an impairment for a note receivable related to an LCD investment of $0.7 during the three months ended September 30, 2020.

Amortization of Intangibles and Other Assets

Three Months Ended June 30,

Three Months Ended September 30,

2020 2019 Change

2 unchanged sentences

Total amortization of intangibles and other assets $ 62.2 $ 61.7 0.8 %

The decrease in amortization of intangibles and other assets within LCD primarily reflects the impact of acquisitions occurring after June 30, 2019, net of Amortization of intangible assets within CDD increased primarily due to the impact of acquisitions occurring after June 30, 2019.

The increase in amortization of intangibles and other assets primarily reflects the impact of acquisitions occurring after September 30, 2019, partially offset by the of impairment of intangible assets in fiscal 2020.

Restructuring and Other Special Charges

Three Months Ended June 30,

Three Months Ended September 30,

2020 2019 Change

Restructuring and other charges $ 7.1 $ 14.2 (49.8) %

During the three months ended June 30, 2020, the Company recorded net restructuring and other charges of $6.4:

During the three months ended September 30, 2020, the Company recorded net restructuring and other charges of $7.1:

$1.6 within LCD and $5.5 within CDD.

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The charges were offset by the reversal of previously established liability of $0.1 and $2.1 in unused severance costs and facility-related costs, respectively.

During the three months ended June 30, 2019, the Company recorded net restructuring and other special charges of $13.6:

During the three months ended September 30, 2019, the Company recorded net restructuring and other special charges of $14.2:

$6.7 within LCD and $7.5 within CDD.

2 unchanged sentences

Interest Expense

Three Months Ended June 30,

Three Months Ended September 30,

2020 2019 Change

Interest expense $ (51.4) $ (60.5) (15.0) %

The decrease in interest expense for the three months ended June 30, 2020, as compared with the corresponding period in 2019, is primarily due to a lower outstanding balance on term loans, lower variable interest rates, the repayment of the 2.625% senior notes and a portion of the 4.625% senior notes in 2019, partially offset by the issuance of $1,050.0 in debt securities in November 2019.

The decrease in interest expense for the three months ended September 30, 2020, as compared with the corresponding period in 2019, is primarily due to a lower outstanding balance on term loans, lower variable interest rates, the repayment of the 2.625% senior notes and the 4.625% senior notes, partially offset by the issuance of $1,050.0 in debt securities in November 2019.

Equity Method Income

Three Months Ended June 30,

Three Months Ended September 30,

2020 2019 Change

2 unchanged sentences

All of these partnerships and investments reside within LCD.

decrease in income for the three months ended June 30, 2020, as compared with the corresponding period in 2019, was primarily due to decreased profitability of the Company's joint ventures.

Three Months Ended June 30,

The increase in income for the three months ended September 30, 2020, as compared with the corresponding period in 2019, was primarily due to increased profitability of the Company's joint ventures.

Three Months Ended September 30,

2020 2019 Change

Other, net $ (54.2) $ 2.7 (2,096.1) %

The change in other, net for the three months ended June 30, 2020, as compared to the three months ended June 30, 2019, is primarily due to $55.9 of funding from the Relief Fund that was appropriated by Congress to the HHS in the CARES Act.

This funding was partially offset by the $5.2 write-off or write down of certain of the Company's investments primarily due to the negative impact of the COVID-19 global pandemic.

In addition, foreign currency transaction losses of $1.7 were recognized for the three months ended June 30, 2020 and losses of $3.2 were recognized in the corresponding period of 2019.

The change in other, net for the three months ended September 30, 2020, as compared to the three months ended September 30, 2019, is primarily due to the derecognition of the income associated with the $55.9 from the CARES Act Provider Relief Funds received during the second quarter as the Company plans to return the funding.

The Company recorded investment gains of $4.6, including a gain of $1.6 on the extinguishment of the interest rate swap arrangement.

In addition, foreign currency transaction losses of $1.9 were recognized for the three months ended September 30, 2020, and losses of $2.9 were recognized in the corresponding period of 2019.

Income Tax Expense

Three Months Ended June 30,

Three Months Ended September 30,

2020 2019 Change

1 unchanged sentence

Income tax expense as a % of earnings before income taxes 25.7 % 23.1 %

The 2020 tax rate was favorable to the 2019 tax rate due to the mix of earnings inclusive of federal, state, and foreign changes.

The 2020 tax rate was unfavorable to the 2019 tax rate due to the higher mix of earnings in the United States and the favorable impact of a reduction in tax rates in foreign jurisdictions in 2019.

Operating Income by Segment

Three Months Ended June 30,

Three Months Ended September 30,

2020 2019 Change

5 unchanged sentences

Total operating income $ 1,047.1 $ 339.9 208.1 %

LCD operating income was $281.3 for the three months ended June 30, 2020, a decrease of 10.0% over operating income of $312.5 in the corresponding period of 2019, and LCD operating margin decreased 1.1% basis points year-over-year.The decrease was primarily due to the reduction in the Base Business (primarily due to the pandemic) and higher personnel costs, partially offset by the increase in COVID-19 Testing and LaunchPad savings.

The Company remains on track to deliver approximately $200.0 of net savings from its three-year LCD's LaunchPad initiative by the end of 2021.

CDD operating income was $65.5 for the three months ended June 30, 2020, a decrease over operating income of $65.8 in the corresponding period of 2019.

The decrease was primarily due to the negative impact from the pandemic and higher personnel costs, partially offset by molecular COVID-19 testing and LaunchPad savings.

The Company remains on track to deliver approximately $150.0 of net savings from its three-year CDD's LaunchPad initiative by the end of 2020.

LCD operating income was $964.6 for the three months ended September 30, 2020, an increase of 267.8% over operating income of $262.2 in the corresponding period of 2019, and LCD operating margin increased 20.8% basis points year-over-year.

The increase was primarily due to the increase in COVID-19 Testing and LaunchPad savings, partially offset by the negative impact of PAMA of $20.0.

The Company remains on track to deliver approximately $200.0 of net savings from its three-year LCD LaunchPad initiative by the end of 2021.

CDD operating income was $142.0 for the three months ended September 30, 2020, an increase over operating income of $123.8 in the corresponding period of 2019.

The increase was primarily due to COVID Testing and LaunchPad savings, partially offset by higher personnel costs.

The Company remains on track to deliver approximately $150.0 of net savings from its three-year CDD LaunchPad initiative by the end of 2020.

General corporate expenses are comprised primarily of administrative services such as executive management, human resources, legal, finance, corporate affairs, and information technology.

Corporate expenses were $49.1 for the three months ended June 30, 2020, an increase of 15.3% over corporate expenses of $42.6 in the corresponding period of 2019.

The increase in corporate expenses in 2020 is primarily due to higher personnel costs, including executive transition costs.

Six months ended June 30, 2020, compared with six months ended June 30, 2019

Six Months Ended June 30,

Corporate expenses were 59.8 for the three months ended September 30, 2020, an increase of 29.3% over corporate expenses of 46.2 in the corresponding period of 2019.

The increase in corporate expenses in 2020 was primarily due to the funding of the LabCorp Charitable Foundation.

Nine months ended September 30, 2020, compared with nine months ended September 30, 2019

Nine Months Ended September 30,

2020 2019 Change

3 unchanged sentences

Total $ 9,488.7 $ 8,601.4 10.3 %

Revenues for the six months ended June 30, 2020 were $5,592.6, a decrease of (1.4)% from $5,672.9 during the six months ended June 30, 2019.

The 3.6% decline of organic revenue was due to a 11.7% decline in the Company's organic Base Business (as a result of the pandemic), partially offset by 8.1% from COVID-19 related business.

Revenues for the nine months ended September 30, 2020, were $9,488.7, an increase of 10.3% from $8,601.4 during the nine months ended September 30, 2019.

The increase in revenues was due to organic growth of 8.3%, acquisitions of 2.1%, and favorable foreign currency translation of 0.1%, partially offset by the disposition of a business of 0.2%.

The 8.3% increase in organic revenue includes the 16.4% contribution from COVID-19 Testing, partially offset by the 8.3% reduction in the

Company's organic Base Business due to the pandemic.

The decline in the organic Base Business includes the negative impact from PAMA of 0.6%.

LCD revenues for the six months ended June 30, 2020 were $3,394.7, a decrease of 2.5% compared to revenues of $3,482.9 for the six months ended June 30, 2019.

The decrease in revenue was due to a 3.9% decline in organic revenue, partially offset by 1.4% from acquisitions.

The 3.9% decline in organic revenue,was due to a 17.1% decline of the organic Base Business (due to the pandemic), partially offset by 13.2% from COVID-19 Testing.

LCD revenues for the nine months ended September 30, 2020, were $6,098.8, an increase of 16.3% compared to revenues of $5,242.1 for the nine months ended September 30, 2019.

The increase in revenue was due to organic growth of 14.9% and acquisitions of 1.4%.

The 14.9% increase in organic revenue, was due to a 26.9% contribution from COVID-19 Testing, partially offset by a 12.0% decline of the organic Base Business due to the pandemic.

The 12.0% decline of organic Base Business includes a 1.0% negative impact from PAMA and a 1.0% reduction due to the September 2019 nonrenewal of the BeaconLBS - UnitedHealthcare contract pertaining to the Florida market.

Total volume (measured by requisitions) decreased by 12.0% as organic volume declined by 13.4%, partially offset by acquisition volume of 1.4%.

The decline in organic volume includes a 21.0% reduction of organic Base Business (due to the pandemic), partially offset by increased demand for COVID-19 Testing of 7.6%.

The organic Base Business volumes continued to improve throughout the second quarter with daily volume in June averaging approximately 17.0% below June volume in 2019.

At the same time, demand for COVID-19 Testing continues to increase, contributing approximately 23.0% to total volume in June.

While total volume declined 12.0%, price/mix increased by 9.4% due to COVID-19 Testing of 5.5% and Base Business of 3.9%.

Total volume, measured by requisition, decreased by 0.7% as organic volume decreased by 2.3% and acquisition volume contributed grwoth of 1.6%.

The organic volume decline includes increased demand for COVID-19 Testing of 14.7%, more than offset by a 17.0% reduction of organic Base Business due to the pandemic.

Price/mix increased by 17.2% due to COVID-19 Testing of 12.3% and Base Business of 4.8%.

The Base Business price includes the negative impact from PAMA of 1.0% and the non-renewal of the BeaconLBS contract of 1.0%.

CDD revenues for six months ended June 30, 2020 were $2,237.5, an increase of 1.7% over revenues of $2,201.0 for the six months ended June 30, 2019.

The increase in revenue was primarily due to the benefit of acquisitions of 4.6%, partially offset by a decline in organic revenue 1.9% and disposition of a business of 1.0%.

The decline in organic revenue was primarily due to the negative impact from the pandemic, partially offset by a 0.6% increase from COVID-19 molecular testing through its Central Laboratories business.

CDD revenues for nine months ended September 30, 2020, were $3,479.4, an increase of 3.0% over revenues of $3,376.4 for the nine months ended September 30, 2019.

The increase in revenue was primarily due to the benefit of acquisitions of 3.2%, favorable foreign currency translation of 0.4% and organic growth of 0.1%, partially offset by the disposition of a business of 0.6%.

The increase in organic revenue was primarily driven by COVID-19 PCR testing through its Central Laboratories, partially offset by the negative impact from the pandemic.

Cost of Revenues

Six Months Ended June 30,

Nine Months Ended September 30,

2020 2019 Change

1 unchanged sentence

Cost of revenues as a % of revenues 67.9 % 71.7 %

Cost of revenues increased 1.1% during the six months ended June 30, 2020, as compared with the corresponding period in 2019.

Cost of revenues as a percentage of revenues during the six months ended June 30, 2020, increased to 73.4% as compared to 71.5% in the corresponding period in 2019.

This increase was primarily due to the impact of COVID-19, higher personnel costs (primarily driven by merit increases and one additional payroll day that predominantly impacted LCD), and PAMA, partially offset by LaunchPad savings.

Cost of revenues increased 4.4% during the nine months ended September 30, 2020, as compared with the corresponding period in 2019.

Cost of revenues as a percentage of revenues during the nine months ended September 30, 2020, decreased to 67.9% as compared to 71.7% in the corresponding period in 2019.

This decrease was primarily due to the impact of COVID-19, higher personnel costs (primarily driven by merit increases and one additional payroll day that predominantly impacted LCD), and PAMA, partially offset by LaunchPad savings.

Selling, General and Administrative Expenses

Six Months Ended June 30,

Nine Months Ended September 30,

2020 2019 Change

1 unchanged sentence

Selling, general and administrative expenses as a % of revenues 12.8 % 14.3 %

During the six months ended June 30, 2020, the Company incurred $13.0 of acquisition and divestiture related costs and $10.6 in management transition costs.

In addition, the Company recorded $1.1 of non-capitalized costs associated with the implementation of a major system as part of its LaunchPad business process improvement initiative and $1.2 related to miscellaneous other items.These charges were offset by insurance proceeds of $10.0 related to the 2018 ransomware attack.

During the nine months ended September 30, 2020, the Company incurred $15.3 of acquisition and divestiture related costs, $5.8 in COVID-related costs and $12.4 in management transition costs.

In addition, the Company recorded $1.3 of non-capitalized costs associated with the implementation of a major system as part of its LaunchPad business process improvement initiative and $1.7 related to miscellaneous other items.

These charges were offset by insurance proceeds of $10.0 related to the 2018 ransomware attack.

These items increased selling, general and administrative expenses by $26.5.

During the six months ended June 30, 2019, the Company incurred $44.3 in acquisition and divestiture costs, $2.9 in consulting expenses relating to fees incurred as part of its integration and management transition costs and $0.7 in costs related to the 2018 ransomware attack.

In addition, the Company recorded $5.0 of non-capitalized costs associated with the implementation of a major system as part of its LaunchPad business process improvement initiative.

During the nine months ended September 30, 2019, the Company incurred $53.9 in acquisition and divestiture costs, $8.2 in consulting expenses relating to fees incurred as part of its integration and management transition costs, $0.7 in costs related to the 2018 ransomware attack and $11.3 in costs related to the AMCA data breach.

In addition, the Company recorded $7.4 of non-capitalized costs associated with the implementation of a major system as part of its LaunchPad business process improvement initiative and reversed $13.9 related to the settlement of a contingent purchase price related to a 2016 acquisition.

These items increased selling, general and administrative expenses by $67.6.

Excluding these charges, selling, general and administrative expenses as a percentage of revenues were 13.8% and 13.3% during each of the six months ended June 30, 2020, and 2019, respectively.

Excluding these charges, selling, general and administrative expenses as a percentage of revenues were 12.5% and 13.3% during the nine months ended September 30, 2020, and 2019, respectively, primarily due to leveraging the Company's infrastructure on higher revenue, partially offset by a $15.0 initial contribution to establish the LabCorp Charitable Foundation which supports the Company's strategic mission to improve health and improve lives with contributions focused on health and welfare, education and community.

Amortization of Intangibles and Other Assets

Six Months Ended June 30,

Nine Months Ended September 30,

2020 2019 Change

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Total amortization of intangibles and other assets $ 184.6 $ 179.0 3.1 %

The increase in amortization of intangibles and other assets within LCD primarily reflects the impact of acquisitions occurring after June 30, 2019.

Amortization of intangible assets within CDD increased primarily due to the impact of acquisitions occurring after June 30, 2019.

The increase in amortization of intangibles and other assets within both segments primarily reflects the impact of acquisitions occurring after September 30, 2019, partially offset by impairment of intangible assets recorded in fiscal 2020.

Goodwill and Other Asset Impairments

Six Months Ended June 30,

Nine Months Ended September 30,

2020 2019 Change

Goodwill and other asset impairments $ 460.9 $ — N/A

During the six months ended June 30, 2020 , the Company recorded goodwill and other asset impairment charges of $437.4, $426.4 within CDD and $11.0 within LCD, representing 3.9% of the Company's total goodwill and intangible assets.

The Company concluded that the fair value was less than carrying value for two of its reporting units and recorded goodwill impairment of $418.7 in the CDD segment and $3.7 in the LCD segment.

The Company also recorded a charge of $2.7 for the impairment of a CDD tradename, $7.3 for LCD software, and $5.0 for the impairment of the CDD floating rate secured note receivable due 2022.

During the nine months ended September 30, 2020, the Company recorded goodwill and other asset impairment charges of $460.9, $449.3 within CDD and $11.6 within LCD, representing 3.9% of the Company's total goodwill and intangible assets.

The Company concluded that the fair value was less than carrying value for two of its reporting units and recorded goodwill impairment of $418.7 in the CDD segment and $3.7 in the LCD segment during the three months ended March 31, 2020.

The Company recorded non-cash charges of $31.2 for the impairment of identifiable intangible assets during the nine months ended September 30, 2020, $30.5 within CDD and $0.7 within LCD.

During the three months ended March 31, 2020, $2.7 and $7.3 impairment charges were recorded for tradename and software, respectively.

During the three months ended September 30, 2020, additional impairment charges of $10.1 and $17.7 for customer relationships and technology intangible assets, respectively were recorded due to the loss of a contract from a prior acquisition.

The Company also recorded an impairment for a note receivable related to an investment of $0.7 during the three months ended September 30, 2020.

Restructuring and Other Special Charges

Six Months Ended June 30,

Nine Months Ended September 30,

2020 2019 Change

Restructuring and other charges $ 38.9 $ 48.4 (19.6) %

During the six months ended June 30, 2020, the Company recorded net restructuring and other charges of $31.8:

During the nine months ended September 30, 2020, the Company recorded net restructuring and other charges of $38.9:

$13.4 within LCD and $25.5 within CDD.

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The charges were offset by the reversal of previously established liability of $1.1 and $7.8 in unused severance costs and facility-related costs, respectively.

During the six months ended June 30, 2019, the Company recorded net restructuring and other special charges of $34.2:

During the nine months ended September 30, 2019, the Company recorded net restructuring and other special charges of $48.4:

$22.8 within LCD and $25.6 within CDD.

The charges were comprised of $26.2 related to severance and other personnel costs along with $22.0 in costs associated with facility closures, impairment of operating lease right-of-use assets and general integration initiatives.

The charges were increased by the adjustment of previously established reserves of $0.4 in facility reserves.

The charges were increased by the adjustment of previously established reserves of $0.4 in facility reserves and decreased by a reversal of $0.2 in unused facility reserves.

Interest Expense

Six Months Ended June 30,

Nine Months Ended September 30,

2020 2019 Change

Interest expense $ (159.1) (176.3) (9.8) %

The decrease in interest expense for the six months ended June 30, 2020, as compared with the corresponding period in 2019, is primarily due to a lower outstanding balance on term loans, lower variable interest rates, the repayment of the 2.625% senior notes and a portion of the 4.625% senior notes in 2019, partially offset by the issuance of $1,050.0 in debt securities in November 2019.

The decrease in interest expense for the nine months ended September 30, 2020, as compared with the corresponding period in 2019, is primarily due to a lower outstanding balance on term loans, lower variable interest rates, the repayment of the 2.625% senior notes and the 4.625% senior notes, partially offset by the issuance of $1,050.0 in debt securities in November 2019.

Equity Method Income

Six Months Ended June 30,

Nine Months Ended September 30,

2020 2019 Change

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All of these partnerships and investments reside within LCD.

The decrease in income for the six months ended June 30, 2020, as compared with the corresponding period in 2019, was primarily due to the impairment of an equity method investment and decreased profitability of the Company's joint ventures.

Six Months Ended June 30,

The decrease in income for the nine months ended September 30, 2020, as compared with the corresponding period in 2019, was primarily due to the impairment of an equity method investment and decreased profitability of the Company's joint ventures.

Nine Months Ended September 30,

2020 2019 Change

Other, net $ (22.6) $ (18.2) 24.1 %

The change in other, net for the six months ended June 30, 2020, as compared to the six months ended June 30, 2019, is primarily due to the $55.9 funding from the Relief Fund that was appropriated by Congress to the HHS in the CARES Act.

This funding was partially offset by the $18.3 write-off or write down of certain of the Company's investments primarily due to the negative impact of the COVID-19 global pandemic.

In addition, foreign currency transaction losses of $4.5 were recognized for the six months ended June 30, 2020 and losses of $7.8 were recognized in the corresponding period of 2019.

The change in Other, net for the nine months ended September 30, 2020, as compared to the nine months ended September 30, 2019, was primarily due to an increase in the write-off or write down of certain of the Company's investments due to the negative impact of the COVID-19 global pandemic offset by lower foreign currency transaction losses.

Foreign currency transaction losses of $6.4 were recognized for the nine months ended September 30, 2020, and losses of $10.7 were recognized in the corresponding period of 2019.

Income Tax Expense

Six Months Ended June 30,

Nine Months Ended September 30,

2020 2019 Change

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Income tax expense as a % of earnings before income taxes 36.7 % 26.4 %

The 2020 tax rate was unfavorable to the 2019 tax rate due to impairment charges for which either no tax benefit was recorded (as they were not deductible) or the associated tax assets required a full valuation allowance.

Six Months Ended June 30,

The 2020 tax rate was unfavorable to the 2019 tax rate due to impairment charges which were not deductible and or generated tax assets which require a valuation allowance.

Operating Income by Segment

Nine Months Ended September 30,

2020 2019 Change

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Total operating income $ 1,152.2 $ 993.8 15.9 %

LCD operating income was $486.7 for the six months ended June 30, 2020, a decrease of 16.2% over operating income of $580.8 in the corresponding period of 2019, and LCD operating margin decreased (2.4)% basis points year-over-year.

The decrease in operating income and margin were primarily due to the reduction in Base Business (primarily due to the pandemic) and higher personnel costs, partially offset by the increase in COVID-19 Testing and LaunchPad savings.

The Company remains on track to deliver approximately $200.0 of net savings from its three-year, phase II of LCD's LaunchPad initiative by the end of 2021.

CDD operating loss was $(273.2) for the six months ended June 30, 2020, a decrease over operating income of $153.8 in the corresponding period of 2019.

LCD operating income was $1,451.5 for the nine months ended September 30, 2020, an increase of 72.2% over operating income of $843.0 in the corresponding period of 2019, and LCD operating margin increased 7.7% basis points year-over-year.

The increase in operating income and margin were primarily due to the increase in COVID-19 Testing and LaunchPad savings, partially offset by a reduction in Base Business (primarily due to the pandemic) and higher personnel costs.

The Company remains on track to deliver approximately $200.0 of net savings from its three-year, phase II of LCD LaunchPad initiative by the end of 2021.

CDD operating loss was $131.2 for the nine months ended September 30, 2020, a decrease over operating income of $277.6 in the corresponding period of 2019 and CDD operating margin decreased 12.0% basis points year-over-year.

The decrease in operating income and margin was primarily due to the negative impact of COVID-19, specifically goodwill and other asset impairments of $449.3, and higher personnel costs, partially offset by organic demand, acquisitions, and LaunchPad savings.

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General corporate expenses are comprised primarily of administrative services such as executive management, human resources, legal, finance, corporate affairs, and information technology.

Corporate expenses were $108.4 for the six months ended June 30, 2020, an increase of 34.3% over corporate expenses of $80.7 in the corresponding period of 2019.

The increase in corporate expenses in 2020 is primarily due to higher personnel costs, including executive transition costs, and COVID-19 related expenses.

Corporate expenses were $168.2 for the nine months ended September 30, 2020, an increase of 32.6% over corporate expenses of $126.8 in the corresponding period of 2019.

The increase in corporate expenses in 2020 was primarily due to higher personnel costs, including executive transition costs, COVID-19 related expenses and the funding of the LabCorp Charitable Foundation.

LIQUIDITY AND CAPITAL RESOURCES (dollars and shares in millions)

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The Company's senior unsecured revolving credit facility is further discussed in Note 7 Debt to the Company's Condensed Consolidated Financial Statements.

In summary, the Company's cash flows were as follows for the six months ended June 30, 2020 and 2019, respectively:

Six Months Ended June 30,

In summary, the Company's cash flows were as follows for the nine months ended September 30, 2020, and 2019, respectively:

Nine Months Ended September 30,

Net cash provided by operating activities $ 1,360.7 $ 874.9

Net cash used for investing activities (515.2) (1,131.0)

Net cash used for financing activities (119.7) 311.7

Net cash provided by (used for) financing activities (516.4) 196.7

Effect of exchange rate changes on cash and cash equivalents 0.6 (6.3)

Net (decrease) increase in cash and cash equivalents $ 219.5 $ (161.4)

Net increase (decrease) in cash and cash equivalents $ 329.7 $ (65.7)

Cash and Cash Equivalents

Cash and cash equivalents at June 30, 2020 and 2019, totaled $557.0 and $265.4, respectively.

Cash and cash equivalents at September 30, 2020, and 2019, totaled $667.2 and $361.1, respectively.

Cash and cash equivalents consist of highly liquid instruments, such as time deposits, commercial paper, and other money market investments, substantially all of which have original maturities of three months or less.

Operating Activities

During the six months ended June 30, 2020, the Company's operations provided $574.5 of cash as compared to $419.3 during the same period in 2019.

During the nine months ended September 30, 2020, the Company's operations provided $1,360.7 of cash as compared to $874.9 during the same period in 2019.

The $485.8 increase in cash provided from operations in 2020 as compared with the corresponding 2019 period is primarily due to higher cash earnings partially offset by higher working capital.

For the first six months of 2020, cash earnings included the $55.9 CARES Act funding and benefited from income and payroll tax deferrals, while working capital was negatively impacted by an increase in COVID-19 related testing supplies inventory and accounts receivable.

The COVID-19 pandemic has created uncertainty about the Company's near-term operating cash flows.

For the first nine months of 2020, operating cash flow benefited from income and payroll tax deferrals, but was negatively impacted by the increase in COVID-19 Testing related supplies and accounts receivable.

In addition, operating cash flow included $132.1 in CARES Act Provider Relief Funds, which the Company plans to return in the fourth quarter of 2020.

Based on current expectations of the impact of COVID-19, the Company expects to continue to generate positive cash flows from operating activities, however, should the COVID-19 impact worsen or last longer than anticipated, the Company may see a significant decline in cash flows from operating activities.

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Investing Activities

Net cash used for investing activities for the six months ended June 30, 2020, was $230.0 as compared to net cash used for investing activities of $891.3 for the six months ended June 30, 2019.

The change in cash used for investing activities was primarily due to a decrease in business acquisitions during the six months ended June 30, 2020.

Capital expenditures were $205.1 and $179.4 for the six months ended June 30, 2020, and 2019, respectively.

Net cash used for investing activities for the nine months ended September 30, 2020, was $515.2 as compared to net cash used for investing activities of $1,131.0 for the nine months ended September 30, 2019.

The change in cash used for investing activities was primarily due to a decrease in business acquisitions during the nine months ended September 30, 2020.

Capital expenditures were $282.3 and $272.0 for the nine months ended September 30, 2020, and 2019, respectively.

Financing Activities

Net cash used for financing activities for the six months ended June 30, 2020, was $119.7 compared to net cash provided by financing activities of $311.7 for the six months ended June 30, 2019.

The change in cash flows from financing activities for the six months ended June 30, 2020, as compared to the six months ended June 30, 2019, were primarily due to net financing proceeds from the term loan and revolving credit facilities in 2019 of $635.0 offset by $200.0 more in share repurchases in 2019.

Net cash used for financing activities for the nine months ended September 30, 2020, was $516.4 compared to net cash provided by financing activities of $196.7 for the nine months ended September 30, 2019.

The change in cash flows from financing activities for the nine months ended September 30, 2020, as compared to the nine months ended September 30, 2019, were primarily due to net financing proceeds from the term loan and revolving credit facilities in 2019 of $600.0, compared to the redemption of $412.2 in senior notes in 2020 offset by a $300.0 reduction in share repurchases.

The Company's revolving credit facility consists of a five-year revolving facility in the principal amount of up to $1,000.0, with the option of increasing the facility by up to an additional $350.0, subject to the agreement of one or more new or existing lenders to provide such additional amounts and certain other customary conditions.

Under the Company's term loan credit facility and the revolving credit facility, the Company is subject to negative covenants limiting subsidiary indebtedness and certain other covenants typical for investment grade-rated borrowers and the Company is required to maintain certain leverage ratios.

The Company was in compliance with all covenants under the term loan credit facility and the revolving credit facility at June 30, 2020 and expects that it will remain in compliance with its existing debt covenants for the next twelve months.

During the fourth quarter of 2020, $412.2 of the Company's senior notes mature.

The Company has elected to redeem these notes in August 2020 at par using available cash on hand and borrowings under its revolving credit facility.

At June 30, 2020 the Company had $557.0 of cash and $997.0 of available borrowings under its revolving credit facility, which does not mature until 2022.

In May 2020, in order to obtain increased financial covenant flexibility, the Company and its lenders entered into amendments to the term loan facility and the revolving credit facility to increase the maximum leverage ratio to 5.0x debt to last twelve months EBITDA for the three month periods ending June 30, September 30 and December 31, 2020, 4.5x for period ended March 31, 2021 and then reverts back to 4.0x.

The amendments also provide that during any period in which the Company's leverage ratio exceeds 4.5x debt to last twelve months EBITDA (i) the company will be prohibited from consummating share repurchases, subject to limited exceptions, (ii) borrowings under the revolving credit facility will accrue interest at a per annum rate equal to, at the Company's election, either a LIBOR rate plus a margin of 1.25% or a base

rate plus a margin of 0.25%, (iii) the facility fee that the Company is required to pay on the aggregate commitments under the revolving credit facility will be 0.25% per annum, and (iv) borrowings under the term loan facility will accrue interest at a per annum rate equal to, at the Company's election, either a LIBOR rate plus a margin of 1.175% or a base rate plus a margin of 0.175%.

The Company was in compliance with all covenants under the term loan credit facility and the revolving credit facility at September 30, 2020, and expects that it will remain in compliance with its existing debt covenants for the next twelve months.

On August 17, 2020, the Company redeemed the remaining $412.2 of its 4.625% Senior Notes due November 15, 2020, using available cash on hand and borrowings under its revolving credit facility.

At September 30, 2020, the Company had $667.2 of cash and $997.0 of available borrowings under its revolving credit facility, which does not mature until 2022.

From and including the period ending June 30, 2021 the maximum leverage ratio reverts back to 4.0x.

The amendments also provide that during any period in which the Company's leverage ratio exceeds 4.5x debt to last twelve months EBITDA (i) the company will be prohibited from consummating share

repurchases, subject to limited exceptions, (ii) borrowings under the revolving credit facility will accrue interest at a per annum rate equal to, at the Company's election, either a LIBOR rate plus a margin of 1.25% or a base rate plus a margin of 0.25%, (iii) the facility fee that the Company is required to pay on the aggregate commitments under the revolving credit facility will be 0.25% per annum, and (iv) borrowings under the term loan facility will accrue interest at a per annum rate equal to, at the Company's election, either a LIBOR rate plus a margin of 1.175% or a base rate plus a margin of 0.175%.

At the end of 2019, the Company had outstanding authorization from the board of directors to purchase up to $900.0 of Company common stock.

As of June 30, 2020, the Company had outstanding authorization from the board of directors to purchase up to $800.0 of the Company's common stock.

As of September 30, 2020, the Company had outstanding authorization from the board of directors to purchase up to $800.0 of the Company's common stock.

The repurchase authorization has no expiration date.

however, the Company temporarily suspended stock repurchases beginning in March 2020 due to impact of the COVID-19 pandemic.

The Company reinstated its share repurchase program in October 2020 following the temporary suspension of stock repurchases beginning in March 2020 due to the impact of the COVID-19 pandemic.

Credit Ratings

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis