What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-08-01 compared with 2022-04-29 · 184 added, 94 removed, 143 unchanged (66% of the section changed)

23 unchanged sentences

Food and Drug Administration, the U.S.

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

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

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

3 unchanged sentences

failure to retain or attract MCO business as a result of changes in business models, including risk based or network approaches, out-sourced laboratory network management or utilization management companies, or other changes in strategy or business models by MCOs;

failure to obtain and retain new customers, an unfavorable change in the mix of testing services ordered, or a reduction in tests ordered, specimens submitted, or services requested by existing customers, and delays in payments from customers;

failure to obtain and retain new customers, an unfavorable change in the mix of testing or other services ordered, or a reduction in tests ordered, specimens submitted, or services requested by existing customers, and reductions and delays in payments from Dx and DD customers;

consolidation and convergence of customers, competitors, and suppliers, potentially causing material shifts in insourcing, utilization, pricing, reimbursement and supply chain access;

8 unchanged sentences

damage or disruption to the Company's facilities;

damage to the Company's reputation, loss of business, or other harm from acts of animal rights activists or potential harm and/or liability arising from animal research activities;

damage to the Company's reputation, loss of business, or other harm from increased regulations and restrictions on the import of research animals, limitations of supply of research animals, and acts of animal rights activists, or potential harm and/or liability arising from animal research activities;

adverse results in litigation matters;

24 unchanged sentences

effects, duration, and severity of the ongoing COVID-19 pandemic, including the impact on operations, personnel, supplies, liquidity, and 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, evolving government vaccine and testing mandates and policies, 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;

risks associated with the impact, timing, expected benefits and costs, or terms of the planned spin-off of the Company’s Clinical Development business, which includes the parts of its DD segment focused on providing Phase I-IV clinical trial management, market access and technology solutions to pharmaceutical and biotechnology organizations, including but not limited to (i) uncertainties as to the completion and timing of the transaction;

failure to obtain appropriate assurances regarding the tax-free nature of the spin-off;

(iii) the receipt of regulatory approvals;

(iv) the effect of the announcement or pendency of the transaction on the Company’s business relationships, operating results, and business generally;

(v) unexpected issues that arise in the continued planning for the transaction;

(vi) the failure to have the Form 10 registration statement that will be filed with the SEC declared effective on a timely basis, or at all;

(vii) risks that the proposed transaction disrupts current plans and operations of Labcorp or Clinical Development;

(viii) potential difficulties attracting or retaining Company or Clinical Development employees as a result of the spin-off announcement, pendency or completion of the spin-off;

(ix) risks related to diverting management’s attention from the Company and Clinical Development’s ongoing business operations;

(x) the ability of the Company to successfully separate Clinical Development operations from the Company’s ongoing operations;

(xi) market receptiveness to effect transactions in the capital markets;

and (xii) market reaction to the announcement and planning for the transaction.

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 three months ended March 31, 2022, were $3,899.6, a decrease of 6.3% from $4,161.5 during the three months ended March 31, 2021.

Revenues for the six months ended June 30, 2022, were $7,596.5, a decrease of 5.1% from $8,002.2 during the six months ended June 30, 2021.

The decrease was due to lower organic revenue of 4.9% and unfavorable foreign currency translation of 0.7%, partially offset by acquisitions net of divestitures of 0.6%.

The 6.3% decline in organic revenue was driven by a 9.8% decrease in COVID-19 PCR and antibody testing (COVID-19 Testing), partially offset by a 3.5% increase in the Company's organic Base Business.

The 4.9% decline in organic revenue includes a 7.4% decrease in COVID-19 PCR and antibody testing (COVID-19 Testing), partially offset by a 2.5% increase in the Company's organic Base Business.

Base Business includes the Company's business operations except for COVID-19 Testing.

1 unchanged sentence

Acquisition and divestiture impact is considered for a twelve month period following the close of each transaction.

Strategic Review of Company Structure and Capital Allocation Strategy

In March 2021, the Company announced the undertaking of a comprehensive review by its board of directors and management team of Labcorp's structure and capital allocation strategy.

In December 2021, the Company announced the board of directors' conclusion, as well as actions that the management team and the board of directors are taking to enhance shareholder returns.

Through April 28, 2022, the actions taken include:

announcing that a cash dividend of $0.72 per share of common stock will be paid on June 9, 2022, to stockholders of record as of the close of business on May 19, 2022;

completing the purchase of $1,000.0 of Company shares under an accelerated share repurchase plan;

implementing a new LaunchPad business process improvement initiative, targeting savings of $350.0 over the next three years;

providing longer-term outlook in connection with the announcement of the Company's 2021 year-end results;

providing further business insights through additional detail in connection with the announcement of Labcorp's results for the first quarter of 2022.

These actions demonstrate the Company’s continuing commitment to profitable growth through investments in science, innovation, and new technologies.

Management and the board of directors are committed to continuing to evaluate all avenues for enhancing shareholder value.

Proposed Spin-Off of Clinical Development Business

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 the parts of its DD segment focused on providing Phase I-IV clinical trials, market access and technology solutions to pharmaceutical and biotechnology organizations.

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

There can be no assurances regarding the ultimate timing of the transaction or that the spin-off will be completed.

RESULTS OF OPERATIONS (dollars in millions)

Three months ended March 31, 2022, compared with three months ended March 31, 2021

Three Months Ended March 31,

Three months ended June 30, 2022, compared with three months ended June 30, 2021

Three Months Ended June 30,

2022 2021 Change

3 unchanged sentences

Total $ 3,696.9 $ 3,840.7 (3.7 %)

Total revenues for the three months ended March 31, 2022, were $3,899.6, a decrease of 6.3% over $4,161.5 in the first quarter of 2021.

Total revenues for the three months ended June 30, 2022, were $3,696.9, a decrease of 3.7% over $3,840.7 in the second quarter of 2021.

The decrease was due to lower organic revenue of 3.4% and unfavorable foreign currency translation of 1.1%, partially offset by acquisitions net of divestitures of 0.8%.

The 6.3% decline in organic revenue was driven by a 9.8% decrease in COVID-19 Testing, partially offset by a 3.5% increase in the company's organic Base Business.

Dx revenues for the three months ended March 31, 2022, were $2,454.1, a decrease of 11.0% over $2,757.8 in the first quarter of 2021.

The decrease was due to organic revenue of 11.5%, partially offset by acquisitions of 0.5%.

The 11.5% decrease in organic revenue was due to a 14.7% reduction from COVID-19 Testing, partially offset by a 3.2% increase in the Base Business.

The 3.4% decrease in organic revenue was driven by a 4.8% decrease in COVID-19 Testing, partially offset by a 1.4% increase in the Company's organic Base Business.

Dx revenues for the three months ended June 30, 2022, were $2,255.4, a decrease of 4.7% over $2,365.5 in the second quarter of 2021.

The decrease was primarily due to a decrease in organic revenue of 5.7%, partially offset by acquisitions of

The 5.7% decrease in organic revenue was due to a 7.8% decrease in COVID-19 Testing, partially offset by a 2.1% increase in the Base Business.

Total Base Business growth compared to the Base Business in the prior year was 3.9%.

Dx total volume (measured by requisitions) for the three months ended March 31, 2022, decreased by 5.0% as organic volume decreased by 5.3% and acquisition volume contributed 0.3%.

Dx total volume (measured by requisitions) for the three months ended June 30, 2022, decreased by 2.7% as organic volume decreased by 3.1% and acquisition volume contributed 0.4%.

Organic volume was impacted by an 5.6% decrease in COVID-19 Testing, partially offset by a 2.6% increase in Base Business.

Price/mix decreased by 6.0% due to lower COVID-19 Testing of 6.3%, partially offset by acquisitions of 0.2% and organic Base Business growth of 0.1%.

Base Business volume was up 4.4% compared to Base Business last year while price/mix was up 1.2%.

DD revenues for the three months ended March 31, 2022, were $1,459.3, an increase of 1.5% over $1,438.2 in the first quarter of 2021.

The increase was due to organic Base Business growth of 4.3% and acquisitions net of divestitures of 0.1%, partially offset by lower COVID-19 Testing of 1.7% and foreign currency translation of 1.2%.

Price/mix decreased by 2.0% due to a decrease in COVID-19 Testing of 2.2% and a decline in organic Base Business of 0.4%, partially offset by acquisitions of 0.8%.

Base Business volume was up 3.4% compared to the Base Business last year, while price/mix was up 0.5%.

DD revenues for the three months ended June 30, 2022, were $1,451.9, a decrease of 2.9% over $1,495.2 in the second quarter of 2021.

The decrease was due to unfavorable foreign currency translation of 2.6% and lower COVID-19 Testing of 0.6%, partially offset by acquisitions net of divestitures of 0.2% and organic Base Business growth of 0.1%.

Organic Base Business growth was impacted by reduced COVID-19 related work, the conflict in Ukraine, and lower pass-throughs.

Cost of Revenues

Three Months Ended March 31,

Three Months Ended June 30,

2022 2021 Change

1 unchanged sentence

Cost of revenues as a % of revenues 69.6 % 67.1 %

Cost of revenues increased 4.1% during the three months ended March 31, 2022, as compared with the corresponding period in 2021.

Cost of revenues as a percentage of revenues during the three months ended March 31, 2022, increased to 68.4% as compared to 61.6% in the corresponding period in 2021.

This increase was primarily due to a reduction in COVID-19 Testing, higher personnel expenses, and other inflationary costs, partially offset by LaunchPad savings.

Cost of revenues decreased 0.1% during the three months ended June 30, 2022, as compared with the corresponding period in 2021.

Cost of revenues as a percentage of revenues during the three months ended June 30, 2022, increased to 69.6% as compared to 67.1% in the corresponding period in 2021.

This increase in cost of revenues as a percent of revenues was primarily due to a reduction in COVID-19 Testing revenues, higher personnel expenses, and other inflationary costs, partially offset by organic Base Business growth and LaunchPad savings.

Selling, General and Administrative Expenses

Three Months Ended March 31,

Three Months Ended June 30,

2022 2021 Change

1 unchanged sentence

Selling, general and administrative expenses as a % of revenues 13.1 % 11.9 %

Selling, general and administrative expenses as a percentage of revenues were 11.9% and 10.3% during the three months ended March 31, 2022, and 2021, respectively.

The increase is primarily due to a reduction in COVID-19 Testing, and higher personnel expenses, partially offset by LaunchPad savings.

Goodwill and Other Asset Impairments

Three Months Ended March 31,

2022 2021 Change

Goodwill and other asset impairments $ 1.2 $ — 100.0 %

The Company recorded impairment charges of $1.2 in other assets in Ukraine and Russia during the three months ended March 31, 2022.

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

Selling, general and administrative expenses as a percentage of revenues were 13.1% and 11.9% during the three months ended June 30, 2022, and 2021, respectively.

The increase is primarily due to a reduction in COVID-19 Testing revenues, and higher personnel expenses, partially offset by LaunchPad savings.

Amortization of Intangibles and Other Assets

Three Months Ended March 31,

Three Months Ended June 30,

2022 2021 Change

2 unchanged sentences

Total amortization of intangibles and other assets $ 66.4 $ 92.4 (28.1) %

The decrease in amortization of intangibles and other assets primarily reflects the completion of the accelerated amortization related to the Covance trade name as a result of a rebranding initiative that resulted in $29.2 of expense in the three months ended March 31, 2021, offset by amortization for assets acquired subsequent to March 31, 2021.

The decrease in amortization of intangibles and other assets primarily reflects the completion of the accelerated amortization related to the Covance trade name as a result of a rebranding initiative that resulted in $28.0 of expense in the three months ended June 30, 2021, offset by additional amortization for assets acquired subsequent to June 30, 2021.

Restructuring and Other Charges

Three Months Ended March 31,

Three Months Ended June 30,

2022 2021 Change

Restructuring and other charges $ 44.4 $ 9.6 362.4 %

During the three months ended March 31, 2022, the Company recorded net restructuring and other charges of $12.6:

$2.6 within Dx and $10.0 within DD.

During the three months ended June 30, 2022, the Company recorded net restructuring and other charges of $44.4:

$17.7 within Dx, $21.4 within DD, and $5.3 allocated to general corporate.

The charges were comprised of $24.1 related to severance and other personnel costs and $19.4 in facility closures, lease terminations, and general integration activities.

The charges were adjusted by the reversal of a previously established liability of $0.4 in unused severance costs and $0.1 in unused facility-related costs.

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

The charges were adjusted by the reversal of a previously established liability of $0.9 in severance costs.

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

$6.0 within Dx and $3.6 within DD.

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

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

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

Interest Expense

Three Months Ended March 31,

Three Months Ended June 30,

2022 2021 Change

Interest expense $ (42.5) $ (78.3) (45.7) %

The decrease in interest expense for the three months ended March 31, 2022, as compared with the corresponding period in 2021, is primarily due to lower outstanding debt and a lower average cost of debt.

The decrease in interest expense for the three months ended June 30, 2022, as compared with the corresponding period in 2021, is primarily due to the costs of redeeming the 3.20% and 3.75% senior notes, issuing new senior notes in 2021, lower outstanding debt, and a lower average cost of debt in 2022.

Equity Method Income

Three Months Ended March 31,

Three Months Ended June 30,

2022 2021 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 decrease in income for the three months ended March 31, 2022, as compared with the corresponding period in 2021, was primarily due to the decreased profitability of the Company's joint ventures in 2022.

Three Months Ended March 31,

The decrease in income for the three months ended June 30, 2022, as compared with the corresponding period in 2021, was primarily due to the decreased profitability of the Company's joint ventures in 2022.

Three Months Ended June 30,

2022 2021 Change

Other, net $ (10.4) $ 14.1 (173.1) %

The change in Other, net for the three months ended March 31, 2022, as compared to the three months ended March 31, 2021, is primarily due to investment gains of $8.0 for the three months ended March 31, 2022.

In addition, foreign currency transaction losses of $2.6 were recognized for the three months ended March 31, 2022, and losses of $1.0 were recognized in the corresponding period of 2021.

The change in Other, net for the three months ended June 30, 2022, as compared to the three months ended June 30, 2021, is primarily due to investment losses of $6.2 for the three months ended June 30, 2022 compared to investment gains of $22.1 for the corresponding period of 2021.

In addition, foreign currency transaction losses of $4.4 were recognized for the three months ended June 30, 2022 as compared to losses of $1.7 for the corresponding period of 2021.

Income Tax Expense

Three Months Ended March 31,

Three Months Ended June 30,

2022 2021 Change

1 unchanged sentence

Income tax expense as a % of earnings before income taxes 24.7 % 28.1 %

For the three months ended March 31, 2022 and 2021, the effective income tax rate was 23.1% and 24.6%, respectively.

For the three months ended June 30, 2022 and 2021, the effective income tax rate was 24.7% and 28.1%, respectively.

The current year effective tax rate was favorably impacted by the Company's foreign income inclusion.

Additionally, the effective income tax rate recorded benefits related to stock-based compensation arrangements.

The prior year effective tax rate was favorably impacted by stock-based compensation arrangements and was partially offset by the deferred revaluation related to a U.K.

Operating Income by Segment

Three Months Ended March 31,

Three Months Ended June 30,

2022 2021 Change

5 unchanged sentences

Total operating income $ 525.9 $ 704.1 (25.3) %

Dx operating income was $623.3 for the three months ended March 31, 2022, a decrease of $325.8 over operating income of $949.1 in the corresponding period of 2021, and Dx operating margin decreased 900 basis points year-over-year.

Dx operating income was $455.5 for the three months ended June 30, 2022, a decrease of $148.1 over operating income of $603.6 in the corresponding period of 2021, and Dx operating margin decreased 530 basis points year-over-year.

The decrease in adjusted operating income and adjusted operating margin was primarily due to a reduction in COVID-19 Testing, higher personnel expense, and other inflationary costs, partially offset by organic Base Business growth and LaunchPad savings.

DD operating income was $124.2 for the three months ended March 31, 2022, a decrease of 20.6% over operating income of $156.4 in the corresponding period of 2021.

The decrease was primarily due to COVID-19 Testing, a reduction in COVID-19 vaccine and therapeutic work, the interruption of some clinical trial activity due to the conflict in Ukraine, higher personnel expense, and other inflationary costs.

These impacts were 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.

DD operating income was $150.9 for the three months ended June 30, 2022, a increase of $3.5 over operating income of $147.3 in the corresponding period of 2021.

The increase was primarily due to less amortization expense in 2022 as a result of the completion of the accelerated amortization related to the Covance trade name, organic Base Business growth, and LaunchPad savings, partially offset by lower COVID-19 Testing, a reduction in COVID-19 related work, the interruption of some clinical trial activity due to the conflict in Ukraine, and other inflationary costs.

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 $59.6 for the three months ended March 31, 2022, an increase of $12.0 over corporate expenses of $47.6 in the corresponding period of 2021, primarily due to higher personnel costs.

Corporate expenses were $80.5 for the three months ended June 30, 2022, an increase of $33.7 over corporate expenses of $46.8 in the corresponding period of 2021, primarily due to higher personnel costs, bonus allocation, research and development costs, and other costs.

The Company remains on track to deliver approximately $350.0 of net savings from its three-year LaunchPad initiative by the end of 2024.

Six months ended June 30, 2022, compared with six months ended June 30, 2021

Six Months Ended June 30,

2022 2021 Change

Dx $ 4,709.5 $ 5,123.3 (8.1) %

DD 2,911.2 2,933.4 (0.8) %

Intercompany eliminations and other (24.2) (54.5) (55.6) %

Total $ 7,596.5 $ 8,002.2 (5.1) %

The decrease in revenues for the six months ended June 30, 2022, as compared with the corresponding period in 2021 was 5.1%.

The decrease was due to lower organic revenue of 4.9% and unfavorable foreign currency translation of 0.7%, partially offset by acquisitions net of divestitures of 0.6%.

The 4.9% decrease in organic revenue includes a 7.4% decrease from COVID-19 Testing and a 2.5% increase in the Company's organic Base Business.

Dx revenues for the first half of the year were $4,709.5, a decrease of 8.1% compared to revenues of $5,123.3 during the six months ended June 30, 2021.

The decrease was primarily due to lower organic revenue of 8.8% and unfavorable foreign currency translation of 0.1%, partially offset by acquisitions of 0.8%.

The 8.8% decrease in organic revenue was due to an 11.5% decrease in COVID-19 Testing, partially offset by a 2.7% increase in the Base Business.

Total volume, measured by requisitions, decreased by 3.9% as organic volume decreased by 4.2% and acquisition volume contributed 0.3%.

COVID-19 Testing decreased organic volume growth by 7.1%.

Price/mix decreased by 4.2% due to lower COVID-19 Testing of 4.4%, lower organic Base Business of 0.2%, and unfavorable foreign currency translation of 0.1%, partially offset by acquisitions of 0.5%.

DD revenues for the six months ended June 30, 2022 were $2,911.2, an decrease of 0.8% over revenues of $2,933.4 during the six months ended June 30, 2021.

The decrease in revenues was primarily due to unfavorable foreign currency translation of 1.9%, lower COVID-19 Testing performed through its Central Laboratories business of 1.2%, partially offset by an increase in organic Base Business revenue of 2.2% and acquisitions net of divestitures of 0.2%.

Cost of Revenues

Six Months Ended June 30,

2022 2021 Change

Cost of revenues $ 5,240.9 $ 5,138.4 2.0 %

Cost of revenues as a % of revenues 69.0 % 64.2 %

Cost of revenues increased 2.0% during the six months ended June 30, 2022, as compared with the corresponding period in 2021.

Cost of revenues as a percentage of revenues during the six months ended June 30, 2022, increased to 69.0% as compared to 64.2% in the corresponding period in 2021.

Selling, General and Administrative Expenses

Six Months Ended June 30,

2022 2021 Change

Selling, general and administrative expenses $ 950.1 $ 888.5 6.9 %

Selling, general and administrative expenses as a % of revenues 12.5 % 11.1 %

Selling, general and administrative expenses as a percentage of revenues were 12.5% and 11.1% during the six months ended June 30, 2022, and 2021, respectively.

The increase is primarily due to a reduction in COVID-19 Testing revenues, and higher personnel expenses, partially offset by LaunchPad savings.

Amortization of Intangibles and Other Assets

Six Months Ended June 30,

2022 2021 Change

Dx $ 66.7 $ 56.5 18.0 %

DD 66.8 128.0 (47.8) %

Total amortization of intangibles and other assets $ 133.5 $ 184.5 (27.6) %

The decrease in amortization of intangibles and other assets primarily reflects the completion of the accelerated amortization related to the Covance trade name as a result of a rebranding initiative that resulted in $57.2 of expense in the six months ended June 30, 2021, offset by additional amortization for assets acquired subsequent to June 30, 2021.

Goodwill and Other Asset Impairments

Six Months Ended June 30,

2022 2021 Change

Goodwill and other asset impairments $ 1.2 $ — 100.0%

The Company recorded impairment charges of $1.2 in other assets in Ukraine and Russia during the six months ended June 30, 2022.

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

Restructuring and Other Special Charges

Six Months Ended June 30,

2022 2021 Change

Restructuring and other charges $ 57.0 $ 28.8 98.0 %

During the six months ended June 30, 2022, the Company recorded net restructuring and other charges of $57.0:

$20.3 within Dx, $31.4 within DD, and $5.3 allocated to general corporate.

The charges were comprised of $29.5 related to severance and other personnel costs and $27.1 in facility closures, lease terminations, and general integration activities.

The charges were adjusted by an increase of $0.5 of previously established severance liabilities and the reversal of previously established liability of $0.1 in unused facility-related costs.

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

$13.5 within Dx and $15.3 within DD.

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

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.

Interest Expense

Six Months Ended June 30,

2022 2021 Change

Interest expense $ (84.7) $ (126.8) (33.2) %

The decrease in interest expense for the six months ended June 30, 2022, as compared with the corresponding period in 2021, is primarily due to the costs of redeeming the 3.20% and 3.75% notes, issuing the new senior notes in 2021, lower outstanding debt and a lower average cost of debt in 2022.

Equity Method Income

Six Months Ended June 30,

2022 2021 Change

Equity method income, net $ 4.8 $ 12.5 (61.7) %

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 decrease in income for the six months ended June 30, 2022, as compared with the corresponding period in 2021, was primarily due to the decreased profitability of the Company's joint ventures in 2022.

Six Months Ended June 30,

2022 2021 Change

Other, net $ (20.5) $ 19.6 (204.2) %

The change in Other, net for the six months ended June 30, 2022, as compared to the six months ended June 30, 2021, is primarily due to investment losses of $14.2 compared to $30.5 of investment gains in the corresponding period of 2021.

In addition, foreign currency transaction losses of $7.0 were recognized for the six months ended June 30, 2022, and losses of $2.8 were recognized in the corresponding period of 2021.

Income Tax Expense

Six Months Ended June 30,

2022 2021 Change

Income tax expense $ 265.5 $ 434.3 (38.9) %

Income tax expense as a % of earnings before income taxes 23.8 % 26.0 %

For the six months ended June 30, 2022, and 2021, the effective income tax rate was 23.8% and 26.0%, respectively.

The current year effective tax rate was favorably impacted by the Company's foreign income inclusion.

The prior year effective tax rate was favorably impacted by stock-based compensation arrangements and was partially offset by the deferred revaluation related to a U.K.

Operating Income by Segment

Six Months Ended June 30,

2022 2021 Change

Dx operating income $ 1,078.8 $ 1,552.7 $ (473.9)

Dx operating margin 22.9 % 30.3 % (7.4) %

DD operating income 275.1 303.7 (28.6)

DD operating margin 9.4 % 10.4 % (0.9) %

General corporate expenses (140.1) (94.4) (45.7)

Total operating income $ 1,213.8 $ 1,762.0 $ (548.2)

Dx operating income was $1,078.8 for the six months ended June 30, 2022, an decrease of $473.9 from operating income of $1,552.7 in the corresponding period of 2021, and Dx operating margin decreased 740 basis points year-over-year.

DD operating income was $275.1 for the six months ended June 30, 2022, a decrease of $28.6 from operating income of $303.7 in the corresponding period of 2021.

The decrease was primarily due to a reduction in COVID-19 Testing, a reduction in COVID-19 related work, the interruption of some clinical trial activity due to the conflict in Ukraine, higher personnel expense, and other inflationary costs.

These impacts were partially offset by less amortization expense as a result of the completion of the accelerated amortization related to the Covance trade name, organic Base Business growth and LaunchPad savings.

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 $140.1 for the six months ended June 30, 2022, an increase of $45.7 over corporate expenses of $94.4 in the corresponding period of 2021, primarily due to higher personnel costs, bonus allocation, research and development costs, and other costs.

The Company remains on track to deliver approximately $350.0 of net savings from its three-year LaunchPad initiative by the end of 2024.

LIQUIDITY AND CAPITAL RESOURCES (dollars and shares in millions)

2 unchanged sentences

The Company's senior unsecured revolving credit facility is further discussed in Note 6 (Debt) to the Company's Condensed Consolidated Financial Statements.

In summary, the Company's cash flows were as follows for the three months ended March 31, 2022, and 2021, respectively:

Three Months Ended March 31,

In summary, the Company's cash flows were as follows for the six months ended June 30, 2022, and 2021, respectively:

Six Months Ended June 30,

Net cash provided by operating activities $ 928.5 $ 1,644.8

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Cash and Cash Equivalents

Cash and cash equivalents at March 31, 2022, and 2021, totaled $1,233.5 and $1,890.8, respectively.

Cash and cash equivalents at June 30, 2022, and 2021, totaled $1,068.8 and $1,963.2, respectively.

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

Cash Flows from Operating Activities

During the three months ended March 31, 2022, the Company's operations provided $356.0 of cash as compared to $1,157.6 during the same period in 2021.

The $801.6 decrease in cash provided from operations in 2022 as compared with the corresponding 2021 period is primarily due to lower cash earnings and higher working capital requirements.

During the six months ended June 30, 2022, the Company's operations provided $928.5 of cash as compared to $1,644.8 during the same period in 2021.

The $716.3 decrease in cash provided from operations in 2022 as compared with the corresponding 2021 period is primarily due to lower cash earnings and unfavorable working capital requirements.

Cash Flows from Investing Activities

Net cash used for investing activities for the three months ended March 31, 2022, was $573.1 as compared to $132.4 for the three months ended March 31, 2021.

The change in cash used for investing activities was primarily due to an increase in business acquisitions and higher capital expenditures during the three months ended March 31, 2022.

Capital expenditures were $117.2 and $95.4 for the three months ended March 31, 2022, and 2021, respectively.

Net cash used for investing activities for the six months ended June 30, 2022, was $815.6 as compared to $222.8 for the six months ended June 30, 2021.

The change in cash used for investing activities was primarily due to an increase in business acquisitions and higher capital expenditures during the six months ended June 30, 2022.

Capital expenditures were $260.5 and $192.6 for the six months ended June 30, 2022, and 2021, respectively.

Cash Flows from Financing Activities

Net cash used by financing activities for the three months ended March 31, 2022, was $17.7 as compared to $450.1 for the three months ended March 31, 2021.

The change in cash flows from financing activities for the three months ended March 31, 2022, as compared to the three months ended March 31, 2021, was primarily due to the repayment of the 2019 Term Loan in 2021 and a decrease of $68.5 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.

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

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

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

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

The aggregate fair value of $31.3 at March 31, 2022, was included as a component of other long-term liabilities and reduced the reported value of the senior notes.

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

It consists of a five-year revolving facility in the principal amount of up to $1,000.0, with the option of increasing the facility by up to an additional $500.0, subject to the agreement of one or more new or existing lenders to provide such additional amounts and certain other customary conditions.

The Company is required to pay a facility fee on the aggregate commitments under the revolving credit facility, at a per annum rate ranging from 0.10% to 0.23%, depending on the Company’s debt ratings.

Net cash used by financing activities for the six months ended June 30, 2022, was $497.4 as compared to $775.5 for the six months ended June 30, 2021.

The change in cash flows from financing activities for the six months ended June 30, 2022, as compared to the six months ended June 30, 2021, was primarily due to the repayment of the 2019 Term Loan in 2021, the payment of dividends of $66.7 in 2022, and an increase of $31.5 in share repurchases.

At June 30, 2022, the Company had $1,068.8 of cash and $1,000.0 of available borrowings under its revolving credit facility, which does not mature until 2026.

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

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

At March 31, 2022, the Company had $1,233.5 of cash and $1,000.0 of available borrowings under its revolving credit facility, which does not mature until 2026.

For the three months ended March 31, 2022, the Company did not repurchase any of the Company's common stock but received 0.6 shares of its common stock, arising from a partial acceleration from Barclays Bank PLC and a final settlement from Goldman Sachs & Co.

LLC in connection with agreements under its ASR program initiated in December 2021.

As of March 31, 2022, t he Company had an outstanding authorization from the board of directors to purchase up to $1,631.5 more of the Company's common stock with 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.

The Company was in compliance with all covenants under 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.

For the six months ended June 30, 2022, the Company purchased 1.7 shares of its common stock at a total cost of $400.0.

As of June 30, 2022, t he Company had an outstanding authorization from the board of directors to purchase up to $1,231.5 more of the Company's common stock with no expiration date.

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

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.

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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