What changed in this filing

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Item 1. Financial Statements

2022-08-01 compared with 2022-04-29 · 186 added, 120 removed, 574 unchanged (35% of the section changed)

36 unchanged sentences

Shareholders’ equity:

Common stock, 92.9 and 93.1 shares outstanding at March 31, 2022, and December 31, 2021, respectively 8.5 8.5

Common stock, 91.0 and 93.1 shares outstanding at June 30, 2022, and December 31, 2021, respectively 8.3 8.5

Additional paid-in capital — —

7 unchanged sentences

(in millions, except per share data)

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2022 2021 2022 2021

Revenues $ 3,696.9 $ 3,840.7 $ 7,596.5 $ 8,002.2

22 unchanged sentences

(in millions, except per share data)

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2022 2021 2022 2021

Net earnings $ 358.9 $ 468.0 $ 851.0 $ 1,238.1

26 unchanged sentences

BALANCE AT MARCH 31, 2021 $ 9.0 $ 67.1 $ 10,171.9 $ ( 226.5 ) $ 10,021.5

Net earnings attributable to Laboratory Corporation of America Holdings — — 467.4 — 467.4

Other comprehensive earnings (loss), net of tax — — — 45.3 45.3

Issuance of common stock under employee stock plans — 1.9 — — 1.9

Net share settlement tax payments from issuance of stock to employees — ( 14.9 ) — — ( 14.9 )

Stock compensation — 23.9 — — 23.9

Purchase of common stock ( 0.1 ) ( 78.0 ) ( 221.9 ) — ( 300.0 )

BALANCE AT JUNE 30, 2021 $ 8.9 $ — $ 10,417.4 $ ( 181.2 ) $ 10,245.1

BALANCE AT DECEMBER 31, 2021 $ 8.5 $ — $ 10,456.8 $ ( 191.9 ) $ 10,273.4

5 unchanged sentences

BALANCE AT MARCH 31, 2022 $ 8.5 $ 29.1 $ 10,948.4 $ ( 264.9 ) $ 10,721.1

Net earnings attributable to Laboratory Corporation of America Holdings — — 358.6 — 358.6

Other comprehensive earnings (loss), net of tax — — — ( 240.6 ) ( 240.6 )

Dividends declared — — ( 68.6 ) — ( 68.6 )

Issuance of common stock under employee stock plans — 0.9 — — 0.9

Net share settlement tax payments from issuance of stock to employees — ( 10.1 ) — — ( 10.1 )

Stock compensation — 39.4 — — 39.4

Purchase of common stock ( 0.2 ) ( 59.3 ) ( 340.5 ) — ( 400.0 )

BALANCE AT JUNE 30, 2022 $ 8.3 $ — $ 10,897.9 $ ( 505.5 ) $ 10,400.7

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

2 unchanged sentences

(in millions)

Three Months Ended March 31,

Six Months Ended June 30,

CASH FLOWS FROM OPERATING ACTIVITIES:

12 unchanged sentences

Increase in prepaid expenses and other ( 25.9 ) ( 31.0 )

Decrease in accounts payable ( 5.5 ) ( 16.9 )

Increase (decrease) in accounts payable 131.9 ( 44.3 )

Increase (decrease) in unearned revenue ( 6.2 ) 37.7

Increase (decrease) in accrued expenses and other ( 212.3 ) 95.1

Decrease in accrued expenses and other ( 349.4 ) ( 139.6 )

Net cash provided by operating activities 928.5 1,644.8

2 unchanged sentences

Proceeds from sale of assets 1.1 2.7

Proceeds from sale of business — 13.1

Proceeds from sale or distribution of investments 0.4 —

Proceeds from exit from swaps 3.0 —

Investments in equity affiliates ( 4.7 ) ( 11.9 )

2 unchanged sentences

CASH FLOWS FROM FINANCING ACTIVITIES:

Proceeds from senior note offerings — 1,000.0

Payments on senior notes — ( 1,000.0 )

Payments on term loan — ( 375.0 )

1 unchanged sentence

Net proceeds from issuance of stock to employees 19.1 26.6

Dividends paid ( 66.7 ) —

Purchase of common stock ( 400.0 ) ( 368.5 )

14 unchanged sentences

For further financial information about these segments, see Note 11 (Business Segment Information) to the Condensed Consolidated Financial Statements.

During the three months ended March 31, 2022, Dx and DD contributed approximately 63 % and 37 % respectively, of revenues to the Company.

During the three months ended June 30, 2022, Dx and DD contributed approximately 61 % and 39 %, respectively, of revenues to the Company.

During the six months ended June 30, 2022, Dx and DD contributed approximately 62 % and 38 %, respectively, of revenues to the Company.

The condensed consolidated financial statements include the accounts of the Company and its majority-owned subsidiaries for which it exercises control.

15 unchanged sentences

Recently Adopted Accounting Guidance

In October 2021, the Financial Accounting Standards Board (FASB) issued a new accounting standard to improve the accounting for acquired revenue contracts with customers in a business combination.

In October 2021, the Financial Accounting Standards Board (FASB) issued a new accounting standard, Accounting Standards Update 2021-08, to improve the accounting for acquired revenue contracts with customers in a business combination.

The Company early adopted this standard effective January 1, 2022.

3 unchanged sentences

(dollars and shares in millions, except per share data)

The Company's revenues by segment and by payers/customer groups for the three months ended March 31, 2022, and 2021, were as follows:

For the Three Months Ended March 31, 2022 For the Three Months Ended March 31, 2021

The Company's revenues by segment and by payers/customer groups for the three and six months ended June 30, 2022, and 2021, were as follows:

For the Three Months Ended June 30, 2022 For the Three Months Ended June 30, 2021

North America Europe Other Total North America Europe Other Total

7 unchanged sentences

Total revenues 80 % 13 % 7 % 100 % 84 % 12 % 4 % 100 %

For the Six Months Ended June 30, 2022 For the Six Months Ended June 30, 2021

North America Europe Other Total North America Europe Other Total

Payer/Customer

Clients 17 % — % — % 17 % 18 % — % — % 18 %

Patients 7 % — % — % 7 % 6 % — % — % 6 %

Medicare and Medicaid 6 % — % — % 6 % 6 % — % — % 6 %

Third party 32 % — % — % 32 % 33 % — % — % 33 %

Total Dx revenues by payer 62 % — % — % 62 % 63 % — % — % 63 %

Pharmaceutical, biotechnology and medical device companies 18 % 13 % 7 % 38 % 22 % 11 % 4 % 37 %

Total revenues 80 % 13 % 7 % 100 % 85 % 11 % 4 % 100 %

Revenues in the U.S.

were $ 3,000.5 ( 76.9 %) and $ 3,472.5 ( 83.4 %) for the three months ended March 31, 2022, and 2021, respectively.

were $ 2,856.9 ( 77.3 %) and $ 3,091.3 ( 80.5 %) for the three months ended June 30, 2022, and 2021, respectively, and for the six months ended June 30, 2022, and 2021, were $ 5,857.5 ( 77.1 %) and $ 6,537.4 ( 81.7 %), respectively.

DD Contract costs

1 unchanged sentence

Contract fulfillment costs include software implementation costs and setup costs for certain market access solutions.

March 31, 2022 December 31, 2021

June 30, 2022 December 31, 2021

Sales commission assets $ 40.2 $ 36.2

1 unchanged sentence

Total $ 55.2 $ 50.6

Amortization related to sales commission assets and associated payroll taxes for the three months ended March 31, 2022, and 2021, was $ 7.2 and $ 6.9 , respectively.

Amortization related to deferred contract fulfillment costs for the three months ended March 31, 2022, and 2021, was $ 3.1 and $ 3.5 , respectively.

Amortization related to sales commission assets and associated payroll taxes for the three months ended June 30, 2022, and 2021, was $ 8.7 and $ 6.4 , respectively, and for the six months ended June 30, 2022, and 2021, was $ 15.9 and $ 13.3 , respectively.

Amortization related to deferred contract fulfillment costs for the three months ended June 30, 2022, and 2021, was $ 2.9 and $ 3.0 , respectively, and was $ 6.0 and $ 6.5 , respectively, for the six months ended June 30, 2022, and 2021.

LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollars and shares in millions, except per share data)

Accounts Receivable, Unbilled Services and Unearned Revenue

The following table provides information about accounts receivable, unbilled services, and unearned revenue from contracts with customers:

March 31, 2022 December 31, 2021

June 30, 2022 December 31, 2021

Dx accounts receivable $ 1,066.4 $ 1,193.8

6 unchanged sentences

Unearned revenue $ 544.2 $ 558.5

Revenues recognized during the period, that were included in the unearned revenue balance at the beginning of the period were $ 163.8 and $ 152.3 for the three months ended March 31, 2022, and 2021, respectively.

LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollars and shares in millions, except per share data)

Revenues recognized during the period that were included in the unearned revenue balance at the beginning of the period were $ 233.6 and $ 233.0 for the six months ended June 30, 2022, and 2021, respectively.

Credit Loss Rollforward

The Company estimates future expected losses on accounts receivable, unbilled services and notes receivable over the remaining collection period of the instrument.

The rollforward for the allowance for credit losses for the three months ended March 31, 2022 is as follows:

The rollforward for the allowance for credit losses for the six months ended June 30, 2022, is as follows:

Accounts Receivable Unbilled Services Note and Other Receivables Total

2 unchanged sentences

Less, write offs ( 3.2 ) ( 2.5 ) — ( 5.7 )

Balance as of March 31, 2022 $ 19.4 $ 13.2 $ 0.7 $ 33.3

Balance as of June 30, 2022 $ 21.3 $ 11.4 $ 0.7 $ 33.4

Performance Obligations Under Long-Term Contracts

Long-term contracts at the Company consist primarily of fully managed clinical studies within DD.

The amount of existing performance obligations under such long-term contracts unsatisfied were $ 6,069.8 and $ 5,563.4 as of March 31, 2022, and 2021, respectively.

The amount of existing performance obligations unsatisfied under such long-term contracts were $ 6,132.6 and $ 5,616.6 as of June 30, 2022, and 2021, respectively.

The Company expects to recognize revenue over the remaining contract term of the individual projects, with contract terms generally ranging from 1 to 8 years.

Within DD, revenues of $ 31.7 and $ 16.5 were recognized during the three months ended March 31, 2022 and 2021, respectively, from performance obligations that were satisfied in previous periods.

Within DD, revenues of $ 37.4 and $ 12.2 were recognized during the three months ended June 30, 2022 and 2021, respectively, and revenues of $ 69.1 and $ 28.7 were recognized during the six months ended June 30, 2022 and 2021, respectively, from performance obligations that were satisfied in previous periods.

This revenue primarily relates to adjustments related to changes in scope in full service clinical studies, and to a lesser extent, changes in estimates.

BUSINESS ACQUISITIONS

On February 18, 2022, the Company closed its acquisition of Personal Genome Diagnostics Inc.

(PGDx), a leader in cancer genomics with a portfolio of comprehensive liquid biopsy and tissue-based products, for approximately $ 455.1 in cash.

The purchase considerations for this acquisition have been allocated under the acquisition method of accounting to the estimated fair market value of the net assets acquired, including approximately $ 270.0 in identifiable intangible assets and a residual amount of non-tax deductible goodwill of approximately $ 286.2 .

The amortization period for technology intangible assets acquired from this business is 12 years.

The acquisition was made primarily to complement and accelerate the Company’s existing liquid biopsy capabilities and expand the Company’s leading oncology portfolio of next-generation sequencing (NGS)-based genomic profiling capabilities.

The transaction includes two milestone earnout payments, with one based on the successful development of the in-process testing and the other based on revenue.

The Company has recorded an estimate of $90.0 for this contingent consideration.

The excess of the fair value of the consideration conveyed over the fair value of the net assets acquired was recorded as goodwill.

During the six months ended June 30, 2022, the Company acquired several businesses and related assets for approximately $ 554.9 in cash.

The purchase consideration for these acquisitions has been allocated under the acquisition method of accounting to the estimated fair market value of the net assets acquired, including approximately $ 325.3 in identifiable intangible assets and a residual amount of non-tax deductible goodwill of approximately $ 332.8 .

The amortization periods for intangible assets acquired from the businesses range from 5 to 15 years for customer relationships and non-compete agreements.

These acquisitions were made primarily to complement and accelerate the Company’s existing liquid biopsy capabilities and enhance the Company's diagnostic footprint and capabilities.

The preliminary valuation of acquired assets and assumed liabilities, include the following:

Amounts Acquired During Quarter Ended March 31, 2022

LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollars and shares in millions, except per share data)

Amounts Acquired During Six Months Ended June 30, 2022

Accounts receivable $ 4.1

15 unchanged sentences

The purchase price allocation for several transactions are still preliminary and subject to change.

The areas of the purchase price allocation that are not yet finalized relate primarily to intangible assets, goodwill, and the impact of finalizing deferred taxes.

The areas of the purchase price allocation that are not yet finalized relate primarily to contingent purchase price valuation, intangible assets, goodwill, and the impact of finalizing deferred taxes.

Accordingly, adjustments may be made as additional information is obtained about the facts and circumstances that existed as of the valuation date.

Any adjustments will be recorded in the period in which they are identified.

LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollars and shares in millions, except per share data)

During the three months ended March 31, 2021, the Company acquired a business and related assets for approximately $ 34.1 in cash within Dx.

The purchase consideration for the acquisition in the three months ended March 31, 2021, has been allocated under the acquisition method of accounting to the estimated fair market value of the net assets acquired, including approximately $ 17.6 in identifiable intangible assets and a residual amount of non-tax deductible goodwill of approximately $ 15.6 .

During the six months ended June 30, 2021, the Company acquired a business and related assets for approximately $ 34.1 in cash.

The purchase consideration for the acquisition in the six months ended June 30, 2021, has been allocated under the acquisition method of accounting to the estimated fair market value of the net assets acquired, including approximately $ 17.6 in identifiable intangible assets and a residual amount of non-tax deductible goodwill of approximately $ 15.6 .

The amortization periods for intangible assets acquired from the business range from 5 to 15 years for customer relationships and non-compete agreements.

2 unchanged sentences

The goodwill reflects the Company's expectations to utilize the acquired business' workforce and established relationships and the benefits of being able to leverage operational efficiencies with favorable growth opportunities in these markets.

On February 9, 2022, the Company entered into agreements to create a comprehensive strategic relationship with Ascension, a national health system.

The Company intends to manage Ascension’s hospital-based laboratories and purchase select assets of the health system’s outreach laboratory business.

The transactions are subject to customary closing conditions and applicable regulatory approvals.

On March 9, 2022, the Company announced it has entered into a strategic laboratory relationship with Prisma Health.

The Company will acquire select assets of Prisma Health’s outreach laboratory business.

EARNINGS PER SHARE

2 unchanged sentences

Potentially dilutive common shares result primarily from the Company’s outstanding stock options, restricted stock awards, restricted stock units, and performance share awards.

LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollars and shares in millions, except per share data)

The following represents a reconciliation of basic earnings per share to diluted earnings per share:

Three Months Ended March 31,

Earnings Shares Per Share Amount Earnings Shares Per Share Amount

Three Months Ended June 30, Six Months Ended June 30,

2022 2021 2022 2021

Earnings Shares Per Share Amount Earnings Shares Per Share Amount Earnings Shares Per Share Amount Earnings Shares Per Share Amount

Basic earnings per share:

5 unchanged sentences

The following table summarizes the potential common shares not included in the computation of diluted earnings per share because their impact would have been antidilutive:

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2022 2021 2022 2021

Employee stock options and awards 0.5 0.1 0.3 0.1

GOODWILL AND INTANGIBLE ASSETS

The changes in the carrying amount of goodwill for the three months ended March 31, 2022, are as follows:

The changes in the carrying amount of goodwill for the six months ended June 30, 2022, are as follows:

Balance as of December 31, 2021 $ 4,046.2 $ 3,912.7 $ 7,958.9

1 unchanged sentence

Foreign currency impact and other adjustments to goodwill ( 50.7 ) ( 127.0 ) ( 177.7 )

Balance as of March 31, 2022 $ 4,141.5 $ 4,024.3 $ 8,165.8

Balance as of June 30, 2022 $ 4,185.2 $ 3,928.8 $ 8,114.0

The Company assesses goodwill and indefinite-lived intangibles for impairment at least annually or whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable.

The Company recognizes an impairment charge for the amount by which the reporting unit's carrying amount exceeds its fair value.

LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollars and shares in millions, except per share data)

The components of identifiable intangible assets are as follows:

March 31, 2022 December 31, 2021

June 30, 2022 December 31, 2021

Gross Carrying Amount Accumulated Amortization Net Gross Carrying Amount Accumulated Amortization Net

5 unchanged sentences

Canadian licenses 484.5 — 484.5 493.5 — 493.5

In process research and development 9.1 ( 0.3 ) 8.8 9.1 — 9.1

Media content 5.1 ( 2.3 ) 2.8 — — —

Other 14.2 ( 3.9 ) 10.3 9.1 — 9.1

5,642.2 ( 1,777.3 ) 3,864.9 5,423.6 ( 1,688.1 ) 3,735.5

Amortization of intangible assets for the three months ended March 31, 2022, and 2021, was $ 67.1 and $ 92.1 , respectively.

Amortization of intangible assets for the three and six months ended June 30, 2022, and 2021, was $ 66.4 and $ 92.4 and $ 133.5 and $ 184.5 , respectively.

The amortization expense for the net carrying amount of intangible assets is estimated to be $ 121.4 for the remainder of fiscal 2022, $ 255.6 in fiscal 2023, $ 251.0 in fiscal 2024, $ 238.9 in fiscal 2025, $ 229.1 in fiscal 2026, and $ 2,144.7 thereafter.

Short-term borrowings and the current portion of long-term debt at March 31, 2022, and December 31, 2021, consisted of the following:

2022 December 31, 2021

LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollars and shares in millions, except per share data)

Short-term borrowings and the current portion of long-term debt at June 30, 2022, and December 31, 2021, consisted of the following:

June 30, 2022 December 31, 2021

Current portion of note payable 1.6 1.5

Total short-term borrowings and current portion of long-term debt $ 1.6 $ 1.5

Long-term debt at March 31, 2022, and December 31, 2021, consisted of the following:

2022 December 31, 2021

Long-term debt at June 30, 2022, and December 31, 2021, consisted of the following:

June 30, 2022 December 31, 2021

4.00% senior notes due 2023 300.0 300.0

15 unchanged sentences

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 % to hedge against changes in the fair value of a portion of the Company's long-term debt.

These interest rate swaps are included in other long-term liabilities and deducted from the value of the senior notes with an aggregate fair value of $ 31.3 at March 31, 2022.

LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollars and shares in millions, except per share data)

These interest rate swaps are included in other long-term liabilities and deducted from the value of the senior notes with an aggregate fair value of $ 55.4 at June 30, 2022.

Credit Facilities

4 unchanged sentences

The revolving credit facility is permitted to be used for general corporate purposes, including working capital, capital expenditures, funding of share repurchases and certain other payments, acquisitions, and other investments.

There were no balances outstanding on the Company's current revolving credit facility as of March 31, 2022 and December 31, 2021.

As of March 31, 2022, the effective interest rate on the revolving credit facility was 1.45 %.

The revolving credit facility also provides for the issuance of letters of credit without a reduction of the availability of borrowings under the facility.

There were no balances outstanding on the Company's current revolving credit facility as of June 30, 2022 and December 31, 2021.

As of June 30, 2022, the effective interest rate on the revolving credit facility was 2.79 %.

The credit facility expires on April 30, 2026.

Under 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 in the revolving credit facility at March 31, 2022, and expects that it will remain in compliance with its existing debt covenants for the next twelve months.

The Company's availability of $ 1,000.0 at March 31, 2022, under its revolving credit facility is not encumbered by any of the Company's outstanding letters of credit.

There were $79.8 in outstanding letters of credit as of March 31, 2022.

The Company was in compliance with all covenants in the revolving credit facility at June 30, 2022, and expects that it will remain in compliance with its existing debt covenants for the next twelve months.

The Company's availability of $ 1,000.0 at June 30, 2022, under its revolving credit facility is not encumbered by any of the Company's outstanding letters of credit.

There were $ 76.4 in outstanding letters of credit as of June 30, 2022.

LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollars and shares in millions, except per share data)

PREFERRED STOCK AND COMMON SHAREHOLDERS’ EQUITY

1 unchanged sentence

The Company is authorized to issue up to 30.0 shares of preferred stock, par value $ 0.10 per share.

There were no preferred shares outstanding as of March 31, 2022, and December 31, 2021.

There were no preferred shares outstanding as of June 30, 2022, and December 31, 2021.

The changes in common shares issued are summarized below:

3 unchanged sentences

Shares repurchased ( 2.6 )

Common shares at March 31, 2022 92.9

Common shares at June 30, 2022 91.0

Share Repurchase Program

5 unchanged sentences

On April 1, 2022, the Company received 0.2 shares of its common stock for final settlement from Barclays based on the average volume-weighted average price per share of $ 275.51 .

As of March 31, 2022, the Company had outstanding authorization from the board of directors to purchase up to $ 1,631.5 of the Company's common stock.

The repurchase authorization has no expiration date.

On December 9, 2021, the Company announced that it was initiating a quarterly dividend in the second quarter of 2022.

On April 7, 2022 , the Company announced a cash dividend of $ 0.72 per share of common stock for the second quarter, or approximately $ 67.6 in the aggregate.

The dividend will be payable on June 9, 2022 , to stockholders of record of all issued and outstanding shares of common stock as of the close of business on May 19, 2022 .

During the second quarter of 2022, the Company purchased 1.7 shares of its common stock at an average price of $ 237.85 for a total cost of $ 400.0 .

As of June 30, 2022, the Company had outstanding authorization from the board of directors to purchase up to $ 1,231.5 of the Company's common stock.

The repurchase authorization has no expiration.

For the three months ended June 30, 2022, the Company paid $ 66.7 in common stock dividends or $ 0.72 per share of common stock.

On July 14, 2022 , the Company announced a cash dividend of $ 0.72 per share of common stock for the third quarter, or approximately $ 66.1 in the aggregate.

The dividend will be payable on September 9, 2022 , to stockholders of record of all issued and outstanding shares of common stock as of the close of business on August 18, 2022 .

The declaration and payment of any future dividends will be at the discretion of the Company's board of directors.

LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollars and shares in millions, except per share data)

Accumulated Other Comprehensive Earnings (Loss)

5 unchanged sentences

Tax effect of adjustments — ( 0.8 ) ( 0.8 )

Balance as of March 31, 2022 $ ( 200.5 ) $ ( 64.4 ) $ ( 264.9 )

Balance as of June 30, 2022 $ ( 441.6 ) $ ( 63.9 ) $ ( 505.5 )

COMMITMENTS AND CONTINGENCIES

12 unchanged sentences

The Company works cooperatively to respond to appropriate requests for information.

LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollars and shares in millions, except per share data)

The Company also is named from time to time in suits brought under the qui tam provisions of the False Claims Act and comparable state laws.

21 unchanged sentences

NPT Associates v.

Laboratory Corporation of America Holdings , which alleges that the Company offered UnitedHealthcare kickbacks in the form

LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollars and shares in millions, except per share data)

of discounts in return for Medicare business.

Laboratory Corporation of America Holdings , which alleges that the Company offered UnitedHealthcare kickbacks in the form of discounts in return for Medicare business.

The Plaintiff's Third Amended Complaint further alleges that the Company's billing practices violated the False Claims Acts of 14 states and the District of Columbia.

18 unchanged sentences

The Company cooperated with this request.

On January 26, 2021, the Company was notified that a qui tam Petition was pending under seal in the District Court, 250 th Judicial District, Travis County, Texas, and that the State of Texas has intervened.

On April 14, 2021, the Petition was unsealed.

The Petition alleges that the Company submitted claims for reimbursement to Texas Medicaid that were higher than permitted under Texas Medicaid’s alleged “best price” regulations, and that the Company offered remuneration to Texas health care providers in the form of discounted pricing for certain laboratory testing services in exchange for the providers’ referral of Texas Medicaid business to the Company.

The Petition alleges that the Company submitted claims for

LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollars and shares in millions, except per share data)

reimbursement to Texas Medicaid that were higher than permitted under Texas Medicaid’s alleged “best price” regulations, and that the Company offered remuneration to Texas health care providers in the form of discounted pricing for certain laboratory testing services in exchange for the providers’ referral of Texas Medicaid business to the Company.

The Petition seeks actual and double damages and civil penalties, as well as recovery of costs, attorney's fees, and legal expenses.

7 unchanged sentences

The Plaintiff appealed the Circuit Court’s ruling to the Florida Second District Court of Appeal.

On October 16, 2019, the Court of Appeal reversed the Circuit Court’s dismissal, but certified a controlling issue of Florida law to the Florida Supreme Court.

On October 16, 2019, the Florida Second District Court of Appeal reversed the Circuit Court’s dismissal, but certified a controlling issue of Florida law to the Florida Supreme Court.

On February 17, 2020, the Florida Supreme Court accepted jurisdiction of the lawsuit.

The Court held oral arguments on December 9, 2020.

On May 26, 2022, the Florida Supreme Court issued an opinion approving the result of the Florida Second District Court of Appeal.

The Company will vigorously defend the lawsuit.

14 unchanged sentences

On January 16, 2019, the Court entered an order granting in part and denying in part the Motion to Dismiss.

The Court dismissed the Plaintiffs' claims based on the theory that the Company performed medically unnecessary testing, the claims asserted under the California and Illinois insurance fraud prevention statutes, and the reverse False Claims

LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollars and shares in millions, except per share data)

The Court denied the Motion to Dismiss as to the conspiracy claim.

1 unchanged sentence

On June 16, 2021, the Court denied the Company’s Motion for Summary Judgment.

The lawsuit is scheduled for trial beginning January 9, 2023.

The Company will vigorously defend the lawsuit.

20 unchanged sentences

The complaint alleges that the Company's patient acknowledgement of estimated financial responsibility form is misleading.

The lawsuit seeks a declaratory judgement under the consumer protection laws of Nevada and Florida that the form is materially misleading and deceptive, an injunction barring the use of the form, damages on behalf of an alleged class, and attorney's fees and expenses.

LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollars and shares in millions, except per share data)

alleged class, and attorney's fees and expenses.

On February 28, 2022, the Company filed a Motion to Dismiss all claims.

24 unchanged sentences

On December 16, 2021, the Court granted in part and denied in part the Company's Motion to Dismiss.

On March 31, 2022, the Plaintiffs filed an Amended Complaint alleging claims for negligence, negligence per se , breach of confidence, invasion of privacy, and various state

LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollars and shares in millions, except per share data)

statutory claims, including a claim under the California Confidentiality of Medical Information Act.

On March 31, 2022, the Plaintiffs filed an Amended Complaint alleging claims for negligence, negligence per se , breach of confidence, invasion of privacy, and various state statutory claims, including a claim under the California Confidentiality of Medical Information Act.

The Company filed a Motion to Dismiss certain claims of the Amended Complaint.

The Company will vigorously defend the remaining claims in the multi-district litigation.

16 unchanged sentences

District Court for the Central District of California.

The lawsuit alleges that visually impaired patients are unable to use the Company's touchscreen kiosks at Company patient service centers in violation of the Americans with Disabilities Act and similar California statutes.

The lawsuit alleges that visually impaired patients are unable to use the Company's touchscreen kiosks at Company patient service centers

LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollars and shares in millions, except per share data)

in violation of the Americans with Disabilities Act and similar California statutes.

The lawsuit seeks statutory damages, injunctive relief, and attorney's fees and costs.

2 unchanged sentences

On April 26, 2021, the Plaintiffs and the Company each filed Motions for Summary Judgment and the Plaintiffs filed a Motion for Class Certification.

On May 23, 2022, the Court entered an order granting Plaintiffs’ Motion for Class Certification.

On June 6, 2022, the Company filed a Petition for Permission to Appeal the Order Granting Class Certification with the Ninth Circuit Court of Appeals.

On June 16, 2022, the Plaintiffs filed a Motion to Refine the Class Definitions regarding the certified class.

The Company will vigorously defend the lawsuit.

On October 16, 2020, Ravgen Inc.

filed a patent infringement lawsuit, Ravgen Inc.

Laboratory Corporation of America Holdings , in the U.S.

District Court for the Western District of Texas, alleging infringement of two Ravgen-owned U.S.

The lawsuit seeks monetary damages, enhancement of those damages for willfulness, and recovery of attorney’s fees and costs.

The lawsuit is scheduled for trial on September 19, 2022.

The Company will vigorously defend the lawsuit.

The Company has instituted proceedings before the Patent Trial and Appeal Board of the U.S.

Patent and Trademark Office challenging the validity of the Ravgen patents, with decisions on validity expected in November and December 2022.

On May 14, 2020, the Company was served with a putative class action lawsuit, Jose Bermejo v.

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Laboratory Corporation of America , filed in the Superior Court of California, County of Kern, alleging various violations of the California Labor Code, including that Plaintiff was not properly paid wages owed, not properly paid meal and rest break premiums, not reimbursed for certain business related expenses, and other allegations including the untimely payment of wages and receipt of inaccurate wage statements.

The lawsuit seeks monetary damages, civil penalties, and recovery of attorney's fees

LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollars and shares in millions, except per share data)

The lawsuit seeks monetary damages, civil penalties, and recovery of attorney's fees and costs.

The case was removed to the U.S.

9 unchanged sentences

District Court for the Central District of California.

The lawsuit seeks monetary damages, liquidated damages, civil penalties, and recovery of attorney's fees and costs.

LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollars and shares in millions, except per share data)

seeks monetary damages, liquidated damages, civil penalties, and recovery of attorney's fees and costs.

On June 24, 2021, the District Court remanded the case to the Superior Court of California, County of Los Angeles on the grounds that potential damages did not meet the Class Action Fairness Act (CAFA), 28 U.S.C.

2 unchanged sentences

On February 7, 2022, the Company was served with a Subpoena Duces Tecum issued by the DOJ in Camden, New Jersey requiring the production of documents related to non-invasive prenatal screening tests.

The Company will cooperate with the DOJ.

The Company is cooperating with the DOJ.

On June 27, 2022, the Company was served with a Subpoena Duces Tecum issued by the DOJ in Boston, Massachusetts requiring the production of documents related to urine drug testing.

The Company is cooperating with the DOJ.

There are various other pending legal proceedings involving the Company including, but not limited to, additional employment-related lawsuits, professional liability lawsuits, and intellectual property lawsuits.

5 unchanged sentences

FAIR VALUE MEASUREMENTS

The Company’s population of financial assets and liabilities subject to fair value measurements as of March 31, 2022, and December 31, 2021, is as follows:

The Company’s population of financial assets and liabilities subject to fair value measurements as of June 30, 2022, and December 31, 2021, is as follows:

Fair Value Measurements as of

March 31, 2022

June 30, 2022

Balance Sheet Fair Value as of Using Fair Value Hierarchy

Classification March 31, 2022 Level 1 Level 2 Level 3

Classification June 30, 2022 Level 1 Level 2 Level 3

Noncontrolling interest put Noncontrolling interest $ 15.9 $ — $ 15.9 $ —

3 unchanged sentences

Deferred compensation liability Other liabilities 94.9 — 94.9 —

Investment in equity securities Other current assets 5.9 5.9 — —

Contingent consideration Other liabilities 99.2 — — 99.2

LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollars and shares in millions, except per share data)

Fair Value Measurements as of

14 unchanged sentences

Additions 90.0

Balance as of March 31, 2022 $ 105.2

Balance as of June 30, 2022 $ 99.2

LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollars and shares in millions, except per share data)

The Company has a noncontrolling interest put related to its Ontario subsidiary that has been classified as mezzanine equity in the Company’s condensed consolidated balance sheets.

11 unchanged sentences

The carrying amounts of cash and cash equivalents, accounts receivable, income taxes receivable, and accounts payable are considered to be representative of their respective fair values due to their short-term nature.

The fair market value of the senior notes, based on market pricing, was approximately $ 5,444.5 and $ 5,841.1 as of March 31, 2022, and December 31, 2021, respectively.

The fair market value of the senior notes, based on market pricing, was approximately $ 5,103.1 and $ 5,841.1 as of June 30, 2022, and December 31, 2021, respectively.

The Company's note and debt instruments are classified as Level 2 instruments, as the fair market values of these instruments are determined using other observable inputs.

Cross Currency Swap

During the fourth quarter of 2018, the Company entered into U.S.

Dollar (USD) to Swiss Franc cross-currency swap agreements with an aggregate notional value of $ 600.0 .

During the second quarter of 2022, the Company terminated $ 300.0 of those cross-currency swap agreements and entered into new USD to Swiss Franc cross-currency swap agreements with an aggregate notional value of $ 300.0 that mature in 2024.

These instruments are designated as a hedge against the impact of foreign exchange movements on its net investment in a Swiss subsidiary.

These cross currency swaps are included in other long-term liabilities as appropriate with an aggregate fair value of $ 18.3 and $ 32.8 as of June 30, 2022 and December 31, 2021, respectively.

Changes in the fair value of the cross-currency swaps are charged or credited through accumulated other comprehensive income in the Consolidated Balance Sheet until the hedged item is recognized in earnings.

The cumulative amount of the fair value hedging adjustments are recognized as currency translation within the Consolidated Statement of Comprehensive Earnings.

In May 2022, the Company reclassified a gain of $ 0.9 to the Consolidated Statement of Operations within other, net, due to the exit of $ 300.0 of the cross-currency swap agreements.

SUPPLEMENTAL CASH FLOW INFORMATION

Three Months Ended March 31,

Six Months Ended June 30,

Cash paid during period for:

3 unchanged sentences

Change in accrued property, plant and equipment ( 11.3 ) 4.8

LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollars and shares in millions, except per share data)

BUSINESS SEGMENT INFORMATION

The following table is a summary of segment information for the three months ended March 31, 2022, and 2021.

The following table is a summary of segment information for the three and six months ended June 30, 2022, and 2021.

The management approach has been used to present the following segment information.

This approach is based upon the way the management of the Company organizes segments within an enterprise for making operating decisions and assessing performance.

Financial information is reported on the basis that it is used internally by the chief operating decision maker (CODM) for evaluating segment performance and deciding how to allocate resources to segments.

Financial information is reported on the basis as it is used internally by the chief operating decision maker (CODM) for evaluating segment performance and deciding how to allocate resources to segments.

The Company’s chief executive officer has been identified as the CODM.

LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollars and shares in millions, except per share data)

Segment asset information is not presented because it is not used by the CODM at the segment level.

1 unchanged sentence

General management and administrative corporate expenses are included in general corporate expenses below.

Three Months Ended

Three Months Ended Six Months Ended

June 30, June 30,

2022 2021 2022 2021

Dx $ 2,255.4 $ 2,365.5 $ 4,709.5 $ 5,123.3

7 unchanged sentences

Total operating income $ 525.9 $ 704.1 1,213.8 1,762.0

SUBSEQUENT EVENT

On July 28, 2022, the Company announced that its board of directors authorized the Company to pursue a spin-off of its wholly owned Clinical Development business, which includes parts of its DD segment focused on providing Phase I-IV clinical trial management, market access and technology solutions to pharmaceutical and biotechnology organizations.

The planned spin-off will result in two independent, publicly traded companies.

The spin-off is intended to be a tax-free transaction to the Company and its stockholders for U.S.

federal income tax purposes and is expected to be effected through a dividend of the Clinical Development business’ shares to the Company's shareholders.

The Company anticipates that, consistent with any applicable legal and tax requirements, there will be ongoing transitional and commercial arrangements to provide for a seamless delivery of services to the customers and other stakeholders of the independent companies following the spin-off.

The Company is targeting completion of the spin-off in the second half of 2023.

The spin-off will be subject to the satisfaction of certain customary conditions, including, among others, the receipt of final approval by the Company's board of directors, the receipt of appropriate assurances regarding the tax-free nature of the separation, and the effectiveness of any required filings with the SEC.

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 1. Financial Statements