What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-08-05 compared with 2021-05-04 · 198 added, 72 removed, 153 unchanged (64% of the section changed)

23 unchanged sentences

Food and Drug Administration, the U.S.

Department of Agriculture, the Medicine and Healthcare products Regulatory Agency in the United Kingdom (U.K.), the National Medical Products Administration in China, the Pharmaceutical and Medical Devices Agency in Japan, the European Medicines Agency and similar regulations and policies of agencies in other jurisdictions in which the Company conducts business;

Department of Agriculture, the Medicine and Healthcare products Regulatory Agency in the United Kingdom, the National Medical Products Administration in China, the Pharmaceutical and Medical Devices Agency in Japan, the European Medicines Agency and similar regulations and policies of agencies in other jurisdictions in which the Company conducts business;

changes in government regulations or reimbursement pertaining to the biopharmaceutical and medical device and diagnostic industries, changes in reimbursement of biopharmaceutical products, or reduced spending on research and development by biopharmaceutical and medical device and diagnostic customers;

21 unchanged sentences

scope, validity and enforceability of patents and other proprietary rights held by third parties that may impact the Company's ability to develop, perform, or market the Company's products or services or operate its business;

business interruption, receivable impairment, delays in cash collection impacting days sales outstanding, supply chain disruptions, increases in operating costs, or other impacts on the business due to natural disasters, including adverse weather, fires and earthquakes, political crises, including terrorism and war, public health crises and disease epidemics and pandemics, and other events outside of the Company's control;

business interruption, receivable impairment, delays in cash collection impacting days sales outstanding, supply chain disruptions or inventory obsolescence, increases in material cost or other operating costs, or other impacts on the business due to natural disasters, including adverse weather, fires and earthquakes, political crises, including terrorism and war, public health crises and disease epidemics and pandemics, and other events outside of the Company's control;

discontinuation or recalls of existing testing products;

11 unchanged sentences

changes in tax laws and regulations or changes in their interpretation;

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

global economic conditions and government and regulatory changes;

effects, duration, and severity of the ongoing COVID-19 pandemic, including the impact on operations, personnel, supplies, liquidity, 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, and the availability and timeliness of its drug development services.

2 unchanged sentences

GENERAL (dollars in millions, except per share data)

Revenues for the three months ended March 31, 2021, were $4,161.5, an increase of 47.4% from $2,823.8 during the three months ended March 31, 2020.

Revenues for the six months ended June 30, 2021, were $8,002.2, an increase of 43.1% from $5,592.6 during the six months ended June 30, 2020.

The increase in revenues was due to organic growth of 40.3%, acquisitions of 1.1%, and favorable foreign currency translation of 1.7%.

2 unchanged sentences

The Company defines organic growth as the increase in revenue, excluding revenue from acquisitions for the first twelve months after the close of each acquisition.

While the Company continues to see strong momentum across its operations, the Company’s board of directors and its management team believe that the Company’s value is not appropriately reflected in its current stock price.

In March 2021, the Company announced that its board of directors and management had commenced a review of the Company’s structure and capital allocation strategy to ensure that it is best positioned to unlock shareholder value while the Company continues to support patients and customers around the world.

As previously reported, in March 2021, the Company announced that its board of directors and management had commenced a review of the Company’s structure and capital allocation strategy to ensure that it is best positioned to unlock shareholder value while the Company continues to support patients and customers around the world.

The board of directors has engaged Goldman Sachs & Co.

1 unchanged sentence

There can be no assurances regarding the outcome or timing of the review process.

The Company does not undertake any obligation to provide updates on this process until a conclusion is reached.

The Company expects to provide an update in the fourth quarter, though it does not undertake any obligation to provide updates on this process until a conclusion is reached.

RESULTS OF OPERATIONS (dollars in millions)

Three months ended March 31, 2021, compared with three months ended March 31, 2020

Three Months Ended March 31,

Three months ended June 30, 2021, compared with three months ended June 30, 2020

Three Months Ended June 30,

2021 2020 Change

3 unchanged sentences

Total $ 3,840.7 $ 2,768.8 38.7 %

The increase in revenues for the three months ended March 31, 2021, as compared with the corresponding period in 2020 was 47.4%.

Total revenue for the three months ended June 30, 2021, was $3.84 billion, an increase of 38.7% over $2.77 billion in the second quarter of 2020.

The increase was due to organic Base Business growth of 35.5%, acquisitions of 1.2%, and favorable foreign currency translation of 2.0%.

COVID-19 PCR and antibody testing (COVID-19 Testing) revenue of $444.0 million was flat compared to last year.

Base Business includes Labcorp's operations except for COVID-19 Testing.

Dx revenues for the three months ended June 30, 2021, was $2.37 billion, an increase of 39.7% over $1.69 billion in the second quarter of 2020.

The increase was due to organic Base Business growth of 37.8%, acquisitions of 1.1%, and favorable foreign currency translation of 0.9%.

COVID-19 Testing revenue of $444.0 million was flat versus last year.

Total volume (measured by requisitions) the three months ended June 30, 2021, increased by 39.6% as organic volume increased by 38.7% and acquisition volume contributed 0.9%.

The organic volume growth was due to a 39.4% increase in Base Business, partially offset by a (0.7%) decrease in COVID-19 Testing.

Price/mix increased by 0.1% due to currency of 0.9%, COVID-19 Testing of 0.7%, and acquisitions of 0.2%, partially offset by organic Base Business of (1.7%) due to the volume recovery.

Organic Base Business volume was up 48.2% while price was up 3.1%.

DD revenues for the three months ended June 30, 2021, was $1.50 billion, an increase of 36.7% over $1.09 billion in the second quarter of 2020.

The increase was due to organic Base Business growth of 32.1%, acquisitions of 1.3%, and favorable foreign currency translation of 3.7%, partially offset by lower COVID-19 Testing performed through its Central Laboratories business of (0.3%).

Drug Development's Base Business benefited from broad-based demand, including COVID-19 vaccine and therapeutic work.

Cost of Revenues

Three Months Ended June 30,

2021 2020 Change

Cost of revenues $ 2,575.9 $ 2,008.3 28.3 %

Cost of revenues as a % of revenues 67.1 % 72.5 %

Cost of revenues increased 28.3% during the three months ended June 30, 2021, as compared with the corresponding period in 2020.

Cost of revenues as a percentage of revenues during the three months ended June 30, 2021, decreased to 67.1% as compared to 72.5% in the corresponding period in 2020.

This decrease was primarily due to organic Base Business growth, acquisitions, and LaunchPad savings, partially offset by higher personnel costs.

Selling, General and Administrative Expenses

Three Months Ended June 30,

2021 2020 Change

Selling, general and administrative expenses $ 458.7 $ 396.3 15.7 %

Selling, general and administrative expenses as a % of revenues 11.9 % 14.3 %

During the three months ended June 30, 2021, the Company incurred $6.5 of acquisition and divestiture related costs, $3.5 in COVID-related costs and $0.5 in management transition costs.

In addition, the Company recorded $1.5 of non-capitalized costs associated with the implementation of a major system as part of its LaunchPad business process improvement initiative and $15.8 related to miscellaneous other items.

These items increased selling, general and administrative expenses by $27.8.

During the three months ended June 30, 2020, the Company incurred $4.6 in acquisition and divestiture costs and $7.8 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 reversed $1.8 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 $7.7.

Excluding these charges, selling, general and administrative expenses as a percentage of revenues were 11.2% and 14.0% during the three months ended June 30, 2021, and 2020, respectively, primarily due to leveraging the Company's infrastructure on higher revenue.

Amortization of Intangibles and Other Assets

Three Months Ended June 30,

2021 2020 Change

Dx $ 28.4 $ 25.3 12.3 %

DD 64.0 34.8 83.9 %

Total amortization of intangibles and other assets $ 92.4 $ 60.1 53.7 %

The increase in amortization of intangibles and other assets primarily reflects the impact of acquisitions occurring after June 30, 2020, and $28.0 of accelerated amortization related to the Covance trade name as a result of a rebranding initiative, partially offset by lower amortization due to the impairment of intangible assets in 2020.

Restructuring and Other Special Charges

Three Months Ended June 30,

2021 2020 Change

Restructuring and other charges $ 9.6 $ 6.4 50.0 %

During the three months ended June 30, 2021, the Company recorded net restructuring and other charges of $9.6:

$6.0 within Dx and $3.6 within DD.

The charges were comprised of $6.1 related to severance and other personnel costs and $3.5 in facility closures, lease terminations, and general integration activities.

The charges were adjusted by an increase of $0.1 of previously established severance liabilities and the reversal of previously established liability of $0.1 in unused facility-related costs.

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

$3.7 within Dx and $2.7 within DD.

The charges were comprised of $5.4 related to severance and other personnel costs, $3.3 for a DD lab facility and equipment impairment, and $4.2 in facility closures, impairment of operating lease right-of-use assets, and general integration initiatives.

The charges were offset by the reversal of previously established reserves of $1.1 and $5.5 in unused severance and facility-related costs, respectively.

Interest Expense

Three Months Ended June 30,

2021 2020 Change

Interest expense $ (78.3) $ (52.7) 48.6 %

The increase in interest expense for the three months ended June 30, 2021, as compared with the corresponding period in 2020, is primarily due to the costs of redeeming the 3.20% and 3.75% notes and issuing the new senior notes, partially offset by lower debt.

Equity Method Income

Three Months Ended June 30,

2021 2020 Change

Equity method income, net $ 8.0 $ 1.8 344.4 %

Equity method income represents the Company's ownership share in joint venture partnerships along with equity investments in other companies in the health care industry.

The increase in income for the three months ended June 30, 2021, as compared with the corresponding period in 2020, was primarily due to the write off or write down of certain of the Company's investments in 2020 primarily due to the negative impact of the COVID-19 global pandemic and increased profitability of the Company's joint ventures in 2021.

Three Months Ended June 30,

2021 2020 Change

Other, net $ 14.1 $ 47.7 (70.4) %

The change in other, net for the three months ended June 30, 2021, as compared to the three months ended June 30, 2020, is primarily due to the $55.9 of funding from the Public Health and Social Services Emergency Fund for provider relief that was appropriated by Congress to the U.S.

Department of Health and Human Services (HHS) in the Coronavirus Aid, Relief, and Economic Security Act (CARES Act Provider Relief Funds) in the second quarter of 2020.

The Company returned these funds to the government in the fourth quarter of 2020.

This funding in 2020 was partially offset by the $5.2 write off or write down of certain of the Company's investments due to the negative impact of the COVID-19 global pandemic in 2020.

During the three months ended June 30, 2021, the Company recorded investment gains of $22.1 which were partially offset by a loss on of a business of $5.0.

In addition, foreign currency transaction losses of $1.7 were recognized for the three months ended June 30, 2021, and losses of $1.7 were recognized in the corresponding period of 2020.

Income Tax Expense

Three Months Ended June 30,

2021 2020 Change

Income tax expense $ 182.6 $ 65.4 179.2 %

Income tax expense as a % of earnings before income taxes 28.1 % 22.0 %

The 2021 tax rate was unfavorable to the 2020 tax rate due primarily to the 2021 revaluation of the United Kingdom net deferred tax liabilities reflecting a 25% effective tax rate as of 2023.

Operating Income by Segment

Three Months Ended June 30,

2021 2020 Change

Dx operating income $ 603.6 $ 281.3 114.6 %

Dx operating margin 25.5 % 16.5 % 9.0 %

DD operating income 147.3 65.5 124.9 %

DD operating margin 9.9 % 6.0 % 3.9 %

General corporate expenses (46.8) (49.1) (4.7) %

Total operating income $ 704.1 $ 297.7 136.5 %

Dx operating income was $603.6 for the three months ended June 30, 2021, an increase of $322.3 over operating income of $281.3 in the corresponding period of 2020, and Dx operating margin increased 900 basis points year-over-year.

The increase was primarily due to the organic Base Business growth and LaunchPad savings, partially offset by higher personnel costs.

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

DD operating income was $147.3 for the three months ended June 30, 2021, an increase of $81.8 over operating income of $65.5 in the corresponding period of 2020.

The increase was primarily due to organic Base Business growth and LaunchPad savings, partially offset by higher personnel costs.

The Company continues to invest in technology and processes to drive profitable growth in DD.

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 $46.8 for the three months ended June 30, 2021, a decrease of $2.3 over corporate expenses of $49.1 in the corresponding period of 2020, primarily due to higher executive transition costs in 2020.

Six months ended June 30, 2021, compared with six months ended June 30, 2020

Six Months Ended June 30,

2021 2020 Change

Dx $ 5,123.3 $ 3,394.7 50.9 %

DD 2,933.4 2,237.5 31.1 %

Intercompany eliminations and other (54.5) (39.6) 37.6 %

Total $ 8,002.2 $ 5,592.6 43.1 %

The increase in revenues for the six months ended June 30, 2021, as compared with the corresponding period in 2020 was 43.1%.

The increase in revenues was due to organic growth of 40.3%, acquisitions of 1.1%, and favorable foreign currency translation of 1.7%.

The 45.1% increase in organic revenue includes the 32.9% contribution from COVID-19 Testing and a 12.2% increase in the Company's organic Base Business.

Dx revenues for the quarter were $2,757.8, an increase of 62.0% compared to revenues of $1,702.0 in the first quarter of 2020.

The 40.3% increase in organic revenue includes a 23.8% increase in the Company's organic Base Business and a 16.6% contribution from COVID-19 Testing.

Dx revenues for the first half of the year were $5,123.3, an increase of 50.9% compared to revenues of $3,394.7 during the six months ended June 30, 2020.

The increase in revenues was primarily due to organic growth of 49.3%, acquisitions of 1.0%, and favorable foreign currency translation of 0.6%.

The 60.8% in organic revenue was due to a 54.5% contribution from COVID-19 Testing and a 6.3% increase in the Base Business, which includes the negative impact of weather of 2.0%.

The 49.3% in organic revenue was due to a 27.3% contribution from COVID-19 Testing and a 21.9% increase in the Base Business.

Total volume, measured by requisitions, increased by 32.9% as organic volume increased by 32.2% and acquisition volume contributed 0.8%.

The organic volume growth was due to a 27.9% contribution from COVID-19 Testing, partially offset by a 1.3% reduction in revenue days.

Price increased by 34.7% due to COVID-19 Testing of 26.6%, organic Base Business of 7.5%, favorable foreign currency translation of 0.4% and acquisitions of 0.2%.

DD revenues for the first quarter were $1,438.2, an increase of 25.7% over revenues of $1,143.8 in the first quarter of 2020.

The increase in revenues was primarily due to organic growth of 21.9%, acquisitions of 1.0%, and favorable foreign currency translation of 2.9%.

The 21.9% increase in organic revenue was due to a 19.7% increase in the Base Business and a 2.2% contribution from COVID-19 Testing performed through its Central Laboratories business.

While continuing to be negatively impacted by the pandemic, DD benefited from broad-based demand across all service lines, including COVID-19 vaccine and therapeutic work.

COVID-19 Testing contributed 14.8% to organic volume growth.

Price/mix increased by 18.0% due to COVID-19 Testing of 12.5%, organic Base Business of 4.6%, favorable foreign currency translation of 0.6% and acquisitions of 0.2%.

DD revenues for the six months ended June 30, 2021 were $2,933.4, an increase of 31.1% over revenues of $2,237.5 during the six months ended June 30, 2020.

The increase in revenues was primarily due to organic Base Business growth of 25.8%, acquisitions of 1.1%, favorable foreign currency translation of 3.3%, and COVID-19 Testing performed through its Central Laboratories business of 1.0%.

Drug Development's Base Business benefited from broad-based demand, including COVID-19 vaccine and therapeutic work.

Cost of Revenues

Three Months Ended March 31,

Six Months Ended June 30,

2021 2020 Change

1 unchanged sentence

Cost of revenues as a % of revenues 64.2 % 73.4 %

Cost of revenues increased 22.3% during the three months ended March 31, 2021, as compared with the corresponding period in 2020.

Cost of revenues as a percentage of revenues during the three months ended March 31, 2021, decreased to

61.6% as compared to 74.2% in the corresponding period in 2020.

Cost of revenues increased 25.2% during the six months ended June 30, 2021, as compared with the corresponding period in 2020.

Cost of revenues as a percentage of revenues during the six months ended June 30, 2021, decreased to 64.2% as compared to 73.4% in the corresponding period in 2020.

This decrease was primarily due to the impact of COVID-19 Testing, organic Base Business growth, and acquisitions, partially offset by higher personnel costs.

Selling, General and Administrative Expenses

Three Months Ended March 31,

Six Months Ended June 30,

2021 2020 Change

1 unchanged sentence

Selling, general and administrative expenses as a % of revenues 11.1 % 14.2 %

During the three months ended March 31, 2021, the Company incurred $5.6 of acquisition and divestiture related costs, $2.3 in COVID-related costs and $2.3 in management transition costs.

During the six months ended June 30, 2021, the Company incurred $12.2 of acquisition and divestiture related costs, $5.8 in COVID-related costs and $2.8 in management transition costs.

In addition, the Company recorded $2.8 of non-capitalized costs associated with the implementation of a major system as part of its LaunchPad business process improvement initiative and $13.3 related to miscellaneous other items.

These items increased selling, general and administrative expenses by $36.9.

During the three months ended March 31, 2020, the Company incurred $8.4 in acquisition and divestiture costs and $2.8 in management transition costs.

In addition, the Company recorded $0.9 of non-capitalized costs associated with the implementation of a major system as part of its LaunchPad business process improvement initiative and reversed $0.6 related to miscellaneous other items.

During the six months ended June 30, 2020, the Company incurred $13.0 in acquisition and divestiture costs, $3.7 in COVID-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.

These items increased selling, general and administrative expenses by $19.6.

Excluding these charges, selling, general and administrative expenses as a percentage of revenues were 10.1% and 13.5% during the three months ended March 31, 2021, and 2020, respectively, primarily due to leveraging the Company's infrastructure on higher revenue.

Excluding these charges, selling, general and administrative expenses as a percentage of revenues were 10.6% and 13.8% during the six months ended June 30, 2021, and 2020, respectively, primarily due to leveraging the Company's infrastructure on higher revenue.

Goodwill and Other Asset Impairments

Three Months Ended March 31,

Six Months Ended June 30,

2021 2020 Change

Goodwill and other asset impairments $ — $ 437.4 N/A

During the three months ended March 31, 2020, the Company recorded goodwill and other asset impairment charges of $437.4, $426.4 within DD and $11.0 within Dx, representing 3.7% of the Company's total goodwill and intangible assets.

Goodwill and other asset impairments $ — $ 437.4 100.0%

During the six months ended June 30, 2020, the Company recorded goodwill and other asset impairment charges of $437.4, $426.4 within DD and $11.0 within Dx, 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 certain of its reporting units and recorded goodwill impairment of $418.7 in DD and $3.7 in Dx.

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

There were no goodwill and other asset impairments for the three months ended March 31, 2021.

There were no goodwill and other asset impairments for the six months ended June 30, 2021.

Amortization of Intangibles and Other Assets

Three Months Ended March 31,

Six Months Ended June 30,

2021 2020 Change

2 unchanged sentences

Total amortization of intangibles and other assets $ 184.5 $ 122.4 50.7 %

The increase in amortization of intangibles and other assets primarily reflects the impact of acquisitions occurring after March 31, 2020, and $29.2 of accelerated amortization related to the Covance trade name as a result a rebranding initiative, partially offset by lower amortization due to the impairment of intangible assets in 2020.

The increase in amortization of intangibles and other assets primarily reflects the impact of acquisitions occurring after June 30, 2020, and $57.2 of accelerated amortization related to the Covance trade name as a result of a rebranding initiative, partially offset by lower amortization due to the impairment of intangible assets in 2020.

Restructuring and Other Special Charges

Three Months Ended March 31,

Six Months Ended June 30,

2021 2020 Change

Restructuring and other charges $ 28.8 $ 31.8 (9.4) %

During the three months ended March 31, 2021, the Company recorded net restructuring and other charges of $19.2:

During the six months ended June 30, 2021, the Company recorded net restructuring and other charges of $28.8:

$13.5 within Dx and $15.3 within DD.

The charges were comprised of $10.2 related to severance and other personnel costs and $18.7 in facility closures, lease terminations, and general integration activities.

The charges were offset by the reversal of a previously established liability of $0.1 in unused facility-related costs.

During the three months ended March 31, 2020, the Company recorded net restructuring and other special charges of $25.4:

The charges were adjusted by an increase of $0.1 of previously established severance liabilities and the reversal of previously established liability of $0.2 in unused facility-related costs.

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

$11.8 within Dx and $20.0 within DD.

The charges were comprised of $10.5 related to severance and other personnel costs, $8.0 for a DD lab facility impairment, and $20.0 in costs associated with facility closures, impairment of operating lease right-of-use assets, and general integration initiatives.

The charges were offset by the reversal of previously established reserves of $0.2 in unused facility reserves.

The charges were offset by the reversal of previously established liability of $1.0 and $5.7 in unused severance costs and facility-related costs, respectively.

Interest Expense

Three Months Ended March 31,

Six Months Ended June 30,

2021 2020 Change

Interest expense $ (126.8) $ (107.7) 17.7 %

The decrease in interest expense for the three months ended March 31, 2021, as compared with the corresponding period in 2020, is primarily due to the repayment of the 4.625% senior notes and the 2019 Term Loan.

The increase in interest expense for the six months ended June 30, 2021, as compared with the corresponding period in 2020, is primarily due to the costs of redeeming the 3.20% and 3.75% notes and issuing the new senior notes, partially offset by lower debt.

Equity Method Income

Three Months Ended March 31,

Six Months Ended June 30,

2021 2020 Change

1 unchanged sentence

Equity method income represents the Company's ownership share in joint venture partnerships along with equity investments in other companies in the health care industry.

All of these partnerships and investments reside within Dx.

The increase in income for the three months ended March 31, 2021, as compared with the corresponding period in 2020, was primarily due the write off or write down of certain of the Company's investments in 2020 primarily due to the negative impact of the COVID-19 global pandemic and increased profitability of the Company's joint ventures in 2021.

Three Months Ended March 31,

The increase in income for the six months ended June 30, 2021, as compared with the corresponding period in 2020, was primarily due to the write off or write down of certain of the Company's investments in 2020 primarily due to the negative impact of the COVID-19 global pandemic and increased profitability of the Company's joint ventures in 2021.

Six Months Ended June 30,

2021 2020 Change

Other, net $ 19.6 $ 31.6 (38.0) %

The change in other, net for the three months ended March 31, 2021, as compared to the three months ended March 31, 2020, is primarily due to the write off or write down of certain of the Company's investments in 2020 primarily due to the negative impact of the COVID-19 global pandemic as compared to net investment gains in 2021.

In addition, foreign currency transaction losses of $1.0 were recognized for the three months ended March 31, 2021, and losses of $2.8 were recognized in the corresponding period of 2020.

The change in other, net for the six months ended June 30, 2021, as compared to the six months ended June 30, 2020, is $55.9 of funding from the Public Health and Social Services Emergency Fund for provider relief that was appropriated by Congress to the HHS in the CARES Act Provider Relief Funds in the second quarter of 2020.

The Company returned these funds to the government in the fourth quarter of 2020.

This funding in 2020 was partially offset by the $18.3 write off or write down of certain of the Company's investments due to the negative impact of the COVID-19 global pandemic in 2020.

During the six months ended June 30, 2021, the Company recorded investment gains of $30.5 which were partially offset by a loss on sale of a business of $5.0.

In addition, foreign currency transaction losses of $2.8 were recognized for the six months ended June 30, 2021, and losses of $4.5 were recognized in the corresponding period of 2020.

Income Tax Expense

Three Months Ended March 31,

Six Months Ended June 30,

2021 2020 Change

1 unchanged sentence

Income tax expense as a % of earnings before income taxes 26.0 % 391.1 %

The 2021 tax rate was favorable to the 2020 tax rate due primarily to the 2020 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.

The 2021 tax rate was favorable to the 2020 tax rate due primarily to the 2020 impairment charges which were either not deductible or the associated tax assets required a full valuation allowance partially offset by the 2021 revaluation of the United Kingdom net deferred tax liabilities reflecting a 25% effective tax rate as of 2023.

Operating Income by Segment

Three Months Ended March 31,

Six Months Ended June 30,

2021 2020 Change

5 unchanged sentences

Total operating income (loss) $ 1,762.0 $ 105.1 $ 1,656.9

Dx operating income was $949.1 for the three months ended March 31, 2021, an increase of $743.9 over operating income of $205.2 in the corresponding period of 2020, and Dx operating margin increased 2,230 basis points year-over-year.

Dx operating income was $1,552.7 for the six months ended June 30, 2021, an increase of $1,066.0 over operating income of $486.7 in the corresponding period of 2020, and Dx operating margin increased 1600 basis points year-over-year.

The increase was primarily due to the increase in COVID-19 Testing, organic Base Business growth and LaunchPad savings, partially offset by higher personnel costs.

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

DD operating income was $156.4 for the three months ended March 31, 2021, an increase over operating loss of $338.7 in the corresponding period of 2020.

DD operating income was $303.7 for the six months ended June 30, 2021, an increase of $576.9 over operating loss of $273.2 in the corresponding period of 2020.

The increase was primarily due to goodwill and other asset impairments in 2020 and in 2021 organic Base Business growth, COVID-19 Testing, and LaunchPad savings, partially offset by higher personnel costs.

1 unchanged sentence

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 $47.6 for the three months

ended March 31, 2021, a decrease of $11.5 over corporate expenses of $59.1 in the corresponding period of 2020, primarily due to higher executive transition costs in 2020.

Corporate expenses were $94.5 for the six months ended June 30, 2021, a decrease of $13.9 over corporate expenses of $108.4 in the corresponding period of 2020, primarily due to higher executive transition costs in 2020.

LIQUIDITY AND CAPITAL RESOURCES (dollars and shares in millions)

2 unchanged sentences

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 three months ended March 31, 2021, and 2020, respectively:

Three Months Ended March 31,

In summary, the Company's cash flows were as follows for the six months ended June 30, 2021, and 2020, respectively:

Six Months Ended June 30,

Net cash provided by operating activities $ 1,644.8 $ 574.5

2 unchanged sentences

Effect of exchange rate changes on cash and cash equivalents (4.1) (5.3)

Net increase (decrease) in cash and cash equivalents $ 570.0 $ (13.9)

Net increase in cash and cash equivalents $ 642.4 $ 219.5

Cash and Cash Equivalents

Cash and cash equivalents at March 31, 2021, and 2020, totaled $1,890.8 and $323.6, respectively.

Cash and cash equivalents at June 30, 2021, and 2020, totaled $1,963.2 and $557.0, 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 three months ended March 31, 2021, the Company's operations provided $1,157.6 of cash as compared to $203.8 during the same period in 2020.

The $953.8 increase in cash provided from operations in 2021 as compared with the corresponding 2020 period is primarily due to higher cash earnings and lower working capital.

During the six months ended June 30, 2021, the Company's operations provided $1,644.8 of cash as compared to $574.5 during the same period in 2020.

The $1,070.3 increase in cash provided from operations in 2021 as compared with the corresponding 2020 period is primarily due to higher cash earnings and a decrease in working capital.

Investing Activities

Net cash used for investing activities for the three months ended March 31, 2021, was $132.4 as compared to net cash used for investing activities of $106.6 for the three months ended March 31, 2020.

The change in cash used for investing activities was primarily due to an increase in business acquisitions during the three months ended March 31, 2021 partially offset by lower capital expenditures.

Capital expenditures were $95.4 and $106.6 for the three months ended March 31, 2021, and 2020, respectively.

Net cash used for investing activities for the six months ended June 30, 2021, was $222.8 as compared to net cash used for investing activities of $230.0 for the six months ended June 30, 2020.

The change in cash used for investing activities was primarily due to lower capital expenditures and higher proceeds from the sale of assets partially offset by an increase in business acquisitions during the six months ended June 30, 2021.

Capital expenditures were $192.6 and $205.1 for the six months ended June 30, 2021, and 2020, respectively.

The Company continues to evaluate a robust pipeline of acquisitions and anticipates an acceleration of acquisitions in the second half of 2021.

Financing Activities

Net cash used for financing activities for the three months ended March 31, 2021, was $450.1 compared to $102.8 for the three months ended March 31, 2020.

The change in cash flows from financing activities for the three months ended March 31, 2021, as compared to the three months ended March 31, 2020, were primarily due to repayment of the 2019 Term Loan in February 2021, partially offset by a $31.5 reduction in share repurchases.

Net cash used by financing activities for the six months ended June 30, 2021, was $775.5 compared to cash used for financing activities of $119.7 for the six months ended June 30, 2020.

The change in cash flows from financing activities for the six months ended June 30, 2021, as compared to the six months ended June 30, 2020, were primarily due to the repayment of the 2019 Term Loan in February 2021 and an increase of $268.5 in share repurchases.

On May 26, 2021, the Company issued new senior notes representing $1,000.0 in debt securities and consisting of $500.0 aggregate principal amount of 1.55% senior notes due 2026 and $500.0 aggregate principal amount of 2.70% senior notes due 2031.

Interest on these notes is payable semi-annually in arrears on June 1 and December 1 of each year, commencing on December 1, 2021.

Net proceeds from the offering of these notes were $989.4 after deducting underwriting discounts and other expenses of the offering.

The net proceeds were used to redeem, prior to maturity, the Company's outstanding 3.20% senior notes due February 1, 2022 and 3.75% senior notes due August 23, 2022.

During the second quarter of 2021, the Company entered into fixed-to-variable interest rate swap agreements for its 2.70% senior notes due 2031 with an aggregate notional amount of $500.0 and variable interest rates based on three-month LIBOR plus 1.0706%.

These instruments are designated as hedges against changes in the fair value of a portion of the Company's long-term debt.

The aggregate fair value of $9.5 at June 30, 2021, was included as a component of other long-term assets and added to the reported value of the senior notes.

On April 30, 2021, the Company amended and restated its revolving credit facility.

It 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 $500.0 (which was previously $350.0), subject to the agreement of one or more new or existing lenders to provide such additional amounts and certain other customary conditions.

The Company is required to pay a facility fee on the aggregate commitments under the revolving credit facility, at a per annum rate ranging from 0.100% to 0.225% (which was a per annum rate ranging from 0.100% to 0.25% prior to the amendment and restatement), depending on the Company’s debt ratings.

It 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 $500.0, subject to the agreement of one or more new or existing lenders to provide such additional amounts and certain other customary conditions.

The Company is required to pay a facility fee on the aggregate commitments under the revolving credit facility, at a per annum rate ranging from 0.100% to 0.225%, depending on the Company’s debt ratings.

Borrowings under the revolving credit facility will accrue interest at a per annum rate equal to, at the Company’s election, either (x) a LIBOR rate plus a margin ranging from 0.775% to 1.275% or (y) a base rate plus a margin ranging from 0% to 0.275%, in each case, depending on the Company’s debt ratings.

Under the Company's 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 revolving credit facility at March 31, 2021, and expects that it will remain in compliance with its existing debt covenants for the next twelve months.

In February 2021, the Company fully repaid the remaining $375.0 of the 2019 Term Loan.

At March 31, 2021, the Company had $1,890.8 of cash and $1,000.0 of available borrowings under its revolving credit facility, which does not mature until 2026.

As of March 31, 2021, the Company had outstanding authorization from the board of directors to purchase up to $731.5 of the Company's common stock.

The repurchase authorization has no expiration date.

The Company was in compliance with all covenants under the revolving credit facility at June 30, 2021,

and expects that it will remain in compliance with its existing debt covenants for the next twelve months.

At June 30, 2021, the Company had $1,963.2 of cash and $1,000.0 of available borrowings under its revolving credit facility, which does not mature until 2026.

For the six months ended June 30, 2021, the Company repurchased $368.5 of the Company's common stock and had outstanding authorization from the board of directors to purchase up to $431.5 more of the Company's common stock with no expiration date.

The Company expects to accelerate share repurchases in the second half of 2021.

Credit Ratings

1 unchanged sentence

The Company’s expectation is that it will seek to maintain an investment grade debt rating regardless of what, if anything, results from the Company’s current review of its structure and capital allocation strategy.

Contractual Cash Obligations

Payments Due by Period

Total Short-term Long-term

Operating lease obligations $ 835.2 $ 190.0 $ 645.2

Contingent future licensing payments (a) 19.8 3.8 16.0

Purchase obligations 62.9 39.2 23.7

Finance lease obligations 98.0 10.8 87.2

Scheduled interest payments on Senior Notes (b) 1,753.3 90.5 1,662.8

Long-term debt (c) 5,457.3 1.8 5,455.5

Total contractual cash obligations (d) (e) $ 8,226.5 $ 336.1 $ 7,890.4

(a) Contingent future licensing payments will be made if certain events take place, such as the launch of a specific test, the transfer of certain technology, and the achievement of specified revenue milestones.

(b) Interest payments due by period for the Company's debt subject to variable interest rates are calculated based on rates in place as of June 30, 2021.

(d) The table does not include obligations under the Company’s pension and postretirement benefit plans.

(e) The table does not include the Company’s reserve for unrecognized tax benefits.

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