LABORATORY CORPORATION OF AMERICA HOLDINGS FORWARD-LOOKING STATEMENTS 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 and 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 "Summary of Material Risks" and "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 theU.S. 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 theU.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 theU.S. Health Insurance Portability and Accountability Act of 1996, theU.S. Health Information Technology for Economic and Clinical Health Act, theEuropean 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 fines 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, theU.S. Clinical Laboratory Improvement Act of 1967 and theU.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
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 theU.S. Food and Drug Administration , theU.S. Department of Agriculture , the Medicine and Healthcare products Regulatory Agency in theUnited Kingdom (U.K. ), theNational Medical Products Administration inChina , thePharmaceutical and Medical Devices Agency inJapan , theEuropean Medicines Agency , theEuropean Union and similar regulations and policies of agencies in other jurisdictions in which the Company conducts business; 21
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10. changes in government regulations or reimbursement pertaining to the pharmaceutical, biotechnology and medical device and diagnostic industries, changes in reimbursement of pharmaceutical products, or reduced spending on research and development by pharmaceutical, biotechnology and medical device and diagnostic customers;
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 initiatives and consumerism, competitive bidding and/or changes or reductions to fee schedules, and competition from companies that do not comply with existing laws or regulations or otherwise disregard compliance standards in the industry; 13. changes in payer mix or payment structure or process, including insurance carrier participation in health insurance exchanges, an increase in capitated reimbursement mechanisms, the impact of clearinghouses on the claims reimbursement process, the impact of a shift to consumer-driven health plans or plans carrying an increased level of member cost-sharing, and adverse changes in payer reimbursement or payer coverage policies (implemented directly or through a third-party utilization management organization) related to specific diagnostic tests, categories of testing or testing methodologies;
14. failure to retain or attract MCO business as a result of changes in business models, including risk based or network approaches, out-sourced laboratory network management or utilization management companies, or other changes in strategy or business models by MCOs;
15. failure to obtain and retain new customers, an unfavorable change in the mix of testing or other services ordered, or a reduction in tests ordered, specimens submitted, or services requested by existing customers, and reductions and delays in payments from Dx and DD customers;
16. consolidation and convergence of customers, competitors, and suppliers, potentially causing material shifts in insourcing, utilization, pricing, reimbursement and supply chain access;
17. failure to effectively develop and deploy new systems, system modifications or enhancements required in response to evolving market and business needs;
18. customers choosing to insource services that are or could be purchased from the Company;
19. failure to identify, successfully close, and effectively integrate and/or manage acquisitions of new businesses or failure to maintain key customers and/or employees as a result of uncertainty surrounding the integration of acquisitions;
20. 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;
21. termination, loss, delay, reduction in scope or increased costs of contracts, including large contracts and multiple contracts;
22. liability arising from errors or omissions in the performance of testing services, contract research services or other contractual arrangements;
23. 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;
24. damage or disruption to the Company's facilities;
25. damage to the Company's reputation, loss of business, or other harm from increased regulations and restrictions on the import of research animals, limitations of supply of research animals, and acts of animal rights activists, or potential harm and/or liability arising from animal research activities;
26. adverse results in litigation matters;
27. inability to attract and retain experienced and qualified personnel or the loss of significant personnel as a result of illness, increased competition for talent, wage growth, or other market factors; 28. 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;
29. substantial costs arising from the inability to commercialize newly licensed tests or technologies or to obtain appropriate coverage or reimbursement for such tests;
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30. 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; 31. 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; 32. business interruption, receivables impairment, delays in cash collection impacting days sales outstanding, supply chain disruptions or inventory obsolescence, increases in material cost or other operating costs, inflationary increases, or other impacts on the business due to natural disasters, including adverse weather, fires and earthquakes; geopolitical events, including terrorism and war; public health crises and disease epidemics and pandemics; changes in the global economy; and other events outside of the Company's control;
33. discontinuation or recalls of existing testing products;
34. 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; 35. 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;
36. 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;
37. 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 byStandard & Poor's and/or Moody's;
38. 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 revolving credit facility;
39. changes in reimbursement by foreign governments and foreign currency fluctuations;
40. 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;
41. expenses and risks associated with international operations, including, but not limited to, compliance with theU.S. Foreign Corrupt Practices Act, theU.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;
42. failure to achieve expected efficiencies and savings in connection with the Company's business process improvement initiatives;
43. changes in tax laws and regulations or changes in their interpretation;
44. global economic conditions and government and regulatory changes; and
45. effects, duration, and severity of the ongoing COVID-19 pandemic, including
the impact on operations, personnel, supplies, liquidity, and collections, as
well as the impact of past or future actions or omissions by the Company or
governments in response to the COVID-19 pandemic including, but not limited to,
evolving government vaccine and testing mandates and policies, and damage to the
Company's reputation or loss of business resulting from the perception of the
Company's response to the COVID-19 pandemic, including the availability and
accuracy and timeliness of delivery of any tests that the Company develops,
collaborates on or provides for the detection of COVID-19, and the availability
and timeliness of its drug development services; and
46. risks associated with the impact, timing, expected benefits and costs, or
terms of the planned spin-off of the Company's Clinical Development business,
which includes the parts of its DD segment focused on providing Phase I-IV
clinical trial management, market access, and technology solutions to
pharmaceutical and biotechnology organizations, including but not limited to (i)
uncertainties as to the completion and timing of the transaction; (ii) the
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failure to obtain appropriate assurances regarding the tax-free nature of the spin-off; (iii) the receipt of regulatory approvals; (iv) the effect of the announcement or pendency of the transaction on the Company's business relationships, operating results, and business generally; (v) unexpected issues that arise in the continued planning for the transaction; (vi) the failure to have the Form 10 registration statement that will be filed with theSEC declared effective on a timely basis, or at all; (vii) risks that the proposed transaction disrupts current plans and operations ofLabcorp or Clinical Development; (viii) potential difficulties attracting or retaining Company or Clinical Development employees as a result of the spin-off announcement, pendency or completion of the spin-off; (ix) risks related to diverting management's attention from the Company and Clinical Development's ongoing business operations; (x) the ability of the Company to successfully separate Clinical Development operations from the Company's ongoing operations; (xi) market receptiveness to effect transactions in the capital markets; and (xii) market reaction to the announcement and planning for the transaction.
Except as may be required by applicable law, the Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. 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 nine months endedSeptember 30, 2022 , were$11,202.6 , a decrease of 7.1% from$12,064.8 during the nine months endedSeptember 30, 2021 . The decrease was due to lower organic revenue of 6.9% and unfavorable foreign currency translation of 0.9%, partially offset by acquisitions net of divestitures of 0.6%. The 6.9% decline in organic revenue includes a 8.9% decrease in COVID-19 PCR and antibody testing (COVID-19 Testing), partially offset by a 2.0% increase in the Company's organic Base Business. Base Business includes the Company's business operations except for COVID-19 Testing. 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.
Proposed Spin-Off of Clinical Development Business
OnJuly 28, 2022 , the Company announced that its board of directors authorized the Company to pursue a spin-off of its wholly owned Clinical Development business, which includes the parts of its DD segment focused on providing Phase I-IV clinical trials, market access, and technology solutions to pharmaceutical and biotechnology organizations. The planned spin-off would result in two independent, publicly traded companies. The spin-off is intended to be a tax-free transaction to the Company and its stockholders forU.S. federal income tax purposes and is expected to be effected through a dividend of the Clinical Development business' shares to the Company's shareholders. The Company anticipates that, consistent with any applicable legal and tax requirements, there will be ongoing transitional and commercial arrangements to provide for a seamless delivery of services to the customers and other stakeholders of the independent companies following the spin-off. The Company is targeting completion of the spin-off with an accelerated timeframe of mid-2023, subject to the satisfaction of certain customary conditions, including receipt of final approval by the Company's board of directors, receipt of appropriate assurances regarding the tax-free nature of the transaction, and the effectiveness of any required filings with theSEC . There can be no assurances regarding the ultimate timing of the transaction or that the spin-off will be completed.
RESULTS OF OPERATIONS (dollars in millions)
Three months endedSeptember 30, 2022 , compared with three months endedSeptember 30, 2021 Revenues Three Months Ended September 30, 2022 2021 Change Dx$ 2,207.6 $ 2,617.5 (15.7) % DD 1,405.8 1,459.5 (3.7) % Intercompany eliminations and other (7.3) (14.4) 49.3 % Total$ 3,606.1 $ 4,062.6 (11.2 %) Total revenues for the three months endedSeptember 30, 2022 , were$3,606.1 , a decrease of 11.2% over$4,062.6 in the third quarter of 2021. The decrease was due to lower organic revenue of 10.7% and unfavorable foreign currency translation of 1.3%, partially offset by acquisitions of 0.8%. The 10.7% decrease in organic revenue was driven by a 11.8% decrease in COVID-19 Testing, partially offset by a 1.1% increase in the Company's organic Base Business.
Dx revenues for the three months ended
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0.1%, partially offset by acquisitions of 0.9%. The 16.4% decrease in organic revenue was due to a 18.4% decrease in COVID-19 Testing, partially offset by a 1.9% increase in the Base Business. Total Base Business growth compared to the Base Business in the prior year was 3.7%. Dx total volume (measured by requisitions) for the three months endedSeptember 30, 2022 , decreased by 10.3% as organic volume decreased by 10.9% and acquisition volume contributed 0.6%. Organic volume was impacted by an 12.8% decrease in COVID-19 Testing, partially offset by a 1.9% increase in Base Business. Price/mix decreased by 5.4% due to a decrease in COVID-19 Testing of 5.5%. Base Business volume was up 3.1% compared to the Base Business last year, while price/mix was up 0.6%. DD revenues for the three months endedSeptember 30, 2022 , were$1,405.8 , a decrease of 3.7% over$1,459.5 in the third quarter of 2021. The decrease was primarily due to unfavorable foreign currency translation of 3.4%. The benefit of acquisitions of 0.5% was offset by a 0.7% decline in Base Business organic growth, which was negatively impacted by approximately 5.0% due to reduced COVID-19 related work and theUkraine /Russia crisis. COVID-19 related work includes lower COVID-19 vaccine and therapeutic studies as well as reduced clinical development kits shipped and returned due to supply chain issues and labor constraints. Cost of Revenues Three Months Ended September 30, 2022 2021 Change Cost of revenues$ 2,546.4 $ 2,677.1 (4.9) % Cost of revenues as a % of revenues 70.6 %
65.9 %
Cost of revenues decreased 4.9% during the three months endedSeptember 30, 2022 , as compared with the corresponding period in 2021. Cost of revenues as a percentage of revenues during the three months endedSeptember 30, 2022 , increased to 70.6% as compared to 65.9% in the corresponding period in 2021. This increase in cost of revenues as a percent of revenues was primarily due to a reduction in COVID-19 Testing revenues, higher personnel expenses, and other inflationary costs, partially offset by organic Base Business growth and LaunchPad savings.
Selling, General and Administrative Expenses
Three Months
Ended
2022 2021 Change
Selling, general and administrative expenses $ 510.0 $ 519.9 (1.9) %
Selling, general and administrative expenses as a % of revenues
14.1 % 12.8 %
Selling, general and administrative expenses as a percentage of revenues were
14.1% and 12.8% during the three months ended September 30, 2022 , and 2021,
respectively. The increase is primarily due to a reduction in COVID-19 Testing
revenues, partially offset by LaunchPad savings.
Amortization of Intangibles and Other Assets
Three Months Ended September 30,
2022 2021 Change
Dx $ 32.5 $ 29.3 11.1 %
DD 32.7 62.9 (48.1) %
Total amortization of intangibles and other assets $ 65.2 $ 92.2 (29.3) %
The decrease in amortization of intangibles and other assets primarily reflects
the completion of the accelerated amortization related to the Covance trade name
as a result of a rebranding initiative that resulted in $30.2 of expense in the
three months ended September 30, 2021 , offset by additional amortization for
assets acquired subsequent to September 30, 2021 .
Restructuring and Other Charges
Three Months
Ended
2022 2021 Change
Restructuring and other charges $ 15.1 $ 6.5 133.8 %
During the three months ended September 30, 2022 , the Company recorded net
restructuring and other charges of $15 .1: $3.6 within Dx, $11.3 within DD, and
$0.2 allocated to general corporate. The charges were comprised of $2.5 related
to severance and other personnel costs and $11.4 in facility closures, lease
terminations, and general integration activities. The charges were adjusted by
the increase of $1.5 of previously established severance liabilities and the
reversal of previously established liability of $0.3 in unused facility-related
costs.
During the three months ended September 30, 2021 , the Company recorded net
restructuring and other charges of $6 .5: $3.3 within Dx and $3.2 within DD. The
charges were comprised of $3.3 related to severance and other personnel costs
and
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Interest Expense
Three Months Ended September 30,
2022 2021 Change
Interest expense $ (46.3) $ (42.2) 9.9 %
The increase in interest expense for the three months ended September 30, 2022 ,
as compared with the corresponding period in 2021, is primarily due to the
increased interest rates on variable rate debt, and lower benefit from cross
currency swaps, partly offset by the impact of higher interest rates on cash.
Equity Method Income
Three Months Ended September 30,
2022 2021 Change
Equity method income, net $ 1.7 $ 8.4 (79.3) %
Equity method income represents the Company's ownership share in joint venture
partnerships along with equity investments in other companies in the health care
industry. The decrease in income for the three months ended September 30, 2022 ,
as compared with the corresponding period in 2021, was primarily due to the
decreased profitability of the Company's joint ventures in 2022.
Other, net
Three Months Ended September 30,
2022 2021 Change
Other, net $ (7.3) $ 31.9 (123.0) %
The change in Other, net for the three months ended September 30, 2022 , as
compared to the three months ended September 30, 2021 , is primarily due to
investment losses of $5.2 for the three months ended September 30, 2022 compared
to investment gains of $36.9 for the corresponding period of 2021. In addition,
foreign currency transaction gains of $1.9 were recognized for the three months
ended September 30, 2022 as compared to gains of $0.4 for the corresponding
period of 2021.
Income Tax Expense
Three Months Ended September 30,
2022 2021 Change
Income tax expense $ 68.4 $ 180.4 (62.1) %
Income tax expense as a % of earnings before income taxes
16.2 % 23.5 %
The current year effective tax rate was favorably impacted by the Company's foreign income inclusion and research and development tax credits. During the quarter, the Company completed a detailed 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 theUnited Kingdom rate change. Operating Income by Segment Three Months Ended September 30, 2022 2021 Change Dx operating income$ 378.7 $ 722.7 (47.6) % Dx operating margin 17.2 % 27.6 % (10.4) % DD operating income 156.7 141.6 10.7 % DD operating margin 11.1 % 9.7 % 1.4 % General corporate expenses (66.0) (97.4) (32.2) % Total operating income$ 469.4 $ 766.9 (38.8) % Dx operating income was$378.7 for the three months endedSeptember 30, 2022 , a decrease of$344.0 over operating income of$722.7 in the corresponding period of 2021, and Dx operating margin decreased 1,040 basis points year-over-year. The decrease in adjusted operating income and adjusted operating margin was primarily due to a reduction in COVID-19 Testing, higher personnel expense, and other inflationary costs, partially offset by organic Base Business growth and LaunchPad savings. DD operating income was$156.7 for the three months endedSeptember 30, 2022 , an increase of$15.2 over operating income of$141.6 in the corresponding period of 2021. The increase was primarily due to less amortization expense in 2022 as a 26
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result of the completion of the accelerated amortization related to the Covance
trade name, organic Base Business growth, and LaunchPad savings, partially
offset by a reduction in COVID-19 related work, the
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$66.0 for the three months endedSeptember 30, 2022 , a decrease of$31.4 over corporate expenses of$97.4 in the corresponding period of 2021, primarily due to lower personnel costs, bonus allocation, and research and development costs.
The Company remains on track to deliver approximately
Nine months endedSeptember 30, 2022 , compared with nine months endedSeptember 30, 2021 Revenues Nine Months Ended September 30, 2022 2021 Change Dx$ 6,917.1 $ 7,740.8 (10.6) % DD 4,317.0 4,392.9 (1.7) % Intercompany eliminations and other (31.5) (68.9) 54.3 % Total$ 11,202.6 $ 12,064.8 (7.1) % The decrease in revenues for the nine months endedSeptember 30, 2022 , as compared with the corresponding period in 2021 was 7.1%. The decrease was due to lower organic revenue of 6.9% and unfavorable foreign currency translation of 0.9%, partially offset by acquisitions net of divestitures of 0.6%. The 6.9% decrease in organic revenue includes an 8.9% decrease from COVID-19 Testing and a 2.0% increase in the Company's organic Base Business. Dx revenues for the nine months endedSeptember 30, 2022 were$6,917.1 , a decrease of 10.6% compared to revenues of$7,740.8 during the nine months endedSeptember 30, 2021 . The decrease was primarily due to lower organic revenue of 11.4%, partially offset by acquisitions of 0.8%. The 11.4% decrease in organic revenue was due to a 13.8% decrease in COVID-19 Testing, partially offset by a 2.4% increase in the Base Business.
Total volume, measured by requisitions, decreased by 6.1% as organic volume decreased by 6.5% and acquisition volume contributed 0.4%. COVID-19 Testing decreased organic volume growth by 9.1%. Price/mix decreased by 4.6% due to lower COVID-19 Testing of 4.8%, lower organic Base Business of 0.1%, and unfavorable foreign currency translation of 0.1%, partially offset by acquisitions of 0.4%.
DD revenues for the nine months endedSeptember 30, 2022 were$4,317.0 , a decrease of 1.7% over revenues of$4,392.9 during the nine months endedSeptember 30, 2021 . The decrease in revenues was primarily due to unfavorable foreign currency translation of 2.4%, lower COVID-19 Testing performed through itsCentral Laboratories business of 0.8%, partially offset by an increase in organic Base Business revenue of 1.2% and acquisitions net of divestitures of 0.3%. Cost of Revenues Nine Months Ended September 30, 2022 2021 Change Cost of revenues$ 7,787.3 $ 7,815.5 (0.4) % Cost of revenues as a % of revenues 69.5 %
64.8 %
Cost of revenues decreased 0.4% during the nine months endedSeptember 30, 2022 , as compared with the corresponding period in 2021. Cost of revenues as a percentage of revenues during the nine months endedSeptember 30, 2022 , increased to 69.5% as compared to 64.8% in the corresponding period in 2021. This increase in cost of revenues as a percentage of revenues was primarily due to a reduction in COVID-19 Testing revenues, higher personnel expenses, and other inflationary costs, partially offset by organic Base Business growth and LaunchPad savings.
Selling, General and Administrative Expenses
Nine Months
Ended
2022 2021 Change
Selling, general and administrative expenses $ 1,460.1 $ 1,408.4 3.7 %
Selling, general and administrative expenses as a % of revenues
13.0 % 11.7 %
Selling, general and administrative expenses as a percentage of revenues were
13.0% and 11.7% during the nine months ended September 30, 2022 , and 2021,
respectively. The increase is primarily due to a reduction in COVID-19 Testing
revenues and higher personnel expenses, partially offset by LaunchPad savings.
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Amortization of Intangibles and Other Assets
Nine Months Ended September 30,
2022 2021 Change
Dx $ 99.2 $ 85.8 15.7 %
DD 99.5 190.9 (47.9) %
Total amortization of intangibles and other assets $ 198.7 $ 276.7 (28.2) %
The decrease in amortization of intangibles and other assets primarily reflects
the completion of the accelerated amortization related to the Covance trade name
as a result of a rebranding initiative that resulted in $87.4 of expense in the
nine months ended September 30, 2021 , offset by additional amortization for
assets acquired subsequent to September 30, 2021 .
Nine Months Ended
2022 2021 Change
Goodwill and other asset impairments $ 1.2 $ - 100.0%
The Company recorded impairment charges of $1.2 in other assets in Ukraine and
Russia during the nine months ended September 30, 2022 . There were no goodwill
and other asset impairments for the nine months ended September 30, 2021 .
Restructuring and Other Special Charges
Nine Months Ended September 30,
2022 2021 Change
Restructuring and other charges $ 72.1 During the nine months endedSeptember 30, 2022 , the Company recorded net restructuring and other charges of$72 .1:$23.9 within Dx,$42.7 within DD, and$5.5 allocated to general corporate. The charges were comprised of$31.9 related to severance and other personnel costs and$38.6 in facility closures, lease terminations, and general integration activities. The charges were adjusted by an increase of$2.0 of previously established severance liabilities and the reversal of previously established liability of$0.4 in unused facility-related costs. During the nine months endedSeptember 30, 2021 , the Company recorded net restructuring and other special charges of$35 .3:$16.8 within Dx and$18.5 within DD. The charges were comprised of$13.6 related to severance and other personnel costs and$22.4 in facility closures, lease terminations, and general integration initiatives. The charges were adjusted by a decrease of$0.1 of previously established severance liabilities and the reversal of previously established liability of$0.7 in unused facility-related costs. Interest Expense Nine Months Ended September 30, 2022 2021 Change Interest expense $ (131.0)$ (169.0) (22.4) % The decrease in interest expense for the nine months endedSeptember 30, 2022 , as compared with the corresponding period in 2021, is primarily due to the costs of redeeming the 3.20% and 3.75% notes and issuing the new senior notes in 2021, lower outstanding debt and a lower average cost of debt in 2022. Equity Method Income Nine Months Ended September 30, 2022 2021 Change Equity method income, net $ 6.5$ 20.9 (68.8) % Equity method income represents the Company's ownership share in joint venture partnerships along with equity investments in other companies in the health care industry. The decrease in income for the nine months endedSeptember 30, 2022 , as compared with the corresponding period in 2021, was primarily due to the decreased profitability of the Company's joint ventures in 2022. Other, net Nine Months Ended September 30, 2022 2021 Change Other, net $ (27.8)$ 51.5 (153.9) % 28
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The change in Other, net for the nine months endedSeptember 30, 2022 , as compared to the nine months endedSeptember 30, 2021 , is primarily due to investment losses of$19.4 compared to$67.4 of investment gains in the corresponding period of 2021. In addition, foreign currency transaction losses of$5.1 were recognized for the nine months endedSeptember 30, 2022 , and losses of$2.4 were recognized in the corresponding period of 2021. Income Tax Expense Nine Months Ended September 30, 2022 2021 Change Income tax expense$ 333.9 $ 614.7 (45.7) %
Income tax expense as a % of earnings before income taxes
21.7 % 25.2 %
The current year effective tax rate was favorably impacted by the Company's foreign income inclusion and research and development tax credits. During the quarter, the Company completed a detailed 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 theUnited Kingdom rate change. Operating Income by Segment Nine Months Ended September 30, 2022 2021 Change Dx operating income$ 1,457.5 $ 2,275.4 $ (817.9) Dx operating margin 21.1 % 29.4 % (8.3) % DD operating income 431.8 445.3 (13.4) DD operating margin 10.0 % 10.1 % (0.1) % General corporate expenses (206.1) (191.8) (14.3) Total operating income$ 1,683.2 $ 2,528.9 $ (845.7) Dx operating income was$1,457.5 for the nine months endedSeptember 30, 2022 , a decrease of$817.9 from operating income of$2,275.4 in the corresponding period of 2021, and Dx operating margin decreased 830 basis points year-over-year. The decrease in adjusted operating income and adjusted operating margin was primarily due to a reduction in COVID-19 Testing, higher personnel expense, and other inflationary costs, partially offset by organic Base Business growth and LaunchPad savings. DD operating income was$431.8 for the nine months endedSeptember 30, 2022 , a decrease of$13.4 from operating income of$445.3 in the corresponding period of 2021. The decrease was primarily due to a reduction in COVID-19 Testing, a reduction in COVID-19 related work, the interruption of some clinical trial activity due to the conflict inUkraine , higher personnel expense, and other inflationary costs. These impacts were partially offset by less amortization expense as a result of the completion of the accelerated amortization related to the Covance trade name, organic Base Business growth and LaunchPad savings. General corporate expenses are comprised primarily of administrative services such as executive management, human resources, legal, finance, corporate affairs, and information technology. Corporate expenses were$206.1 for the nine months endedSeptember 30, 2022 , an increase of$14.3 over corporate expenses of$191.8 in the corresponding period of 2021, primarily due to higher personnel costs, bonus allocation, research and development costs, and other costs.
The Company remains on track to deliver approximately
LIQUIDITY AND CAPITAL RESOURCES (dollars and shares in millions)
The Company's 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 6 (Debt) to the Company's condensed consolidated financial statements.
29--------------------------------------------------------------------------------
INDEX
In summary, the Company's cash flows were as follows for the nine months ended
Nine Months Ended
2022 2021
Net cash provided by operating activities $ 1,302.3 $ 2,412.1
Net cash used for investing activities (1,378.9) (630.1)
Net cash used for financing activities (949.6) (1,057.2)
Effect of exchange rate changes on cash and cash equivalents (36.6) (9.1)
Net increase (decrease) in cash and cash equivalents $ (1,062.8) $ 715.7
Cash and Cash Equivalents
Cash and cash equivalents at September 30, 2022 , and 2021, totaled $409.9 and
$2,036.5 , respectively. Cash and cash equivalents consist of highly liquid
instruments, such as time deposits, commercial paper, and other money market
investments, which have original maturities of three months or less.
Cash Flows from Operating Activities
During the nine months endedSeptember 30, 2022 , the Company's operations provided$1,302.3 of cash as compared to$2,412.1 during the same period in 2021. The$1,109.8 decrease in cash provided from operations in 2022 as compared with the corresponding 2021 period is primarily due to lower cash earnings and unfavorable working capital requirements.
Cash Flows from Investing Activities
Net cash used for investing activities for the nine months endedSeptember 30, 2022 , was$1,378.9 as compared to$630.1 for the nine months endedSeptember 30, 2021 . The change in cash used for investing activities was primarily due to an increase in business acquisitions and higher capital expenditures during the nine months endedSeptember 30, 2022 . Capital expenditures were$364.0 and$310.4 for the nine months endedSeptember 30, 2022 , and 2021, respectively.
Cash Flows from Financing Activities
Net cash used by financing activities for the nine months endedSeptember 30, 2022 , was$949.6 as compared to$1,057.2 for the nine months endedSeptember 30, 2021 . The change in cash flows from financing activities for the nine months endedSeptember 30, 2022 , as compared to the nine months endedSeptember 30, 2021 , was primarily due to the repayment of the 2019 Term Loan in 2021, the payment of dividends of$131.6 in 2022, and an increase of$131.5 in share repurchases. AtSeptember 30, 2022 , the Company had$409.9 of cash and$1,000.0 of available borrowings under its revolving credit facility, which does not mature until 2026. Under the Company's revolving credit facility, the Company is subject to negative covenants limiting subsidiary indebtedness and certain other covenants typical for investment grade-rated borrowers and the Company is required to maintain certain leverage ratios. The Company was in compliance with all covenants under the revolving credit facility atSeptember 30, 2022 , and expects that it will remain in compliance with its existing debt covenants for the next twelve months. For the nine months endedSeptember 30, 2022 , the Company purchased 3.3 shares of its common stock at a total cost of$800.0 . As ofSeptember 30, 2022 , the Company had an outstanding authorization from the board of directors to purchase up to$831.5 more of the Company's common stock with no expiration date. For the nine months endedSeptember 30, 2022 , the Company paid$131.6 in common stock dividends. OnOctober 12, 2022 , the Company announced a cash dividend of$0.72 per share of common stock for the fourth quarter, or approximately$64.9 in the aggregate. The dividend will be payable onDecember 9, 2022 , to stockholders of record of all issued and outstanding shares of common stock as of the close of business onNovember 17, 2022 . 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 from Standard and Poor's (S&P) contribute to its ability to access capital markets.
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