LABORATORY OF AMERICA : MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-Q)

FORWARD-LOOKING STATEMENTS
Laboratory Corporation of America® Holdings together with its subsidiaries (the
Company) has made in this report, and from time to time may otherwise make in
its public filings, press releases and discussions by Company management,
forward-looking statements concerning the Company's operations, performance and
financial condition, as well as its strategic objectives. Some of these
forward-looking statements relate to future events and expectations and can be
identified by the use of forward-looking words such as "believes", "expects",
"may", "will", "should", "seeks", "approximately", "intends", "plans",
"estimates", or "anticipates" or the negative of those words or other comparable
terminology. Such forward-looking statements speak only as of the time they are
made and are subject to various risks and uncertainties. The Company claims the
protection afforded by the safe harbor for forward-looking statements contained
in the Private Securities Litigation Reform Act of 1995. Actual results could
differ materially from those currently anticipated due to a number of factors in
addition to those discussed elsewhere herein, including in the "Risk Factors"
section of the Annual Report on Form 10-K, and in the Company's other public
filings, press releases, and discussions with Company management, including:
1.  changes in government and third-party payer regulations, reimbursement, or
coverage policies or other future reforms in the healthcare system (or in the
interpretation of current regulations), new insurance or payment systems,
including state, regional or private insurance cooperatives (e.g., health
insurance exchanges) affecting governmental and third-party coverage or
reimbursement for commercial laboratory testing, including the impact of the
U.S. Protecting Access to Medicare Act of 2014 (PAMA);
2. significant monetary damages, fines, penalties, assessments, refunds,
repayments, damage to the Company's reputation, unanticipated compliance
expenditures, and/or exclusion or debarment from or ineligibility to participate
in government programs, among other adverse consequences, arising from
enforcement of anti-fraud and abuse laws and other laws applicable to the
Company in jurisdictions in which the Company conducts business;
3.  significant fines, penalties, costs, unanticipated compliance expenditures
and/or damage to the Company's reputation arising from the failure to comply
with applicable privacy and security laws and regulations, including the U.S.
Health Insurance Portability and Accountability Act of 1996, the U.S. Health
Information Technology for Economic and Clinical Health Act, the European
Union's General Data Protection Regulation and similar laws and regulations in
jurisdictions in which the Company conducts business;
4. loss or suspension of a license or imposition of a fine or penalties under,
or future changes in, or interpretations of applicable licensing laws or
regulations regarding the operation of clinical laboratories and the delivery of
clinical laboratory test results, including, but not limited to, the U.S.
Clinical Laboratory Improvement Act of 1967 and the U.S. Clinical Laboratory
Improvement Amendments of 1988 and similar laws and regulations in jurisdictions
in which the Company conducts business;
5.  penalties or loss of license arising from the failure to comply with
applicable occupational and workplace safety laws and regulations, including the
U.S. Occupational Safety and Health Administration requirements and the U.S.
Needlestick Safety and Prevention Act and similar laws and regulations in
jurisdictions in which the Company conducts business;
6. fines, unanticipated compliance expenditures, suspension of manufacturing,
enforcement actions, damage to the Company's reputation, injunctions, or
criminal prosecution arising from failure to maintain compliance with current
good manufacturing practice regulations and similar requirements of various
regulatory agencies in jurisdictions in which the Company conducts business;
7. sanctions or other remedies, including fines, unanticipated compliance
expenditures, enforcement actions, injunctions or criminal prosecution arising
from failure to comply with the Animal Welfare Act or applicable national, state
and local laws and regulations in jurisdictions in which the Company conducts
business;
8. changes in testing guidelines or recommendations by government agencies,
medical specialty societies and other authoritative bodies affecting the
utilization of laboratory tests;
9. changes in applicable government regulations or policies affecting the
approval, availability of, and the selling and marketing of diagnostic tests,
drug development, or the conduct of drug development and medical device and
diagnostic studies and trials, including regulations and policies of the U.S.
Food and Drug Administration, the U.S. Department of Agriculture, the Medicine
and Healthcare products Regulatory Agency in the United Kingdom (U.K.), the
National Medical Products Administration in China, the Pharmaceutical and
Medical Devices Agency in Japan, the
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European Medicines Agency and similar regulations and policies of agencies in
other jurisdictions in which the Company conducts business;
10. changes in government regulations or reimbursement pertaining to the
biopharmaceutical and medical device and diagnostic industries, changes in
reimbursement of biopharmaceutical products or reduced spending on research and
development by biopharmaceutical customers;
11. liabilities that result from the failure to comply with corporate governance
requirements;
12.  increased competition, including price competition, potential reduction in
rates in response to price transparency and consumerism, competitive bidding
and/or changes or reductions to fee schedules and competition from companies
that do not comply with existing laws or regulations or otherwise disregard
compliance standards in the industry;
13.  changes in payer mix or payment structure, including insurance carrier
participation in health insurance exchanges, an increase in capitated
reimbursement mechanisms, the impact of a shift to consumer-driven health plans
or plans carrying an increased level of member cost-sharing, and adverse changes
in payer reimbursement or payer coverage policies (implemented directly or
through a third-party utilization management organization) related to specific
diagnostic tests, categories of testing or testing methodologies;
14. failure to retain or attract managed care organization (MCO) business as a
result of changes in business models, including new risk-based or network
approaches, out-sourced laboratory network management or utilization management
companies, or other changes in strategy or business models by MCOs;
15.  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 payment
from customers;
16.  difficulty in maintaining relationships with customers or retaining key
employees as a result of uncertainty surrounding the integration of acquisitions
and the resulting negative effects on the business of the Company;
17. consolidation and convergence of MCOs, biopharmaceutical companies, health
systems, large physician organizations and other customers, potentially causing
material shifts in insourcing, utilization, pricing and reimbursement, including
full and partial risk-based models;
18. failure to effectively develop and deploy new systems, system modifications
or enhancements required in response to evolving market and business needs;
19. customers choosing to insource services that are or could be purchased from
the Company;
20.  failure to identify, successfully close, and effectively integrate and/or
manage acquisitions of new businesses;
21. inability to achieve the expected benefits and synergies of newly-acquired
businesses, including due to items not discovered in the due-diligence process,
and the impact on the Company's cash position, levels of indebtedness and stock
price;
22. termination, loss, delay, reduction in scope or increased costs of
contracts, including large contracts and multiple contracts;
23. liability arising from errors or omissions in the performance of testing
services, contract research services, or other contractual arrangements;
24. changes or disruption in the provision or transportation of services or
supplies provided by third parties; or their termination for failure to follow
the Company's performance standards and requirements;
25.  damage or disruption to the Company's facilities;
26.  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;
27. adverse results in litigation matters;
28.  inability to attract and retain experienced and qualified personnel or the
loss of significant personnel as a result of illness or otherwise;
29. failure to develop or acquire licenses for new or improved technologies,
such as point-of-care testing, mobile health technologies, and digital
pathology, or potential use of new technologies by customers and/or consumers to
perform their own tests;
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30.  substantial costs arising from the inability to commercialize newly
licensed tests or technologies or to obtain appropriate coverage or
reimbursement for such tests;
31. failure to obtain, maintain and enforce intellectual property rights for
protection of the Company's products and services and defend against challenges
to those rights;
32. scope, validity and enforceability of patents and other proprietary rights
held by third parties that may impact the Company's ability to develop, perform,
or market the Company's products or services or operate its business;
33. business interruption, receivable impairment, delays in cash collection
impacting days sales outstanding, supply chain disruptions, increases in
operating costs, or other impacts on the business due to natural disasters,
including adverse weather, fires and earthquakes, political crises, including
terrorism and war, public health crises and disease epidemics and pandemics, and
other events outside of the Company's control;
34. discontinuation or recalls of existing testing products;
35. a failure in the Company's information technology systems, including with
respect to testing turnaround time and billing processes, or the failure of the
Company or its third-party suppliers and vendors to maintain the security of
business information or systems or to protect against cybersecurity attacks such
as denial of service attacks, malware, ransomware and computer viruses, or
delays or failures in the development and implementation of the Company's
automation platforms, any of which could result in a negative effect on the
Company's performance of services, a loss of business or increased costs,
damages to the Company's reputation, significant litigation exposure, an
inability to meet required financial reporting deadlines, or the failure to meet
future regulatory or customer information technology, data security and
connectivity requirements;
36. business interruption, increased costs, and other adverse effects on the
Company's operations due to the unionization of employees, union strikes, work
stoppages, general labor unrest or failure to comply with labor or employment
laws;
37.  failure to maintain the Company's days sales outstanding levels, cash
collections (in light of increasing levels of patient responsibility),
profitability and/or reimbursement arising from unfavorable changes in
third-party payer policies, payment delays introduced by third party utilization
management organizations and increasing levels of patient payment
responsibility;
38. impact on the Company's revenues, cash collections and the availability of
credit for general liquidity or other financing needs arising from a significant
deterioration in the economy or financial markets or in the Company's credit
ratings by Standard & Poor's and/or Moody's;
39. failure to maintain the expected capital structure for the Company,
including failure to maintain the Company's investment grade rating, or leverage
ratio covenants under its term loan facility and revolving credit facility;
40. changes in reimbursement by foreign governments and foreign currency
fluctuations;
41.  inability to obtain certain billing information from physicians, resulting
in increased costs and complexity, a temporary disruption in receipts and
ongoing reductions in reimbursements and revenues;
42.  expenses and risks associated with international operations, including, but
not limited to, compliance with the U.S. Foreign Corrupt Practices Act, the U.K.
Bribery Act, other applicable anti-corruption laws and regulations, trade
sanction laws and regulations, and economic, political, legal and other
operational risks associated with foreign jurisdictions;
43. failure to achieve expected efficiencies and savings in connection with the
Company's business process improvement initiatives;
44. changes in tax laws and regulations or changes in their interpretation,
including the U.S. Tax Cuts and Jobs Act (TCJA);
45. global economic conditions and government and regulatory changes, including,
but not limited to the U.K.'s exit from the European Union; and
46.  effects, duration, and severity of the ongoing COVID-19 pandemic, including
the impact on operations, personnel, and liquidity, and the actions the Company,
or governments, have taken or may take in response, and damage to the Company's
reputation or loss of business resulting from the perception of the Company's
response to the COVID-19 pandemic, including the availability and accuracy and
timeliness of delivery of any tests that the Company develops, collaborates on
or provides for the detection of COVID-19.
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  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. Given these
uncertainties, one should not put undue reliance on any forward-looking
statements.
GENERAL (dollars in millions, except per share data)

Revenues for the six months ended June 30, 2020 were $5,592.6, a decrease of
(1.4)% from $5,672.9 during the six months ended June 30, 2019. The decrease in
revenues was due to a 3.6% decline of organic revenue, 0.4% from the disposition
of a business, and 0.1% from unfavorable foreign currency translation, partially
offset by 2.6% from acquisitions. The 3.6% decline of organic revenue was due to
the pandemic, which reduced the Company's organic Base Business by 11.7%,
partially offset by 8.1% from COVID-19 related business. Base Business includes
the Company's business operations except for molecular and serology COVID-19
testing (COVID-19 Testing). The decline in the organic Base Business includes
the negative impact from PAMA of 0.6%.
In March 2020, COVID-19 was declared a pandemic. COVID-19 has had and continues
to have an extensive impact on the global health and economic environments.
Given the continued unpredictability of the COVID-19 pandemic and the
corresponding government restrictions and customer behavior, there are a
wide-range of feasible financial results for 2020. While the Company's Base
Business continues to be negatively impacted by the COVID-19 pandemic, the
Company's outlook has improved across the enterprise.
In LCD, demand for its Base Business continues to be below the Company's
historical levels; however, the Company's Base Business has been steadily
recovering from its trough in April, while at the same time COVID-19 Testing
continues to grow. To date, the Company has performed more than 9.2 million
molecular and 2.2 million antibody COVID-19 tests and has a current capacity of
180,000 molecular and 300,000 antibody tests per day. The Company continues to
increase capacity across multiple platforms for its COVID-19 Testing subject to
the availability of equipment and testing supplies and key personnel.
In CDD, while the pandemic is expected to continue to negatively impact its
business, this impact is expected to subside throughout the year as CDD
continues to work on projects supporting global vaccine and treatment
development, with additional support from COVID-19 Testing.
As a result of the impact of COVID-19, during the six months ended June 30,
2020, the Company recorded goodwill and other asset impairment charges of
$437.4, $426.4 within CDD and $11.0 within LCD, all of which were recorded in
the three months ended March 31, 2020. See Note 6 Goodwill and Intangible Assets
for discussion of goodwill and intangible asset impairments and Note 2 Revenue
for the discussion of credit losses and additional price concessions. The
Company also wrote-off or wrote down certain of the Company's investments by
$25.4 due to the impact of COVID-19, $7.1 included in Equity method earnings
(loss), net (recorded in the three months ended March 31, 2020), and $18.3
included in Other, net ($13.1 recorded during the three months ended March 31,
2020 and $5.2 recorded during the three months ended June 30, 2020).
The Company instituted numerous actions to help mitigate the financial impact
from the COVID-19 pandemic, which included furloughs, reduced hours, and the
suspension of discretionary merit adjustments and 401(k) plan contributions in
the United States (U.S.). In response to its improved outlook, the Company has
been rapidly resuming regular work schedules and is proceeding with merit
adjustments and will retroactively reinstate 401(k) plan contributions in the
U.S.
In April 2020, the Company received cash payments of approximately $55.9 from
the Public Health and Social Services Emergency Fund for provider relief (Relief
Fund) that was appropriated by Congress to the Department of Health and Human
Services (HHS) in the Coronavirus Aid, Relief, and Economic Security Act (CARES
Act). Upon receiving and satisfying the terms and conditions associated with the
distributed funds, the Company accounted for the transaction by applying the
guidance in ASC 450-30 Gain Contingencies, and recorded these funds in Other,
net non-operating income in the Consolidated Statement of Operations as of June
30, 2020.
On July 30, the Company announced plans to create a program to offer total
antibody testing at no charge through the patient's doctor in support of
increased blood plasma donations for use as a possible COVID-19 treatment. The
Company is working with public health authorities and the provider community on
the details of the three-month program and is evaluating the impact this program
will have on the consolidated financial statements.
There remains significant uncertainty regarding the duration and severity of the
pandemic and its impact on the Company's business, results of operations and
financial position for the balance of 2020 and beyond. For more information
regarding the risks associated with COVID-19 and its impact on the Company's
business, see Risk Factors in Part II - Item 1A.




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RESULTS OF OPERATIONS (dollars in millions)

Three months ended June 30, 2020, compared with three months ended June 30, 2019
Revenues
                                               Three Months Ended June 30,
                                               2020                      2019         Change
  LCD                                    $     1,692.7               $ 1,760.9         (3.9) %
  CDD                                          1,093.7                 1,126.3         (2.9) %
  Intercompany eliminations and other            (17.6)                   (5.5)       220.0  %
  Total                                  $     2,768.8               $ 2,881.7         (3.9) %


The decrease in revenues for the three months ended June 30, 2020, as compared
with the corresponding period in 2019 was 3.9%. The decrease in revenue was due
to a 5.4% decline of organic revenue, 0.3% from the disposition of a business,
and 0.1% from unfavorable foreign currency translation, partially offset by 1.9%
from acquisitions. The 5.4% decline of organic revenue was due to the pandemic,
which reduced the Company's organic Base Business by 20.9%, partially offset by
COVID-19 Testing of 15.4%. The decline in organic Base Business includes the
lower Medicare and Medicaid pricing as a result of PAMA of 0.5%.
LCD revenues for the quarter were $1,692.7, a decrease of 3.9% compared to
revenues of $1,760.9 in the second quarter of 2019. The decrease in revenues was
primarily due to a 4.9% decline in organic revenue and 0.1% from unfavorable
foreign currency translation, partially offset by 1.1% from acquisitions. The
4.9% organic revenue decline includes a 30.1% decline of the organic Base
Business (due to the pandemic), partially offset by 25.2% from COVID-19 Testing.
The 30.1% decline of the organic Base Business includes a 0.8% negative impact
from PAMA and a 1.2% reduction due to the September 2019 nonrenewal of the
BeaconLBS - UnitedHealthcare contract pertaining to the Florida market.

Total volume (measured by requisitions) decreased by 19.5% as organic volume
declined by 20.7%, partially offset by acquisition volume of 1.2%. The decline
in organic volume includes a 35.3% reduction of organic Base Business (due to
the pandemic), partially offset by increased demand for COVID-19 Testing of
14.6%. The organic Base Business volumes continued to improve throughout the
quarter with daily volume in June averaging approximately 17.0% below June
volume in 2019. At the same time, demand for COVID-19 Testing continues to
increase, contributing approximately 23.0% to total volume in June. While total
volume declined 19.5%, price/mix increased by 15.6% due to COVID-19 Testing of
10.7% and the Base Business of 4.9%. The Base Business price includes the
negative impact from PAMA of 0.8% and the non-renewal of the BeaconLBS contract
of 1.2%.
CDD revenues for the second quarter were $1,093.7, a decrease of 2.9% over
revenues of $1,126.3 in the second quarter of 2019. The decrease in revenues was
primarily due to a 5.2% decline in organic revenue, 0.7% from the disposition of
a business, and 0.1% from unfavorable foreign currency translation, partially
offset by 3.1% benefit from an acquisition. The decline in organic revenue was
primarily due to the negative impact from the pandemic, partially offset by a
1.1% increase from COVID-19 molecular testing through its Central Laboratories
business. The pandemic continues to cause delays in clinical trial progression
and associated testing, reductions in investigator site access, as well as
interruptions to the supply chain particularly impacting the nonclinical
business unit.
Cost of Revenues
                                            Three Months Ended June 30,
                                            2020                      2019         Change
Cost of revenues                      $     2,008.3               $ 2,056.9        (2.4) %
Cost of revenues as a % of revenues            72.5   %                71.4 

%

Cost of revenues decreased 2.4% during the three months ended June 30, 2020, as
compared with the corresponding period in 2019. Cost of revenues as a percentage
of revenues during the three months ended June 30, 2020, increased to 72.5% as
compared to 71.4% in the corresponding period in 2019. This increase was
primarily due to the impact of COVID-19, higher personnel costs (primarily
driven by merit increases), and PAMA, partially offset by LaunchPad savings.
Selling, General and Administrative Expenses
                                                               Three Months 

Ended June 30,

                                                                2020                  2019                Change
Selling, general and administrative expenses              $       396.3           $    415.3                  (4.6) %
Selling, general and administrative expenses as a % of
revenues                                                           14.3   %             14.4  %


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During the three months ended June 30, 2020, the Company incurred $4.6 of
acquisition and divestiture related costs and $7.8 in management transition
costs. In addition, the Company recorded $0.2 of non-capitalized costs
associated with the implementation of a major system as part of its LaunchPad
business process improvement initiative and $1.8 related to miscellaneous other
items. These charges were offset by insurance proceeds of $10.0 related to the
2018 ransomware attack. These items increased selling, general and
administrative expenses by $7.7.
During the three months ended June 30, 2019, the Company incurred $33.2 in
acquisition and divestiture costs, $1.5 in management transition costs and $0.1
in costs related to the 2018 ransomware attack. In addition, the Company
recorded $2.6 of non-capitalized costs associated with the implementation of a
major system as part of its LaunchPad business process improvement initiative.
These items increased selling, general and administrative expenses by $37.4.
Excluding these charges, selling, general and administrative expenses as a
percentage of revenues were 14.0% and 13.1% during each of the three months
ended June 30, 2020, and 2019, respectively.
Amortization of Intangibles and Other Assets
                                                            Three Months Ended June 30,
                                                              2020                 2019                Change
LCD                                                     $       25.3           $     25.6                  (1.2) %
CDD                                                             34.8                 34.6                   0.6  %

Total amortization of intangibles and other assets $ 60.1

    $     60.2                  (0.2) %


The decrease in amortization of intangibles and other assets within LCD
primarily reflects the impact of acquisitions occurring after June 30, 2019, net
of Amortization of intangible assets within CDD increased primarily due to the
impact of acquisitions occurring after June 30, 2019.
Restructuring and Other Special Charges
                                          Three Months Ended June 30,
                                        2020                           2019 

Change

Restructuring and other charges   $        6.4                       $ 13.6

(52.9) %

During the three months ended June 30, 2020, the Company recorded net
restructuring and other charges of $6.4: $3.7 within LCD and $2.7 within CDD.
The charges were comprised of $5.4 related to severance and other personnel
costs, $3.3 for a CDD lab facility and equipment impairment, and $4.2 in
facility closures, impairment of operating lease right-of use assets and general
integration activities. The charges were offset by the reversal of previously
established liability of $1.0 and $5.5 in unused severance costs and
facility-related costs, respectively.
During the three months ended June 30, 2019, the Company recorded net
restructuring and other special charges of $13.6: $3.0 within LCD and $10.6
within CDD. The charges were comprised of $3.5 related to severance and other
personnel costs along with $10.2 in costs associated with facility closures,
impairment of operating lease right-of-use assets and general integration
initiatives. The charges were offset by the reversal of previously established
reserves of $0.1 in unused facility reserves.
Interest Expense
                          Three Months Ended June 30,
                         2020                         2019        Change
Interest expense   $       (52.7)                  $ (59.1)       (10.8) %


The decrease in interest expense for the three months ended June 30, 2020, as
compared with the corresponding period in 2019, is primarily due to a lower
outstanding balance on term loans, lower variable interest rates, the repayment
of the 2.625% senior notes and a portion of the 4.625% senior notes in 2019,
partially offset by the issuance of $1,050.0 in debt securities in November
2019.
Equity Method Income
                                    Three Months Ended June 30,
                                  2020                            2019       Change
Equity method income, net   $        1.8                        $ 2.5        (28.0) %


 Equity method income represents the Company's ownership share in joint venture
partnerships along with equity investments in other companies in the health care
industry. All of these partnerships and investments reside within LCD. The
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decrease in income for the three months ended June 30, 2020, as compared with
the corresponding period in 2019, was primarily due to decreased profitability
of the Company's joint ventures.
Other, net
                    Three Months Ended June 30,
                  2020                         2019         Change
Other, net   $      47.7                    $ (10.5)       (554.3) %


 The change in other, net for the three months ended June 30, 2020, as compared
to the three months ended June 30, 2019, is primarily due to $55.9 of funding
from the Relief Fund that was appropriated by Congress to the HHS in the CARES
Act. This funding was partially offset by the $5.2 write-off or write down of
certain of the Company's investments primarily due to the negative impact of the
COVID-19 global pandemic. In addition, foreign currency transaction losses of
$1.7 were recognized for the three months ended June 30, 2020 and losses of $3.2
were recognized in the corresponding period of 2019.
Income Tax Expense
                                                        Three Months Ended June 30,
                                                          2020                 2019                 Change
Income tax expense                                  $       65.4           $     79.3                  (17.5) %
Income tax expense as a % of earnings before income
taxes                                                       22.0   %             29.4  %



The 2020 tax rate was favorable to the 2019 tax rate due to the mix of earnings
inclusive of federal, state, and foreign changes.
Operating Income by Segment
                                          Three Months Ended June 30,
                                         2020                         2019        Change
      LCD operating income         $       281.3                   $ 312.5        (10.0) %
      LCD operating margin                  16.6   %                  17.7  %      (1.1) %
      CDD operating income                  65.5                      65.8         (0.5) %
      CDD operating margin                   6.0   %                   5.9  %       0.1  %
      General corporate expenses           (49.1)                    (42.6)        15.3  %
      Total operating income       $       297.7                   $ 335.7        (11.3) %


LCD operating income was $281.3 for the three months ended June 30, 2020, a
decrease of 10.0% over operating income of $312.5 in the corresponding period of
2019, and LCD operating margin decreased 1.1% basis points year-over-year.The
decrease was primarily due to the reduction in the Base Business (primarily due
to the pandemic) and higher personnel costs, partially offset by the increase in
COVID-19 Testing and LaunchPad savings. The Company remains on track to deliver
approximately $200.0 of net savings from its three-year LCD's LaunchPad
initiative by the end of 2021.
CDD operating income was $65.5 for the three months ended June 30, 2020, a
decrease over operating income of $65.8 in the corresponding period of 2019. The
decrease was primarily due to the negative impact from the pandemic and higher
personnel costs, partially offset by molecular COVID-19 testing and LaunchPad
savings. The Company remains on track to deliver approximately $150.0 of net
savings from its three-year CDD's LaunchPad initiative by the end of 2020.
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 $49.1 for the three
months ended June 30, 2020, an increase of 15.3% over corporate expenses of
$42.6 in the corresponding period of 2019. The increase in corporate expenses in
2020 is primarily due to higher personnel costs, including executive transition
costs.
Six months ended June 30, 2020, compared with six months ended June 30, 2019
Revenues
                                             Six Months Ended June 30,
                                             2020                   2019         Change
LCD                                    $    3,394.7             $ 3,482.9         (2.5) %
CDD                                         2,237.5               2,201.0          1.7  %
Intercompany eliminations and other           (39.6)                (11.0)       260.0  %
Total                                  $    5,592.6             $ 5,672.9         (1.4) %


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Revenues for the six months ended June 30, 2020 were $5,592.6, a decrease of
(1.4)% from $5,672.9 during the six months ended June 30, 2019. The decrease in
revenues was due to a 3.6% decline of organic revenue, 0.4% from the disposition
of a business, and 0.1% from unfavorable foreign currency translation, partially
offset by 2.6% from acquisitions. The 3.6% decline of organic revenue was due to
a 11.7% decline in the Company's organic Base Business (as a result of the
pandemic), partially offset by 8.1% from COVID-19 related business. The decline
in the organic Base Business includes the negative impact from PAMA of 0.6%.
LCD revenues for the six months ended June 30, 2020 were $3,394.7, a decrease of
2.5% compared to revenues of $3,482.9 for the six months ended June 30, 2019.
The decrease in revenue was due to a 3.9% decline in organic revenue, partially
offset by 1.4% from acquisitions. The 3.9% decline in organic revenue,was due to
a 17.1% decline of the organic Base Business (due to the pandemic), partially
offset by 13.2% from COVID-19 Testing. The 17.1% decline of organic Base
Business includes a 1.0% negative impact from PAMA and a 1.2% reduction due to
the September 2019 nonrenewal of the BeaconLBS - UnitedHealthcare contract
pertaining to the Florida market.
Total volume (measured by requisitions) decreased by 12.0% as organic volume
declined by 13.4%, partially offset by acquisition volume of 1.4%. The decline
in organic volume includes a 21.0% reduction of organic Base Business (due to
the pandemic), partially offset by increased demand for COVID-19 Testing of
7.6%. The organic Base Business volumes continued to improve throughout the
second quarter with daily volume in June averaging approximately 17.0% below
June volume in 2019. At the same time, demand for COVID-19 Testing continues to
increase, contributing approximately 23.0% to total volume in June. While total
volume declined 12.0%, price/mix increased by 9.4% due to COVID-19 Testing of
5.5% and Base Business of 3.9%. The Base Business price includes the negative
impact from PAMA of 1.0% and the non-renewal of the BeaconLBS contract of 1.2%.
CDD revenues for six months ended June 30, 2020 were $2,237.5, an increase of
1.7% over revenues of $2,201.0 for the six months ended June 30, 2019. The
increase in revenue was primarily due to the benefit of acquisitions of 4.6%,
partially offset by a decline in organic revenue 1.9% and disposition of a
business of 1.0%. The decline in organic revenue was primarily due to the
negative impact from the pandemic, partially offset by a 0.6% increase from
COVID-19 molecular testing through its Central Laboratories business. The
pandemic continues to cause delays in clinical trial progression and associated
testing, reductions in investigator site access, as well as interruptions to the
supply chain particularly impacting the nonclinical business unit.
Cost of Revenues
                                            Six Months Ended June 30,
                                            2020                   2019         Change
Cost of revenues                      $    4,104.1             $ 4,058.4         1.1  %
Cost of revenues as a % of revenues           73.4   %              71.5  %


Cost of revenues increased 1.1% during the six months ended June 30, 2020, as
compared with the corresponding period in 2019. Cost of revenues as a percentage
of revenues during the six months ended June 30, 2020, increased to 73.4% as
compared to 71.5% in the corresponding period in 2019. This increase was
primarily due to the impact of COVID-19, higher personnel costs (primarily
driven by merit increases and one additional payroll day that predominantly
impacted LCD), and PAMA, partially offset by LaunchPad savings.
Selling, General and Administrative Expenses
                                                               Six Months 

Ended June 30,

                                                                2020                 2019                Change
Selling, general and administrative expenses              $      791.8           $    809.1                  (2.1) %

Selling, general and administrative expenses as a % of revenues

                                                          14.2   %             14.3  %


During the six months ended June 30, 2020, the Company incurred $13.0 of
acquisition and divestiture related costs and $10.6 in management transition
costs. In addition, the Company recorded $1.1 of non-capitalized costs
associated with the implementation of a major system as part of its LaunchPad
business process improvement initiative and $1.2 related to miscellaneous other
items.These charges were offset by insurance proceeds of $10.0 related to the
2018 ransomware attack. These items increased selling, general and
administrative expenses by $19.6.
During the six months ended June 30, 2019, the Company incurred $44.3 in
acquisition and divestiture costs, $2.9 in consulting expenses relating to fees
incurred as part of its integration and management transition costs and $0.7 in
costs related to the 2018 ransomware attack. In addition, the Company recorded
$5.0 of non-capitalized costs associated with the implementation of a major
system as part of its LaunchPad business process improvement initiative. These
items increased selling, general and administrative expenses by $52.9.
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Excluding these charges, selling, general and administrative expenses as a
percentage of revenues were 13.8% and 13.3% during each of the six months ended
June 30, 2020, and 2019, respectively.
Amortization of Intangibles and Other Assets
                                                             Six Months Ended June 30,
                                                              2020                 2019                Change
LCD                                                     $       51.4           $     50.3                   2.2  %
CDD                                                             71.0                 67.0                   6.0  %

Total amortization of intangibles and other assets $ 122.4

    $    117.3                   4.3  %

The increase in amortization of intangibles and other assets within LCD primarily reflects the impact of acquisitions occurring after June 30, 2019. Amortization of intangible assets within CDD increased primarily due to the impact of acquisitions occurring after June 30, 2019. Goodwill and Other Asset Impairments

                                                Six Months Ended June 30,
                                               2020                           2019      Change
Goodwill and other asset impairments   $          437.4                     

$ - N/A

During the six months ended June 30, 2020 , the Company recorded goodwill and
other asset impairment charges of $437.4, $426.4 within CDD and $11.0 within
LCD, representing 3.9% of the Company's total goodwill and intangible assets.
The Company concluded that the fair value was less than carrying value for two
of its reporting units and recorded goodwill impairment of $418.7 in the CDD
segment and $3.7 in the LCD segment. The Company also recorded a charge of $2.7
for the impairment of a CDD tradename, $7.3 for LCD software, and $5.0 for the
impairment of the CDD floating rate secured note receivable due 2022.
Restructuring and Other Special Charges
                                         Six Months Ended June 30,
                                       2020                       2019      

Change

Restructuring and other charges   $      31.8                   $ 34.2

(7.0) %

During the six months ended June 30, 2020, the Company recorded net
restructuring and other charges of $31.8: $11.8 within LCD and $20.0 within CDD.
The charges were comprised of $10.5 related to severance and other personnel
costs, $8.0 for a CDD lab facility impairment, and $20.0 in facility closures,
impairment of operating lease right-of use assets and general integration
activities. The charges were offset by the reversal of previously established
liability of $1.0 and $5.7 in unused severance costs and facility-related costs,
respectively.
During the six months ended June 30, 2019, the Company recorded net
restructuring and other special charges of $34.2: $16.1 within LCD and $18.1
within CDD. The charges were comprised of $20.3 related to severance and other
personnel costs along with $13.5 in costs associated with facility closures,
impairment of operating lease right-of-use assets and general integration
initiatives. The charges were increased by the adjustment of previously
established reserves of $0.4 in facility reserves.
Interest Expense
                          Six Months Ended June 30,
                              2020                  2019        Change
Interest expense   $              (107.7)         (115.8)       (7.0) %


The decrease in interest expense for the six months ended June 30, 2020, as
compared with the corresponding period in 2019, is primarily due to a lower
outstanding balance on term loans, lower variable interest rates, the repayment
of the 2.625% senior notes and a portion of the 4.625% senior notes in 2019,
partially offset by the issuance of $1,050.0 in debt securities in November
2019.
Equity Method Income
                                   Six Months Ended June 30,
                                  2020                        2019        Change
Equity method income, net   $       (4.8)                   $ 5.5        (187.3) %


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 Equity method income represents the Company's ownership share in joint venture
partnerships along with equity investments in other companies in the health care
industry. All of these partnerships and investments reside within LCD. The
decrease in income for the six months ended June 30, 2020, as compared with the
corresponding period in 2019, was primarily due to the impairment of an equity
method investment and decreased profitability of the Company's joint ventures.
Other, net
                    Six Months Ended June 30,
                  2020                       2019         Change
Other, net   $      31.6                  $ (20.9)       (251.2) %


 The change in other, net for the six months ended June 30, 2020, as compared to
the six months ended June 30, 2019, is primarily due to the $55.9 funding from
the Relief Fund that was appropriated by Congress to the HHS in the CARES Act.
This funding was partially offset by the $18.3 write-off or write down of
certain of the Company's investments primarily due to the negative impact of the
COVID-19 global pandemic. In addition, foreign currency transaction losses of
$4.5 were recognized for the six months ended June 30, 2020 and losses of $7.8
were recognized in the corresponding period of 2019.
Income Tax Expense
                                                         Six Months Ended June 30,
                                                          2020                 2019                 Change
Income tax expense                                  $      114.6           $    148.1                  (22.6) %

Income tax expense as a % of earnings before income taxes

                                                      391.1   %        

28.2 %

The 2020 tax rate was unfavorable to the 2019 tax rate due to impairment charges
for which either no tax benefit was recorded (as they were not deductible) or
the associated tax assets required a full valuation allowance.
                                           Six Months Ended June 30,
                                          2020                      2019         Change
       LCD operating income         $      486.7                 $ 580.8         (16.2) %
       LCD operating margin                 14.3   %                16.7  %       (2.4) %
       CDD operating income               (273.2)                  153.8        (277.6) %
       CDD operating margin                (12.2)  %                 7.0  %      (19.2) %
       General corporate expenses         (108.4)                  (80.7)         34.3  %
       Total operating income       $      105.1                 $ 653.9         (83.9) %


LCD operating income was $486.7 for the six months ended June 30, 2020, a
decrease of 16.2% over operating income of $580.8 in the corresponding period of
2019, and LCD operating margin decreased (2.4)% basis points year-over-year. The
decrease in operating income and margin were primarily due to the reduction in
Base Business (primarily due to the pandemic) and higher personnel costs,
partially offset by the increase in COVID-19 Testing and LaunchPad savings. The
Company remains on track to deliver approximately $200.0 of net savings from its
three-year, phase II of LCD's LaunchPad initiative by the end of 2021.
CDD operating loss was $(273.2) for the six months ended June 30, 2020, a
decrease over operating income of $153.8 in the corresponding period of 2019.
The decrease in operating income and margin was primarily due to the negative
impact of COVID-19, specifically goodwill and other asset impairments of $426.4,
and higher personnel costs, partially offset by organic demand, acquisitions,
and LaunchPad savings. The Company is on track to deliver $150.0 of net savings
from its three-year CDD LaunchPad initiative by the end of 2020.
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 $108.4 for the six
months ended June 30, 2020, an increase of 34.3% over corporate expenses of
$80.7 in the corresponding period of 2019. The increase in corporate expenses in
2020 is primarily due to higher personnel costs, including executive transition
costs, and COVID-19 related expenses.
LIQUIDITY AND CAPITAL RESOURCES (dollars and shares in millions)

The Company's strong cash-generating ability and financial condition typically
have provided ready access to capital markets. The Company's principal source of
liquidity is operating cash flow, supplemented by proceeds from debt offerings.
The Company's senior unsecured revolving credit facility is further discussed in
Note 7 Debt to the Company's Condensed Consolidated Financial Statements.
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In summary, the Company's cash flows were as follows for the six months ended June 30, 2020 and 2019, respectively:

Six Months Ended June 30,

                                                                         2020                  2019
Net cash provided by operating activities                          $      574.5           $     419.3
Net cash used for investing activities                                   (230.0)               (891.3)
Net cash used for financing activities                                   (119.7)                311.7
Effect of exchange rate changes on cash and cash equivalents               (5.3)                 (1.1)
Net (decrease) increase in cash and cash equivalents               $      219.5           $    (161.4)


Cash and Cash Equivalents
Cash and cash equivalents at June 30, 2020 and 2019, totaled $557.0 and $265.4,
respectively. Cash and cash equivalents consist of highly liquid instruments,
such as time deposits, commercial paper, and other money market investments,
substantially all of which have original maturities of three months or less.
Operating Activities
During the six months ended June 30, 2020, the Company's operations provided
$574.5 of cash as compared to $419.3 during the same period in 2019. The $155.2
increase in cash provided from operations in 2020 as compared with the
corresponding 2019 period is primarily due to higher cash earnings partially
offset by higher working capital. For the first six months of 2020, cash
earnings included the $55.9 CARES Act funding and benefited from income and
payroll tax deferrals, while working capital was negatively impacted by an
increase in COVID-19 related testing supplies inventory and accounts receivable.
The COVID-19 pandemic has created uncertainty about the Company's near-term
operating cash flows. Based on current expectations of the impact of COVID-19,
the Company expects to continue to generate positive cash flows from operating
activities, however, should the COVID-19 impact worsen or last longer than
anticipated, the Company may see a significant decline in cash flows from
operating activities. For more information regarding the risks associated with
the COVID-19 and its impact on the Company's business, see Risk Factors in Part
II - Item IA.
Investing Activities
Net cash used for investing activities for the six months ended June 30, 2020,
was $230.0 as compared to net cash used for investing activities of $891.3 for
the six months ended June 30, 2019. The change in cash used for investing
activities was primarily due to a decrease in business acquisitions during the
six months ended June 30, 2020. Capital expenditures were $205.1 and $179.4 for
the six months ended June 30, 2020, and 2019, respectively.
Financing Activities
Net cash used for financing activities for the six months ended June 30, 2020,
was $119.7 compared to net cash provided by financing activities of $311.7 for
the six months ended June 30, 2019. The change in cash flows from financing
activities for the six months ended June 30, 2020, as compared to the six months
ended June 30, 2019, were primarily due to net financing proceeds from the term
loan and revolving credit facilities in 2019 of $635.0 offset by $200.0 more in
share repurchases in 2019.
The Company's revolving credit facility 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 $350.0, subject to the agreement
of one or more new or existing lenders to provide such additional amounts and
certain other customary conditions.
Under the Company's term loan credit facility and 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 under the term loan credit facility and the
revolving credit facility at June 30, 2020 and expects that it will remain in
compliance with its existing debt covenants for the next twelve months.
During the fourth quarter of 2020, $412.2 of the Company's senior notes mature.
The Company has elected to redeem these notes in August 2020 at par using
available cash on hand and borrowings under its revolving credit facility.
At June 30, 2020 the Company had $557.0 of cash and $997.0 of available
borrowings under its revolving credit facility, which does not mature until
2022. In May 2020, in order to obtain increased financial covenant flexibility,
the Company and its lenders entered into amendments to the term loan facility
and the revolving credit facility to increase the maximum leverage ratio to 5.0x
debt to last twelve months EBITDA for the three month periods ending June 30,
September 30 and December 31, 2020, 4.5x for period ended March 31, 2021 and
then reverts back to 4.0x. The amendments also provide that during any period in
which the Company's leverage ratio exceeds 4.5x debt to last twelve months
EBITDA (i) the company will be prohibited from consummating share repurchases,
subject to limited exceptions, (ii) borrowings under the revolving credit
facility will accrue interest at a per annum rate equal to, at the Company's
election, either a LIBOR rate plus a margin of 1.25% or a base
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rate plus a margin of 0.25%, (iii) the facility fee that the Company is required
to pay on the aggregate commitments under the revolving credit facility will be
0.25% per annum, and (iv) borrowings under the term loan facility will accrue
interest at a per annum rate equal to, at the Company's election, either a LIBOR
rate plus a margin of 1.175% or a base rate plus a margin of 0.175%.
The Company instituted numerous actions to help mitigate the financial impact
from the COVID-19 pandemic, which included furloughs, reduced hours, and the
suspension of discretionary merit adjustments and 401(k) plan contributions in
the United States (U.S.). In response to its improved outlook, the Company has
been rapidly resuming regular work schedules and is proceeding with merit
adjustments and will retroactively reinstate 401(k) plan contributions in the
U.S.
At the end of 2019, the Company had outstanding authorization from the board of
directors to purchase up to $900.0 of Company common stock. As of June 30, 2020,
the Company had outstanding authorization from the board of directors to
purchase up to $800.0 of the Company's common stock. The repurchase
authorization has no expiration date; however, the Company temporarily suspended
stock repurchases beginning in March 2020 due to impact of the COVID-19
pandemic.
Credit Ratings
The Company's investment grade debt ratings from Moody's and from Standard and
Poor's (S&P) contribute to its ability to access capital markets.
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
Market risk is the potential loss arising from adverse changes in market rates
and prices, such as foreign currency exchange rates, interest rates, and other
relevant market rate or price changes. In the ordinary course of business, the
Company is exposed to various market risks, including changes in foreign
currency exchange and interest rates, and the Company regularly evaluates its
exposure to such changes. The Company addresses its exposure to market risks,
principally the market risks associated with changes in foreign currency
exchange rates and interest rates, through a controlled program of risk
management that includes, from time to time, the use of derivative financial
instruments such as foreign currency forward contracts, and interest rate and
cross currency swap agreements.
Foreign Currency Exchange Rates
Approximately 12.0% of the Company's revenues for the six months ended June 30,
2020, and approximately 12.5% of the Company's revenue for the six months ended
June 30, 2019, were denominated in currencies other than the U.S. dollar. The
Company's financial statements are reported in U.S. dollars and, accordingly,
fluctuations in exchange rates will affect the translation of revenues and
expenses denominated in foreign currencies into U.S. dollars for purposes of
reporting the Company's consolidated financial results. In the second quarter of
2020 and the year ended December 31, 2019, the most significant currency
exchange rate exposures were to the Canadian dollar, Swiss Franc, Euro and
British Pound. Excluding the impacts from any outstanding or future hedging
transactions, a hypothetical change of 10% in average exchange rates used to
translate all foreign currencies to U.S. dollars would have impacted income
before income taxes for the six months ended June 30, 2020 by approximately
$2.6. Gross accumulated currency translation adjustments recorded as a separate
component of shareholders' equity were $(80.5) and $47.2 at June 30, 2020 and
2019, respectively. The Company does not have significant operations in
countries in which the economy is considered to be highly-inflationary.
The Company earns revenue from service contracts over a period of several months
and, in some cases, over a period of several years. Accordingly, exchange rate
fluctuations during this period may affect the Company's profitability with
respect to such contracts. The Company is also subject to foreign currency
transaction risk for fluctuations in exchange rates during the period of time
between the consummation and cash settlement of transactions. The Company limits
its foreign currency transaction risk through exchange rate fluctuation
provisions stated in some of its contracts with customers, or it may hedge
transaction risk with foreign currency forward contracts. At June 30, 2020, the
Company had 38 open foreign exchange forward contracts relating to service
contracts with various amounts maturing monthly through July 2020 with a
notional value totaling approximately $612.5. At December 31, 2019, the Company
had 34 open foreign exchange forward contracts relating to service contracts
with various amounts maturing monthly through January 2020 with a notional value
totaling approximately $369.2.
The Company is party to U.S. Dollar to Swiss Franc cross-currency swap
agreements with an aggregate notional amount of $600.0, maturing in 2022 and
2025, as a hedge against the impact of foreign exchange movements on its net
investment in a Swiss Franc functional currency subsidiary.
Interest Rates
Some of the Company's debt is subject to interest at variable rates. As a
result, fluctuations in interest rates affect the business. The Company attempts
to manage interest rate risk and overall borrowing costs through an appropriate
mix of fixed and variable rate debt including by the utilization of derivative
financial instruments, primarily interest rate swaps.
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Borrowings under the Company's term loan credit facility and revolving credit
facility are subject to variable interest rates, unless fixed through interest
rate swaps or other agreements. As of June 30, 2020 and December 31, 2019, the
Company had $375.0 and $375.0, respectively, of unhedged variable debt from the
2019 term loan credit facility and $0.0 and $0.0, respectively, outstanding on
its revolving credit facility.
To hedge against changes in the fair value of a portion of the Company's
long-term debt, the Company is party to a fixed-to-variable interest rate swap
agreement for a portion of the 4.625% senior notes due 2020 with an aggregate
notional amount of $300.0 and variable interest rates based on one-month LIBOR
plus 2.298%.
Each quarter-point increase or decrease in the variable rate would result in the
Company's interest expense changing by approximately $0.9 per year for the
Company's unhedged variable rate debt.
ITEM 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this Quarterly Report on Form 10-Q, the
Company carried out, under the supervision and with the participation of the
Company's management, including the Company's principal executive officer and
principal financial officer, an evaluation of the effectiveness of the design
and operation of the Company's disclosure controls and procedures (as defined in
Rules13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as
amended). Based upon this evaluation, the Company's principal executive officer
and principal financial officer concluded that the Company's disclosure controls
and procedures were effective as of June 30, 2020.
Changes in Internal Control Over Financial Reporting
There were no changes in the Company's internal control over financial reporting
(as defined in Rules13a-15(f) and 15d-15(f) under the Securities Exchange Act of
1934, as amended) that occurred during the quarter ended June 30, 2020, that
have materially affected, or are reasonably likely to materially affect, the
Company's internal control over financial reporting.
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LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES

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