What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-11-02 compared with 2021-08-05 · 140 added, 113 removed, 238 unchanged (52% of the section changed)

26 unchanged sentences

liabilities that result from the failure to comply with corporate governance requirements;

increased competition, including price competition, potential reduction in rates in response to price transparency and consumerism, competitive bidding and/or changes or reductions to fee schedules and competition from companies that do not comply with existing laws or regulations or otherwise disregard compliance standards in the industry;

increased competition, including price competition, potential reduction in rates in response to price transparency initiatives and consumerism, competitive bidding and/or changes or reductions to fee schedules and competition from companies that do not comply with existing laws or regulations or otherwise disregard compliance standards in the industry;

changes in payer mix or payment structure or processes, including insurance carrier participation in health insurance exchanges, an increase in capitated reimbursement mechanisms, the impact of clearinghouses on the claims reimbursement process, the impact of a shift to consumer-driven health plans or plans carrying an increased level of member cost-sharing, and adverse changes in payer reimbursement or payer coverage policies (implemented directly or through a third-party utilization management organization) related to specific diagnostic tests, categories of testing or testing methodologies;

13 unchanged sentences

adverse results in litigation matters;

inability to attract and retain experienced and qualified personnel or the loss of significant personnel as a result of illness or otherwise;

inability to attract and retain experienced and qualified personnel or the loss of significant personnel as a result of illness, increased competition for talent, or other market factors;

failure to develop or acquire licenses for new or improved technologies, such as point-of-care testing, mobile health technologies, and digital pathology, or potential use of new technologies by customers and/or consumers to perform their own tests;

2 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 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;

political crises, including terrorism and war;

public health crises and disease epidemics and pandemics;

changes in the global economy;

and other events outside of the Company's control;

discontinuation or recalls of existing testing products;

12 unchanged sentences

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.

effects, duration, and severity of the ongoing COVID-19 pandemic, including the impact on operations, personnel, supplies, liquidity, collections, as well as the impact of past or future actions or omissions by the Company or governments in response to the COVID-19 pandemic including, but not limited to, emerging government vaccine and testing mandates, 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.

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.

1 unchanged sentence

GENERAL (dollars in millions, except per share data)

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.

Revenues for the nine months ended September 30, 2021, were $12,064.8, an increase of 27.1% from $9,488.7 during the nine months ended September 30, 2020.

The increase in revenues was due to organic growth of 25.2%, acquisitions of 0.8%, and favorable foreign currency translation of 1.2%.

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

The 25.2% increase in organic revenue includes a 18.2% contribution from the company's organic Base Business and a 7.0% increase from COVID-19 Testing.

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

6 unchanged sentences

RESULTS OF OPERATIONS (dollars in millions)

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

Three Months Ended June 30,

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

Three Months Ended September 30,

2021 2020 Change

3 unchanged sentences

Total $ 4,062.6 $ 3,896.1 4.3 %

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.

Total revenues for the three months ended September 30, 2021, were $4,062.6, an increase of 4.3% over $3,896.1 in the third quarter of 2020.

The increase was due to organic Base Business growth of 3.4%, acquisitions of 0.4%, and favorable foreign currency translation of 0.5%.

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%).

The 3.4% increase in organic revenue is driven by a 10.2% increase in the company's organic Base Business, partially offset by a 6.8% decrease in COVID-19 Testing.

Dx revenues for the three months ended September 30, 2021, were $2,617.5, a decrease of 3.2% over $2,704.2 in the third quarter of 2020.

The decrease was due to organic Base Business reduction of 3.9%, partially offset by acquisitions of 0.4%, and favorable foreign currency translation of 0.3%.

The decrease in organic revenue was due to a 9.7% reduction from COVID-19 Testing, partially offset by a 5.8% increase in the Base Business.

Total volume (measured by requisitions) for the three months ended September 30, 2021, increased by 0.2% as acquisition volume contributed 0.2% and organic volume decreased by 0.1%.

The organic volume was impacted by a 5.9% decrease in COVID-19 Testing, partially offset by a 5.9% increase in Base Business.

Price/mix decreased by 3.4% due to lower COVID-19 Testing of 3.8%, partially offset by acquisitions of 0.2% and favorable currency translation of 0.3%.

Organic Base Business volume was up 7.7% while price/mix was up 1.3%.

DD revenues for the three months ended September 30, 2021, were $1,459.5, an increase of 17.5% over $1,241.9 in the third quarter of 2020.

The increase was due to organic Base Business growth of 19.9%, acquisitions of 0.4%, and favorable foreign currency translation of 1.0%, partially offset by lower COVID-19 Testing performed through its Central Laboratories business of 3.5% and divestitures 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,

Three Months Ended September 30,

2021 2020 Change

1 unchanged sentence

Cost of revenues as a % of revenues 65.9 % 60.0 %

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.

Cost of revenues increased 14.6 % during the three months ended September 30, 2021, as compared with the corresponding period in 2020.

Cost of revenues as a percentage of revenues during the three months ended September 30, 2021, increased to 65.9% as compared to 60.0% in the corresponding period in 2020.

This increase was primarily due to the impact of COVID-19 Testing.

Selling, General and Administrative Expenses

Three Months Ended June 30,

Three Months Ended September 30,

2021 2020 Change

1 unchanged sentence

Selling, general and administrative expenses as a % of revenues 12.8 % 10.8 %

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.

During the three months ended September 30, 2021, the Company incurred $9.6 of retention bonuses, $5.2 of acquisition and divestiture related costs, $2.8 in management transition costs, and $2.0 in COVID-related costs.

In addition, the Company recorded $1.8 of non-capitalized costs associated with the implementation of a major system as part of its LaunchPad business process improvement initiative and $4.0 related to miscellaneous other items.

These items increased selling, general and administrative expenses by $25.4.

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.

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

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

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.

Excluding these charges, selling, general and administrative expenses as a percentage of revenues were 12.2% and 10.6% during the three months ended September 30, 2021, and 2020, respectively, primarily due to the impact of COVID-19 Testing.

Goodwill and Other Asset Impairments

Three Months Ended September 30,

2021 2020 Change

Goodwill and other asset impairments $ — $ 23.5 (99.9) %

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 DD prior acquisition.

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

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

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

Amortization of Intangibles and Other Assets

Three Months Ended June 30,

Three Months Ended September 30,

2021 2020 Change

2 unchanged sentences

Total amortization of intangibles and other assets $ 92.2 $ 62.2 48.3 %

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.

The increase in amortization of intangibles and other assets primarily reflects the impact of acquisitions occurring after September 30, 2020, and $30.2 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 June 30,

Three Months Ended September 30,

2021 2020 Change

Restructuring and other charges $ 6.5 $ 7.1 (9.1) %

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

During the three months ended September 30, 2021, the Company recorded net restructuring and other charges of $6.5:

$3.3 within Dx and $3.2 within DD.

The charges were comprised of $3.3 related to severance and other personnel costs and $3.7 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:

The charges were adjusted by the reversal of previously established liability of $0.5 in unused facility-related costs.

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

$1.6 within Dx and $5.5 within DD.

2 unchanged sentences

Interest Expense

Three Months Ended June 30,

Three Months Ended September 30,

2021 2020 Change

Interest expense $ (42.2) $ (51.4) (18.0) %

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.

The decrease in interest expense for the three months ended September 30, 2021, as compared with the corresponding period in 2020, is primarily due to lower outstanding debt and a lower average cost of debt.

Equity Method Income

Three Months Ended June 30,

Three Months Ended September 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.

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,

The increase in income for the three months ended September 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, which was primarily due to the negative impact of the COVID-19 global pandemic, and to increased profitability of the Company's joint ventures in 2021.

Three Months Ended September 30,

2021 2020 Change

Other, net $ 31.9 $ (54.2) 159.0 %

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.

The change in other, net for the three months ended September 30, 2021, as compared to the three months ended September 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.

1 unchanged sentence

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.

During the three months ended September 30, 2021, the Company recorded investment gains of $36.9.

In addition, foreign currency transaction gains of $0.4 were recognized for the three months ended September 30, 2021, and losses of $1.9 were recognized in the corresponding period of 2020.

Income Tax Expense

Three Months Ended June 30,

Three Months Ended September 30,

2021 2020 Change

1 unchanged sentence

Income tax expense as a % of earnings before income taxes 23.5 % 25.7 %

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.

The tax rate was favorably impacted when the Company recorded tax benefits related to electing the Global Intangible Low Tax Income (GILTI) high-tax exclusion retroactively for previous tax years.

On July 20, 2020, the U.S.

Treasury issued and enacted final regulations related to GILTI that allows certain U.S.

taxpayers to elect to exclude foreign income that is subject to a high effective tax rate from the GILTI inclusions.

The GILTI high-tax exclusion is an annual election and is retroactively available.

During the quarter, the Company completed a detailed analysis and took the appropriate steps to amend its previous tax filings and to reassess its position on its 2020 and 2021 tax years.

Further, the rate was favorably impacted by foreign derived intangible income (FDII) as the Company finalized a comprehensive study related to previous tax filings and on its 2020 and 2021 tax years.

On July 15, 2020, the U.S.

Treasury issued and enacted final regulations related to FDII that governs the acceptable documentation reliability requirements and acceptable services that qualify as deduction eligible income.

This was partially offset by a new uncertain tax position that was established during this quarter related to a foreign jurisdiction.

Operating Income by Segment

Three Months Ended June 30,

Three Months Ended September 30,

2021 2020 Change

5 unchanged sentences

Total operating income $ 766.9 $ 1,047.1 (26.7) %

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.

Dx operating income was $722.7 for the three months ended September 30, 2021, a decrease of $242.0 over operating income of $964.9 in the corresponding period of 2020, and Dx operating margin decreased 810 basis points year-over-year.

The decrease was reduction in COVID-19 Testing and higher personnel costs, partially offset by organic Base Business growth and LaunchPad savings.

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.

DD operating income was $141.6 for the three months ended September 30, 2021, a decrease of 0.4% over operating income of $142.0 in the corresponding period of 2020.

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

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,

Corporate expenses were $97.4 for the three months ended September 30, 2021, an increase of $37.6 over corporate expenses of $59.8 in the corresponding period of 2020, primarily due to higher personnel costs.

Nine months ended September 30, 2021, compared with nine months ended September 30, 2020

Nine Months Ended September 30,

2021 2020 Change

3 unchanged sentences

Total $ 12,064.8 $ 9,488.7 27.1 %

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 for the nine months ended September 30, 2021, as compared with the corresponding period in 2020, was 27.1%.

The increase in revenues was due to organic growth of 25.2%, acquisitions of 0.8%, and favorable foreign currency translation of 1.2%.

The 25.2% increase in organic revenue includes a 18.2% increase in the Company's organic Base Business and a 7.0% 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.

Dx revenues for the nine months ended September 30, 2021, were $7,740.8, an increase of 26.9% compared to revenues of $6,098.8 during the nine months ended September 30, 2020.

The increase in revenues was primarily due to organic growth of 25.7%, acquisitions of 0.7%, and favorable foreign currency translation of 0.5%.

3 unchanged sentences

Price/mix increased by 7.3% due to COVID-19 Testing of 4.5%, organic Base Business of 2.2%, favorable foreign currency translation of 0.5%, 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%.

DD revenues for the nine months ended September 30, 2021 were $4,392.9, an increase of 26.3% over revenues of $3,479.4 during the nine months ended September 30, 2020.

The increase in revenues was primarily due to organic Base Business growth of 23.7%, acquisitions of 0.9%, favorable foreign currency translation of 2.5%, partially offset by lower COVID-19 Testing performed through its Central Laboratories business of 0.6% and divestitures of 0.1%.

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

Cost of Revenues

Six Months Ended June 30,

Nine Months Ended September 30,

2021 2020 Change

1 unchanged sentence

Cost of revenues as a % of revenues 64.8 % 67.9 %

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.

Cost of revenues increased 21.3% during the nine months ended September 30, 2021, as compared with the corresponding period in 2020.

Cost of revenues as a percentage of revenues during the nine months ended September 30, 2021, decreased to 64.8% as compared to 67.9% in the corresponding period in 2020.

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

Selling, General and Administrative Expenses

Six Months Ended June 30,

Nine Months Ended September 30,

2021 2020 Change

1 unchanged sentence

Selling, general and administrative expenses as a % of revenues 11.7 % 12.8 %

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.

During the nine months ended September 30, 2021, the Company incurred $17.4 of acquisition and divestiture related costs, $9.6 in retention bonuses, $7.8 in COVID-related costs and $5.6 in management transition costs.

In addition, the Company recorded $4.6 of non-capitalized costs associated with the implementation of a major system as part of its LaunchPad business process improvement initiative and $17.2 related to miscellaneous other items.

These items increased selling, general and administrative expenses by $62.2.

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.

During the nine months ended September 30, 2020, the Company incurred $15.3 in acquisition and divestiture 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.

1 unchanged sentence

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

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.

Excluding these charges, selling, general and administrative expenses as a percentage of revenues were 11.2% and 12.5% during the nine months ended September 30, 2021, and 2020, respectively, primarily due to leveraging the Company's infrastructure on higher revenue.

Goodwill and Other Asset Impairments

Six Months Ended June 30,

Nine Months Ended September 30,

2021 2020 Change

Goodwill and other asset impairments $ — $ 460.9 (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 six months ended June 30, 2021.

During the nine months ended September 30, 2020, the Company recorded goodwill and other asset impairment charges of $460.9.

The Company recorded goodwill impairment of $418.7 within DD and $3.7 within Dx.

The Company also recorded impairment charges of $2.7 for a DD tradename, $10.1 and $17.7, respectively, for DD customer relationships and DD technology due to the loss of a contract from a prior acquisition, $7.3 for Dx software and $0.7 for the impairment of the a Dx investment.

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

Amortization of Intangibles and Other Assets

Six Months Ended June 30,

Nine Months Ended September 30,

2021 2020 Change

2 unchanged sentences

Total amortization of intangibles and other assets $ 276.7 $ 184.6 49.9 %

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.

The increase in amortization of intangibles and other assets primarily reflects the impact of acquisitions occurring after September 30, 2020, and $87.4 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

Six Months Ended June 30,

Nine Months Ended September 30,

2021 2020 Change

Restructuring and other charges $ 35.3 $ 38.9 (9.4) %

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

During the nine months ended September 30, 2021, the Company recorded net restructuring and other charges of $35.3:

$16.8 within Dx and $18.5 within DD.

The charges were comprised of $13.6 related to severance and other personnel costs and $22.4 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 $0.2 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:

The charges were adjusted by an decrease of $0.1 of previously established severance liabilities and the reversal of previously established liability of $0.7 in unused facility-related costs.

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

$13.4 within Dx and $25.5 within DD.

2 unchanged sentences

Interest Expense

Six Months Ended June 30,

Nine Months Ended September 30,

2021 2020 Change

Interest expense $ (169.0) $ (159.1) 6.2 %

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.

The increase in interest expense for the nine months ended September 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

Six Months Ended June 30,

Nine Months Ended September 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.

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,

The increase in income for the nine months ended September 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, which was primarily due to the negative impact of the COVID-19 global pandemic, and increased profitability of the Company's joint ventures in 2021.

Nine Months Ended September 30,

2021 2020 Change

Other, net $ 51.5 $ (22.6) 327.8 %

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.

The change in other, net for the nine months ended September 30, 2021, as compared to the nine months ended September 30, 2020, is primarily due to investment activity.

During the nine months ended September 30, 2020, the Company adjusted certain of the Company's investments due to the negative impact of the COVID-19 global pandemic in 2020.

During the nine months ended September 30, 2021, the Company recorded investment gains of $67.4 which were partially offset by a loss on sale of a business of $6.1.

In addition, foreign currency transaction losses of $2.4 were recognized for the nine months ended September 30, 2021, and losses of $6.4 were recognized in the corresponding period of 2020.

Income Tax Expense

Six Months Ended June 30,

Nine Months Ended September 30,

2021 2020 Change

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Income tax expense as a % of earnings before income taxes 25.2 % 36.7 %

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.

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.

In addition, the tax rate was favorably impacted when the Company recorded tax benefits related to electing the GILTI high-tax exclusion retroactively for previous tax years.

On July 20, 2020, the U.S.

Treasury issued and enacted final regulations related to GILTI that allows certain U.S.

taxpayers to elect to exclude foreign income that is subject to a high effective tax rate from the GILTI inclusions.

The GILTI high-tax exclusion is an annual election and is retroactively available.

During the quarter, the Company completed a detailed analysis and took the appropriate steps to amend its previous tax filings and to reassess its position on its 2020 and 2021 tax years.

Further, the rate was favorably impacted by FDII as the Company finalized a comprehensive study related to previous tax filings and on its 2020 and 2021 tax years.

On July 15, 2020, the U.S.

Treasury issued and enacted final regulations related to FDII that governs the acceptable documentation reliability requirements and acceptable services that qualify as deduction eligible income.

This was partially offset by a new uncertain tax position that was established during this quarter related to a foreign jurisdiction.

Operating Income by Segment

Six Months Ended June 30,

Nine Months Ended September 30,

2021 2020 Change

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Total operating income (loss) $ 2,528.9 $ 1,152.2 119.5 %

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.

Dx operating income was $2,275.4 for the nine months ended September 30, 2021, an increase of $823.9 over operating income of $1,451.5 in the corresponding period of 2020, and Dx operating margin increased 560 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 $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.

DD operating income was $445.3 for the nine months ended September 30, 2021, an increase of $576.4 over operating loss of $131.2 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, and LaunchPad savings, partially offset by lower COVID-19 Testing and higher personnel costs.

The Company continues to develop and execute new LaunchPad programs to support 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 $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.

Corporate expenses were $191.8 for the nine months ended September 30, 2021, an increase of $23.7 over corporate expenses of $168.1 in the corresponding period of 2020, primarily due to higher personnel costs.

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, 2021, and 2020, respectively:

Six Months Ended June 30,

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

Nine Months Ended September 30,

Net cash provided by operating activities $ 2,412.1 $ 1,360.7

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Cash and Cash Equivalents

Cash and cash equivalents at June 30, 2021, and 2020, totaled $1,963.2 and $557.0, respectively.

Cash and cash equivalents at September 30, 2021, and 2020, totaled $2,036.5 and $667.2, 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, 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.

During the nine months ended September 30, 2021, the Company's operations provided $2,412.1 of cash as compared to $1,360.7 during the same period in 2020.

The $1,051.4 increase in cash provided from operations in 2021 as compared with the corresponding 2020 period is primarily due to higher cash earnings and favorable working capital.

Investing Activities

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.

Net cash used for investing activities for the nine months ended September 30, 2021, was $630.1 as compared to $515.2 for the nine months ended September 30, 2020.

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

Capital expenditures were $310.4 and $282.3 for the nine months ended September 30, 2021, and 2020, respectively.

The Company continues to evaluate a robust pipeline of acquisitions and anticipates an acceleration of acquisitions.

Financing Activities

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.

Net cash used by financing activities for the nine months ended September 30, 2021, was $1,057.2 as compared to $516.4 for the nine months ended September 30, 2020.

The change in cash flows from financing activities for the nine months ended September 30, 2021, as compared to the nine months ended September 30, 2020, was primarily due to the repayment of the 2019 Term Loan in February 2021 and an increase of $568.5 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.

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.

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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.

The aggregate fair value of $4.0 at September 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.

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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 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.

The Company was in compliance with all covenants under the revolving credit facility at September 30, 2021, and expects that it will remain in compliance with its existing debt covenants for the next twelve months.

At September 30, 2021, the Company had $2,036.5 of cash and $1,000.0 of available borrowings under its revolving credit facility, which does not mature until 2026.

For the nine months ended September 30, 2021, the Company repurchased $668.5 of the Company's common stock and had outstanding authorization from the board of directors to purchase up to $131.5 more of the Company's common stock with no expiration date.

Credit Ratings

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(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.

(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 September 30, 2021.

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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