What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2023-02-28 compared with 2022-02-25 · 146 added, 119 removed, 218 unchanged (55% of the section changed)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (in millions)

During the year ended December 31, 2021, the Company's revenues grew by 15.3%, due to organic growth of 13.8%, acquisitions of 0.7% and favorable foreign currency translation of 0.9%, partially offset by the disposition of a business of 0.1%.

The 13.8% increase in organic revenues includes a 14.0% contribution from Company's organic Base Business and a 0.2% decrease in COVID-19 Testing.

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

During the year ended December 31, 2022, the Company's revenues were $14.9 billion, a decrease of 7.7% from $16.1 billion in 2021.

The decrease was due to lower organic revenue of 7.5% and foreign currency translation of 1.0%, partially offset by acquisitions net of divestitures of 0.8%.

The 7.5% decrease in organic revenue was due to a 10.0% decrease in COVID-19 Testing, partially offset by a 2.5% increase in the Company's organic Base Business.

The Company defines organic growth as the increase in revenue excluding the year over year impact of acquisitions, divestitures, and currency.

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

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

Strategic Review of Company Structure and Capital Allocation Strategy

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

The review reflected the Board's and management team's view that the

Company's value was not appropriately reflected in its stock price.

As a part of this review, the Board and management worked with outside advisors, held extensive discussions with third parties, and considered a wide range of options, including significant acquisitions, divestitures, spinning off businesses, as well as spinning and merging those businesses with strategic partners.

Ultimately, the Board unanimously concluded that the Company's existing structure is in the best interest of all stakeholders at this time and represents compelling opportunities to grow and create significant shareholder value.

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

These actions include:

• initiating a dividend in the second quarter of 2022, with a target dividend payout ratio of between 15% to 20% of adjusted earnings;

• authorizing a $2,500.0 share repurchase program.

As part of this program, $1,000.0 is being repurchased under an accelerated share repurchase plan that is expected to be complete by the end of April 2022.

On December 13, 2021, the Company entered into the ASR Agreements with the Financial Institutions to repurchase approximately $1,000.0 in the aggregate of the Common Stock, as part of the Company’s Common Stock repurchase program;

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

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

In December 2021, the Company announced the Board's conclusion, as well as actions that the management team and the Board would take to enhance shareholder returns.

These actions have included:

• initiating a dividend in the second quarter of 2022, as well as subsequent dividends paid in the third and fourth quarters of 2022, with total dividend payments for 2022 in the amount of $195.2 million;

• authorizing a $2.50 billion share repurchase program.

As part of this program, $1.0 billion was repurchased under an accelerated share repurchase plan in 2021, and a total of $1.1 billion of stock was repurchased in 2022, representing approximately 4.7 million shares;

• implementing a new LaunchPad business process improvement initiative, targeting savings of $350.0 million through 2025;

• providing a longer-term outlook in connection with the announcement of the Company's 2021 year-end results in addition to the Company's annual guidance;

• providing additional business insights through enhanced disclosures beginning with Labcorp's results for the first quarter of 2022;

• providing additional business insights through enhanced disclosures beginning with the Company's results for the first quarter of 2022;

• continuing a commitment to profitable growth through investments in science, innovation, and new technologies;

On July 28, 2022, the Company announced that it would pursue a planned spin-off of its Clinical Development and Commercialization Services (CDCS) business, as further discussed below.

Management and the Board are committed to continuing to evaluate all avenues for enhancing shareholder value.

The updated capital allocation plan enables the Company to continue investment in key growth areas, including oncology, Alzheimer's disease, autoimmune disorders, and women's health.

This plan is designed to fuel growth through innovation by using Labcorp's unparalleled data and insights to bring scientific advancements—both Labcorp-developed and those of other scientists—to market at scale.

The updated capital allocation plan is designed to enable the Company to continue investment in key growth areas.

This plan is expected to fuel growth through innovation by using the Company's unique data and insights to bring scientific advancements—both those developed internally and those developed by outside companies and scientists—to market at scale.

It reflects the Board's confidence in the Company's strong balance sheet and cash flow generation profile, as well as the Board's commitment to deploying capital to enhance value for shareholders, patients, providers, and pharmaceutical customers worldwide.

Spin-Off of the Company's CDCS Business

On July 28, 2022, the Company announced that the Board authorized the Company to pursue a spin-off of the Company’s wholly owned CDCS business to its shareholders through a tax-free transaction.

The planned spin-off will result in two independent companies, each poised for strong, sustainable growth.

On January 9, 2023, Thomas (Tom) Pike joined the Company as president and chief executive officer of its DD Clinical Development business unit, and when the planned spin-off is complete, Mr.

Pike will become the chief executive officer and chairman of the board of directors of the independent, publicly listed company.

On February 9, 2023, the Company announced that the name of the CDCS business will become Fortrea in connection with the planned spin-off.

The Company is targeting completion of the planned spin-off in mid-2023.

The planned 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, the receipt of appropriate assurances regarding the tax-free nature of the separation and effectiveness of any required filings with the U.S.

Securities and Exchange Commission (SEC).

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

When the transaction is complete, the resulting companies will be Labcorp, comprising the Company’s routine and esoteric labs, central labs and early development research labs, and Fortrea, a global contract research organization (CRO) providing Phase I-IV clinical trial management, market access and technology solutions to pharmaceutical and biotechnology organizations.

The planned spin-off is expected to provide each company with:

• strengthened strategic flexibility and operational focus to pursue specific market opportunities and better meet customer needs;

• focused capital structures and capital allocation strategies to drive innovation and growth;

• a more targeted investment opportunity for different investor bases;

• the ability to align its particular incentive compensation with its financial performance.

Following the planned spin-off, the Company believes that Labcorp will be positioned to:

• invest in R&D and innovation to develop and launch diagnostic advancements globally in key clinical areas including oncology, Alzheimer's, and autoimmune and liver disease through organic and inorganic opportunities;

• bring together its global health and patient data and provide insights to enable customers to innovate;

• utilize its worldwide laboratory network to serve a broad, growing and global customer base including pharmaceutical and biotechnology companies, physicians, health systems, consumers, and other start-ups and laboratories that require lab services or diagnostic testing;

• launch innovative tests globally, providing patients, physicians, health systems and pharmaceutical companies with access to its advanced science, technology and diagnostic capabilities.

Following the planned spin-off, the Company believes that Fortrea will be positioned to:

• capitalize on growth opportunities across Phases I-IV clinical trials and extend its leadership in oncology, cell and gene therapy, rare disease, and other emerging therapeutic areas;

• increase agility with large pharmaceutical and biotechnology clients to better serve customers and advance life-saving therapies;

• access to unique data sets and insights through an arrangement with the Company for a defined period of time which will enable Fortrea to provide enhanced trial execution and a differentiated value proposition;

• invest in capabilities, technologies, diverse talent and innovation to enhance trial execution and better serve all of its customers;

• implement a capital structure that is tailored to support its growth strategy and enhance stakeholder value.

The planned spin-off is intended to qualify as a tax-free transaction for U.S.

federal income tax purposes.

See “Risk Factors - Risks Related to the Planned Spin-off of the Company’s Clinical Development and Commercialization Services Business.”

Unless otherwise indicated, the disclosure in this Annual Report assumes that Clinical Development and Commercialization Services business will be with the Company for the full year.

COVID-19 Outlook

While the Company anticipates that COVID-19 will continue impacting its business in 2023 and potentially beyond, the Company expects a continued decline in demand for COVID-19 Testing, with the potential for increases in demand at different times and across different geographies.

As a result, COVID-19 Testing demand in 2023 is not predicted to match 2022 levels.

Results of Operations

8 unchanged sentences

Total $ 14,876.8 $ 16,120.9 (7.7) %

The 15.3% increase in revenues for the year ended December 31, 2021, as compared with the corresponding period in 2020 was primarily due to organic growth of 13.8%, acquisitions of 0.7% and favorable foreign currency translation of 0.9%, partially offset by the disposition of a business of 0.1%.

The 13.8% increase in organic revenues includes a 14.0% contribution from the Company's organic Base Business and a 0.2% decrease in COVID-19 Testing.

Dx revenues for the year ended December 31, 2021, were $10,363.6, an increase of 12.0% over revenues of $9,253.4 in the corresponding period in 2020.

The increase in revenues was due to organic growth of 10.9%, acquisitions of 0.7%, and foreign currency translation of 0.4%.

The 10.9% increase in organic revenue was due to a 11.2% contribution from organic Base Business, partially offset by a 0.3% decline in COVID-19 Testing.

Dx total volume, measured by requisitions, increased by 10.9% as organic volume increased by 10.5% and acquisition volume contributed growth of 0.5%.

The organic volume growth is due to demand for organic Base Business of 10.5%, partially offset by a 0.1% reduction of COVID-19 Testing.

Price/mix increased by 1.1% due to organic Base Business of 0.6%,

acquisitions of 0.3%, and favorable foreign currency translation of 0.4%, partially offset by a 0.2% decline from COVID-19 Testing.

DD revenues for the year ended December 31, 2021, were $5,845.5, an increase of 19.8% over revenues of $4,877.7 in the corresponding period in 2020.

The increase in revenues was due to organic Base Business growth of 19.2%, the benefit of acquisitions of 0.7%, favorable foreign currency translation of 1.8%, partially offset by lower COVID-19 Testing performed through its Central Laboratories business of 1.6% and a business disposition of 0.2%.

The 7.7% decrease in revenues for the year ended December 31, 2022, as compared to the corresponding period in 2021 was due to lower organic revenue of 7.5% and unfavorable foreign currency translation of 1.0%, partially offset by acquisitions net of divestitures of 0.8%.

The 7.5% decrease in organic revenue was due to a 10.0% decrease in COVID-19 Testing, partially offset by a 2.5% increase in the Company's organic Base Business.

Dx revenues for the year ended December 31, 2022, were $9,203.5, a decrease of 11.2% compared to revenues of $10,363.6 in the corresponding period in 2021.

The decrease was primarily due to lower organic revenue of 12.1% and unfavorable foreign currency translation of 0.1%, partially offset by acquisitions of 1.1%.

The 12.1% decrease in organic revenue was due to a 15.6% decrease in COVID-19 Testing, partially offset by a 3.4% contribution from organic Base Business.

Total volume, measured by requisitions, decreased by 7.5% as organic volume decreased by 8.4% and acquisition volume contributed growth of 0.8%.

Organic volume was impacted by a 10.4% decrease in COVID-19 Testing, partially offset by a 2.0% increase in Base Business.

Price/mix decreased by 3.7% due to lower COVID-19 Testing of 5.2% and unfavorable foreign currency translation of 0.1%, partially offset by higher Base Business of 1.4% and acquisitions of 0.2%.

DD revenues for the year ended December 31, 2022, were $5,710.2, a decrease of 2.3% over revenues of $5,845.5 in the corresponding period in 2021.

The decrease in revenues was primarily due to unfavorable foreign currency translation of 2.6% and lower COVID-19 Testing of 0.6%, partially offset by organic base business growth of 0.5%, and acquisitions net of divestitures of 0.3%.

Cost of Revenues

4 unchanged sentences

70.5 % 65.1 %

Cost of revenues increased 16.3% in 2021 as compared with 2020 and increased as a percentage of revenues to 65.1% in 2021 as compared to 64.6% in 2020.

This increase was primarily due to COVID-19 Testing partially offset by Base Business recovery.

Cost of revenues were flat in 2022 as compared with 2021 and increased as a percentage of revenues to 70.5% in 2022 as compared to 65.1% in 2021.

This increase in cost of revenues as a percentage of revenues was primarily due to a reduction in

higher margin COVID-19 Testing, higher personnel expenses, and other inflationary costs, partially offset by organic Base Business growth and LaunchPad savings.

Selling, General and Administrative Expenses

3 unchanged sentences

SG&A as a % of revenues 13.4 % 12.1 %

Selling, general and administrative expenses as a percentage of revenues decreased to 12.1% in 2021 compared to 12.4% in 2020.

The decrease in selling, general and administrative expenses as a percentage of revenues is primarily due to the leveraging of the organic revenue growth and the impact of LaunchPad savings.

During 2021, the Company incurred special charges of $25.1 of acquisition and divestiture related costs, $13.3 in COVID-related costs, $6.3 in management transition costs, $18.2 in retention bonuses, $8.6 of non-capitalized costs associated with the implementation of a major system as part of its LaunchPad business process improvement initiative, and $24.3 related to miscellaneous other items.

These items increased selling, general and administrative expenses by $95.8.

Excluding these charges, selling, general and administrative expenses as a percentage of revenues were 11.5% for the year ended December 31, 2021.

The decrease in selling, general and administrative expenses, excluding the above items, as a percentage of revenues is primarily due to leveraging the Company's infrastructure on higher revenue.

During 2020, the Company incurred special charges of $28.3 of acquisition and divestiture related costs, $10.4 in COVID-related costs, $14.6 in management transition costs, and $1.3 of non-capitalized costs associated with the implementation of a major system as part of its LaunchPad business process improvement initiative, partially offset by $2.7 in other miscellaneous items.

These items increased selling, general and administrative expenses by $51.9.

Excluding these charges, selling, general and administrative expenses as a percentage of revenues were 12.0% for the year ended December 31, 2020.

Selling, general and administrative expenses as a percentage of revenues increased to 13.4% in 2022 compared to 12.1% in 2021.

The increase in selling, general and administrative expenses as a percentage of revenues is primarily due to a decrease in higher margin COVID-19 Testing and higher personnel costs, partially offset by LaunchPad savings.

Goodwill and Other Asset Impairments

1 unchanged sentence

2022 2021 Change

Goodwill and other asset impairments $ — $ 462.1 N/A

During 2020, the Company recorded goodwill and other asset impairment charges of $462.1, $450.5 within DD and $11.6 within Dx.

The Company concluded that the fair value was less than carrying value for two of its reporting units and recorded goodwill impairment of $418.7 and $3.7 for DD and Dx, respectively.

Additional impairment of identifiable intangible and tangible assets of $31.8 and $7.9 was recorded for DD and Dx, respectively, for impairment of a tradename, software, customer relationships, technology assets and a note receivable.

Goodwill and other asset impairments $ 271.5 $ — 100.0%

The 2022 impairment charges were primarily comprised of $260.0 of goodwill impairment for the early development reporting unit, which is part of the DD segment, and the impairment of a technology intangible asset.

There were no goodwill and other asset impairments for the year ended December 31, 2021.

Amortization Expense

Amortization of Intangibles and Other Assets

Years Ended December 31,

2022 2021 Change

Dx $ 117.1 $ 104.9 11.7 %

DD 252.5 170.5 48.0 %

Amortization of intangibles and other assets $ 259.3 $ 369.6 (29.8) %

The increase in amortization of intangibles and other assets from 2020 through 2021 primarily reflects the impact of acquisitions partially offset by impairment of intangible assets recorded in fiscal 2020.

In addition, amortization acceleration of certain intangible assets related to trade names as a result of the Company's rebranding initiative of $88.4 and $27.5 were recognized for the years ended December 31, 2021 and 2020, respectively.

The decrease in amortization of intangibles and other assets for the year ended December 31, 2022 is primarily due to $88.4 in amortization acceleration of certain intangible assets related to trade names as a result of the Company's rebranding initiative recognized during 2021, partially offset by the impact of acquisitions.

Restructuring and Other Charges

3 unchanged sentences

During 2022, the Company recorded net restructuring charges of $83.8.

$18.6 within Dx and $24.5 within DD.

The charges were comprised of $16.3 in severance and other personnel costs and $28.0 in facility closures, lease terminations, and general integration activities.

The charges were offset by the reversal of previously established liability of $0.4 and $0.8 in unused severance costs and facility-related costs, respectively.

The charges were comprised of $39.3 in severance and other personnel costs, $45.7 in facility-related costs primarily associated with general integration activities.

The charges were offset by the reversal of previously established liability of $0.3 in unused severance and $0.9 in unused facility-related costs.

During 2021, the Company recorded net restructuring charges of $43.1.

$15.3 within Dx and $25.3 within DD.

The charges were comprised of $14.1 in severance and other personnel costs and $17.4 for facility, operating lease right-of-use and equipment impairments, and $18.9 in facility closures and general integration activities.

The charges were comprised of $16.3 in severance and other personnel costs and $28.0 in facility closures, lease terminations, and general integration activities.

The charges were offset by the reversal of previously established liability of $0.4 and $0.8 in unused severance costs and facility-related costs, respectively.

3 unchanged sentences

Interest expense $ 180.3 $ 212.1 (15.0) %

The increase in interest expense for 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 and lower cost of debt.

The decrease in interest expense for 2022 as compared with the corresponding period in 2021 is primarily due to the costs of redeeming the outstanding 3.20% senior notes due February 1, 2022 and the 3.75% notes due August 23, 2022 and issuing the new senior notes in 2021 and lower outstanding debt partially offset by a higher average cost of debt in 2022.

Equity Method Income, Net

3 unchanged sentences

Equity method income, net 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 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 COVID19 global pandemic, and increased profitability of the Company's joint ventures in 2021.

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

Years Ended December 31,

1 unchanged sentence

Other, net $ (25.3) $ 42.5 159.8 %

The change in Other, net for the year ended December 31, 2021, as compared to the year ended December 31, 2020, was primarily due to investment activity.

During the year ended December 31, 2021, the Company recorded investment gains of $61.8 which were partially offset by a loss on a sale of a business of $6.2.

During the year ended December 31, 2020, the Company adjusted certain investments due to the negative impact of the COVID-19 global pandemic.

The change in Other, net for the year ended December 31, 2022, as compared to the year ended December 31, 2021, was primarily due to investment losses of $19.6 compared to $61.8 of investment gains in the corresponding period of 2021.

In addition, foreign currency transaction losses of $5.0 and $4.4 were recognized for the years ended December 31, 2022 and 2021, respectively.

3 unchanged sentences

Income tax expense as a % of income before tax 19.1 % 23.9 %

In 2021, the Company's effective tax rate of 23.9% was favorable as compared to the 2020 tax rate of 29.8%.

This was primarily related to impairment charges recorded during 2020 that were not deductible, finalization of tax audits, and the geographic mix of earnings.

The current year effective tax rate was favorably impacted by the Company's research and development tax credits, changes in effective state income tax rates, and deferred tax adjustments.

During the third quarter, the Company completed a detailed domestic research and development tax credit analysis for the 2019, 2020, and 2021 tax years that resulted in an incremental income tax benefit.

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

Operating Results by Segment

During the fourth quarter of 2022, the Company modified the segment performance measure to exclude the amortization of intangibles and other assets, restructuring and other charges, goodwill and other asset impairments, and certain corporate charges for items such as transaction costs, COVID-19 costs, and other special items.

These changes align with how the CODM now evaluates segment performance and allocates resources.

Prior periods have been conformed for comparability.

Years Ended December 31,

2022 2021 Change

Dx operating income $ 2,988.5 $ 2,634.9 13.4 %

Dx operating margin 28.8 % 28.5 % 0.3 %

DD operating income $ 547.7 $ 37.3 1,371.0 %

DD operating margin 9.4 % 0.8 % 8.6 %

General corporate expenses $ (276.7) $ (226.8) 22.0 %

Dx segment operating income $ 2,025.5 $ 3,205.6 (36.8) %

Dx segment operating margin 22.0 % 30.9 % (8.9) %

DD segment operating income 801.1 887.1 (9.7) %

DD segment operating margin 14.0 % 15.2 % (1.1) %

Segment operating income 2,826.6 4,092.7 (30.9) %

General corporate and unallocated expenses (438.1) (420.5) 4.2 %

Amortization of intangibles and other assets (259.3) (369.6) (29.8) %

Restructuring and other charges (83.8) (43.1) 94.4 %

Goodwill and other asset impairments (271.5) — 100.0 %

Total operating income $ 1,773.9 $ 3,259.5 (45.6) %

Dx operating income was $2,988.5 for the year ended December 31, 2021, an increase of 13.4% over operating income of $2,634.9 in the corresponding period of 2020 and an increase of 270 basis points in operating margin year-over-year.

The increase in operating income and margin were primarily due to a recovery in the Base Business, partially offset by a decrease in COVID-19 Testing and higher personnel costs.

The Company achieved its goal to deliver approximately $200 million of net savings from its three-year Diagnostics LaunchPad initiative by the end of 2021.

DD operating income was $547.7 for the year ended December 31, 2021, an increase of 1,371.0% from operating income of $37.3 in the corresponding period of 2020.

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

The Company continues to develop and execute new LaunchPad programs to support profitable growth in DD.

Dx operating income was $2,025.5 for the year ended December 31, 2022, a decrease of 36.8% over operating income of $3,205.6 in the corresponding period of 2021, and Dx operating margin decreased 890 basis points in operating margin year-over-year.

The decrease in operating income and margin were primarily due to a reduction in COVID-19 Testing, higher personnel expense, the mix impact from Ascension, partially offset by organic Base Business growth.

DD operating income was $801.1 for the year ended December 31, 2022, a decrease of 9.7% from operating income of $887.1 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 Ukraine/Russia crisis, and other inflationary costs.

These impacts were partially offset by 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 $276.7 for the year ended December 31, 2021, an increase of 22.0% over corporate expenses of $226.8 in the corresponding period of 2020.

The increase in corporate expenses in 2021 is primarily due to higher incentive based compensation resulting from the financial performance of the Company.

Corporate expenses were $438.1 for the year ended December 31, 2022, an increase of 4.2% over corporate expenses of $420.5 in the corresponding period of 2021, primarily due to higher personnel costs, bonus allocation, research and development costs, and other costs.

Liquidity, Capital Resources and Financial Position

2 unchanged sentences

The Company's senior unsecured revolving credit facility is further discussed in Note 10 Debt to the Company's Consolidated Financial Statements.

Management’s discussion and analysis of cash flows for the year ended December 31, 2020 compared to the year ended December 31, 2019 may be found in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations, Liquidity, Capital Resources and Financial Position” section of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2020.

In summary the Company's cash flows were as follows:

For the Year Ended December 31,

2021 2020 2019

Net cash provided by operating activities $ 1,955.9 $ 3,109.6

8 unchanged sentences

During the year ended December 31, 2022, the Company's operations provided $1,955.9 of cash as compared to $3,109.6 in 2021.

The $974.3 increase in cash provided from operations in 2021 as compared with the corresponding 2020 period was primarily due to higher earnings and favorable working capital.

The $1,153.7 decrease in cash provided from operations in 2022 as compared with the corresponding 2021 period was primarily due to lower cash earnings as COVID-19 revenues decreased significantly.

Cash Flows from Investing Activities

9 unchanged sentences

Net cash used in financing activities for the year ended December 31, 2022 was $1,322.2 compared to cash used in financing activities of $2,065.8 for the year ended December 31, 2021.

This movement in cash within financing activities for 2021, as compared to 2020, was primarily a result of $1,668.5 in share repurchases in 2021 compared to $100.0 in 2020.

This movement in cash within financing activities for 2022, as compared to 2021, was primarily a result of $1,100.0 in share repurchases in 2022 compared to $1,668.5 in 2021 and the commencement of quarterly dividend payments in the second quarter of 2022.

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.

2 unchanged sentences

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 $2.9 at December 31, 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 $79.7 at December 31, 2022, was included as a component of other long-term liabilities and deducted from the reported value of the senior notes.

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

2 unchanged sentences

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

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

The Company exited the remaining fixed-to-variable interest rate swap agreement in August 2020, in connection with this redemption and recorded a gain of $1.6 on the extinguishment.

The gain was included in Other, net on the Consolidated Statement of Operations.

The Company continues to evaluate its outstanding debt portfolio to take advantage of market conditions that would allow the Company to reduce its interest rate or financing risk and provide a lower long-term borrowing cost.

1 unchanged sentence

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

During 2021, the Company repurchased 5.2 shares of its Common Stock at an average price of $282.05 for a total cost of $1,668.5, which included $1,000.0 paid in respect of an ASR for which the Company received 80% of the shares calculated at the price at the inception of the Agreements.

During 2022, the Company repurchased 5.6 shares of its common stock at an average price of $233.48 for a total cost of $1,100.0.

This included 0.9 shares which were repurchased in 2022 but were part of the $1,000.0 ASR Program paid for in 2021.

At the end of 2022, the Company had outstanding authorization from the Board to purchase $531.5 of Company common stock.

The repurchase authorization has no expiration date.

On February 7, 2023, the board of directors adopted a new share repurchase plan authorizing up to $1,000.0 of the Company's shares in addition to the remaining amount outstanding under the previous plan.

The repurchase authorization has no expiration date.

For the year ended December 31, 2022, the Company paid $195.2 in common stock dividends.

On January 12, 2023, the Company announced a cash dividend of $0.72 per share of common stock for the first quarter, or approximately $64.8 in the aggregate.

The dividend will be payable on March 13, 2023, to stockholders of record of all issued and outstanding shares of common stock as of the close of business on February 23, 2023.

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

Credit Ratings

The Company’s investment grade debt ratings from Moody’s and Standard & Poor's (S&P) contribute to its ability to access capital markets.

Contractual Cash Obligations

Payments Due by Period

Total Short-term Long-term

Operating lease obligations $ 829.5 $ 187.0 $ 642.5

Contingent future licensing and royalty payments (a) 41.8 6.2 35.6

Purchase obligations 45.2 27.4 17.8

Finance lease obligations 95.1 10.5 84.6

Scheduled interest payments on Senior Notes 1,662.8 181.0 1,481.8

Long-term debt (b) 5,418.0 1.5 5,416.5

Total contractual cash obligations (c) (d) (e) (f) $ 8,092.4 $ 413.6 $ 7,678.8

(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) The table does not include obligations under the Company’s pension and postretirement benefit plans, which are included in Note 15 Pension and Postretirement Plans to Consolidated Financial Statements.

Benefits under the Company's postretirement medical plan are paid when claims are submitted for payment, the timing of which is not practicable to estimate.

The Company had a $58.9 reserve for unrecognized tax benefits, including interest and penalties, at December 31, 2021, which is included in Note 12 Income Taxes to Consolidated Financial Statements.

(d) Excludes amount of debt issuance costs included in the long-term debt balance.

(e) The table does not include obligations related to the Company's ASR Agreements which are discussed in Note 11 Preferred Stock and Common Shareholder's Equity to the Consolidated Financial Statements.

(f) This table does not include obligations for venture fund commitments which totaled $13.2 at December 31, 2021, and are subject to calls from the individual venture funds

Off-Balance Sheet Arrangements

3 unchanged sentences

The contractual value of the noncontrolling interest put in the Company's Ontario subsidiary totaled $15.0 and $16.3 at December 31, 2022, and 2021, respectively, and has been classified as mezzanine equity in the Company's consolidated balance sheet.

Based on current and projected levels of cash flows from operations, coupled with availability under its revolving credit facility, the Company believes it has sufficient liquidity to meet both its anticipated short-term and long-term cash needs;

however, the Company continually reassesses its liquidity position in light of market conditions and other relevant factors.

9 unchanged sentences

• Goodwill and indefinite-lived assets;

• Legal contingencies.

Revenue Recognition

34 unchanged sentences

These adjustments are not material to Dx's results of operations in any period presented.

The nature of DD’s obligations includes agreements to provide preclinical services, to manage a full clinical trial, provide services for a specific phase of a trial, or provide research products to the customer.

DD provides these services predominantly to pharmaceutical, biotechnology and medical device companies worldwide.

A majority of DD’s revenues are earned under contracts that range in duration from a few months to many years.

These contracts generally take the form of fee-for-service or fixed-price arrangements subject to pricing adjustments based on changes in scope.

The total contract value is estimated at the beginning of the contract, and is equal to the amount expected to be billed to the customer.

Other payments and billing adjustments may also factor into the calculation of total contract value, such as the reimbursement of out-of-pocket costs and volume-based rebates.

The majority of DD's contracts contain a single performance obligation.

A majority of DD’s revenues are earned under contracts that are long term in nature, ranging in duration from a few months to many years.

The majority of DD's contracts contain a single performance obligation, as DD provides a significant service of integrating all promises in the contract and the promises are highly interdependent and interrelated with one another.

For contracts that include multiple performance obligations, DD allocates the contract value to the goods and services based on a customer price list, if available.

If a price list is not available, DD will estimate the transaction price using either market prices or an “expected cost plus margin” approach.

Fee-for-service contracts are typically priced based on transaction volume or time and materials.

For volume based contracts the contract value is entirely variable and revenue is recognized as the specific product or service is completed.

For services billed based on time and materials, revenue is recognized using the right to invoice practical expedient.

The total contract value is estimated at the beginning of the contract, and is equal to the amount expected to be billed to the customer.

Other payments and billing adjustments may also factor into the calculation of total contract value, such as the reimbursement of out-of-pocket costs and volume-based rebates.

These contracts generally take the form of fixed-price or fee-for-service arrangements subject to pricing adjustments based on changes in scope.

Fixed-price contracts are typically recognized as revenue over time based on a proportional-performance basis, using either input or output methods that are specific to the service provided.

In an output method, revenue is determined by dividing the actual units of output achieved by the total units of output required under the contract and multiplying that percentage by the total contract value.

When using an input method, revenue is recognized by dividing the actual units of input incurred by the total units of input budgeted in the contract, and multiplying that percentage by the total contract value.

The estimate of total units of input at completion requires significant judgment and estimates are based on various assumptions of events that often span several years.

When using an input method, revenue is recognized by dividing the actual costs incurred by the total estimated cost expected to complete the contract, and multiplying that percentage by the total contract value.

Contract costs principally include direct labor and reimbursable out-of-pocket costs.

The estimate of total costs expected to complete the contract requires significant judgment and estimates are based on various assumptions of events that often span several years.

These estimates are reviewed periodically and any adjustments are recognized on a cumulative catch-up basis in the period they become known.

Fee-for-service contracts are typically priced based on transaction volume or time and materials.

For volume based contracts the contract value is entirely variable and revenue is recognized as the specific product or service is completed.

For services billed based on time and materials, revenue is recognized using the right to invoice practical expedient.

Contracts are often modified to account for changes in contract specifications and requirements.

45 unchanged sentences

Management believes that the assumptions used for its impairment tests are representative of those that would be used by market participants performing similar valuations of the reporting units.

Based upon the revised forecasted revenues and operating income following the declaration of the COVID-19 global pandemic, management concluded there was a triggering event and updated its annual 2019 goodwill impairment testing as of March 31, 2020, for certain of its DD reporting units and Dx reporting units.

Based on the quantitative impairment assessment performed in the same manner as its annual quantitative assessment, the Company concluded that the fair value was less than carrying value for two of its reporting unit and recorded a goodwill impairment of $418.7 for DD and $3.7 for Dx.

Management performed its annual goodwill and intangible asset impairment testing as of the beginning of the fourth quarter of 2022.

The Company elected to perform the qualitative assessment for goodwill and intangible assets for the domestic Dx reporting units and all of the DD reporting units and a quantitative assessment for the Canadian reporting unit and its indefinite-lived assets consisting of acquired Canadian licenses.

The Company elected to perform the qualitative assessment for goodwill and intangible assets for the domestic Dx reporting units and a quantitative assessment for all of the DD reporting units and the Canadian reporting unit which includes indefinite-lived assets consisting of acquired Canadian licenses.

Based upon the results of the qualitative and quantitative assessments, the Company concluded that the fair values of each of its reporting units, as of October 1, 2022, were greater than the carrying values.

For the early development reporting unit, which is part of the DD segment, the fair value of the business exceeded the book value by approximately 10%.

In December 2022, a significant supplier of our early development reporting unit was no longer able to provide critical testing supplies resulting in an expectation of lower near term revenue and profitability and potential higher future costs.

Based on this information, management prepared a new forecast and updated its impairment testing valuations as of December 31, 2022.

Based on the quantitative impairment assessment performed in the same manner as the Company's annual quantitative assessment, the Company concluded that the fair value was less than carrying value for the early development reporting unit and recorded a goodwill impairment of $260.0 in the DD segment.

Although the Company believes that the current assumptions and estimates used in its goodwill analysis are reasonable, supportable, and appropriate, continued efforts to maintain or improve the performance of these businesses could be impacted by unfavorable or unforeseen changes which could impact the existing assumptions used in the impairment analysis.

1 unchanged sentence

primarily delays in new customer bookings and the related delay in revenue from new customers, increases in customer termination activity or increases in operating costs.

In addition, given the ongoing and rapidly changing nature of the COVID-19 pandemic, there is significant uncertainty regarding the duration and severity of the pandemic as well as any future government restrictions, which may unfavorably impact existing assumptions.

Accordingly, there can be no assurance that the estimates and assumptions made for the purposes of the goodwill impairment analysis will prove to be accurate predictions of future performance.

It is possible that the Company's conclusions regarding impairment or recoverability of goodwill or intangible assets in any reporting unit could change in future periods.

There can be no assurance that the estimates and assumptions used in the Company's goodwill and intangible asset impairment testing performed as of the beginning of the fourth quarter of 2022 or at the end of the year will prove to be accurate predictions of the future, if, for example, (i) the businesses do not perform as projected, (ii) overall economic conditions in 2022 or future years vary from current assumptions (including changes in discount rates), (iii) business conditions or strategies for a specific reporting unit change from current assumptions, including loss of major customers, (iv) investors require higher rates of return on equity investments in the marketplace or (v) enterprise values of comparable publicly traded companies, or actual sales transactions of comparable companies, were to decline, resulting in lower multiples of revenues and EBITDA.

Legal Contingencies

The Company is involved from time to time in various claims and legal actions, including arbitrations, class actions, and other litigation (including those described in more detail below), arising in the ordinary course of business.

These matters include, but are not limited to, intellectual property disputes, commercial and contract disputes, professional liability claims, employee-related matters, transaction related disputes, securities and corporate law matters, and inquiries, including subpoenas and other civil investigative demands, from governmental agencies, Medicare or Medicaid payers and MCOs reviewing billing practices or requesting comment on allegations of billing irregularities that are brought to their attention through billing audits or third parties.

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.

These suits typically allege that the Company has made false statements and/or certifications in connection with claims for payment from U.S.

federal or state healthcare programs.

The suits may remain under seal (hence, unknown to the Company) for some time while the government decides whether to intervene on behalf of the qui tam plaintiff.

Such claims are an inevitable part of doing business in the healthcare field today.

The Company believes that it is in compliance in all material respects with all statutes, regulations, and other requirements applicable to its commercial laboratory operations and drug development support services.

The healthcare diagnostics and drug development industries are, however, subject to extensive regulation, and the courts have not interpreted many of the applicable statutes and regulations.

Therefore, the applicable statutes and regulations could be interpreted or applied by a prosecutorial, regulatory, or judicial authority in a manner that would adversely affect the Company.

Potential sanctions for violation of these statutes and regulations include significant civil and criminal penalties, fines, the loss of various licenses, certificates and authorizations, additional liabilities from third-party claims, and/or exclusion from participation in government programs.

The Company records an aggregate legal reserve, which is determined using calculations based on historical loss rates and assessment of trends experienced in settlements and defense costs.

In accordance with FASB Accounting Standards

Codification Topic 450 “Contingencies,” the Company establishes reserves for judicial, regulatory, and arbitration matters outside the aggregate legal reserve if and when those matters present loss contingencies that are both probable and estimable and would exceed the aggregate legal reserve.

If the reasonable estimate of a known or probable loss is a range, and no amount within the range is a better estimate than any other, the minimum amount of the range is accrued.

If a loss is reasonably possible but not known or probable, and may be reasonably estimated, the estimated loss or range of loss is disclosed.

For more information about legal contingencies, see Note 14 Commitments and Contingencies to the Consolidated Financial Statements.

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-K

Item 7. Management’s Discussion and Analysis