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Dynamic quotes 
OFFON

LABORATORY CORPORATION OF AMERICA HOLDINGS

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

05/04/2021 | 03:56pm EDT
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 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
"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 U.S. healthcare system (or in
the interpretation of current regulations), new insurance products 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 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, 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, 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 European Medicines Agency and similar
regulations and policies of agencies in other jurisdictions in which the Company
conducts business;
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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 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 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 processes, 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 managed care organization (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 services ordered, or a reduction in tests ordered, specimens
submitted or services requested by existing customers, and delays in payment
from 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
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 or otherwise;
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;
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;
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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, 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;
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 by Standard & 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 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;
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,
including, but not limited to those arising from he U.K.'s exit from the
European Union; and
45. effects, duration, and severity of the ongoing COVID-19 pandemic, including
the impact on operations, personnel, supplies, liquidity, collections, 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, and
the availability and timeliness of its drug development services.

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.

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GENERAL (dollars in millions, except per share data)


Revenues for the three months ended March 31, 2021, were $4,161.5, an increase
of 47.4% from $2,823.8 during the three months ended March 31, 2020. The
increase in revenues was due to organic growth of 45.1%, acquisitions of 0.9%,
and favorable foreign currency translation of 1.4%. The 45.1% increase in
organic revenue includes a 32.9% contribution from COVID-19 Testing and a 12.2%
increase in the Company's organic Base Business. Base Business includes the
Company's business operations except for PCR and antibody COVID-19 testing
(COVID-19 Testing).
The Company defines organic growth as the increase in revenue excluding revenue
from acquisitions for the first twelve months after the close of each
acquisition.
While the Company continues to see strong momentum across its operations, the
Company's board of directors and its management team believe that the Company's
value is not appropriately reflected in its current stock price. In March 2021,
the Company announced that its board of directors and management had commenced a
review of the Company's structure and capital allocation strategy to ensure that
it is best positioned to unlock shareholder value while the Company continues to
support patients and customers around the world. The board of directors has
engaged Goldman Sachs & Co. LLC as its financial advisor to support the process.
There can be no assurances regarding the outcome or timing of the review
process. The Company does not undertake any obligation to provide updates on
this process until a conclusion is reached.

RESULTS OF OPERATIONS (dollars in millions)


Three months ended March 31, 2021, compared with three months ended March 31,
2020
Revenues
                                                Three Months Ended March 31,
                                                    2021                   2020         Change
  Dx                                     $       2,757.8                $ 1,702.0       62.0  %
  DD                                             1,438.2                  1,143.8       25.7  %
  Intercompany eliminations and other              (34.5)                   (22.0)      56.8  %
  Total                                  $       4,161.5                $ 2,823.8       47.4  %


The increase in revenues for the three months ended March 31, 2021, as compared
with the corresponding period in 2020 was 47.4%. The increase in revenues was
due to organic growth of 45.1%, acquisitions of 0.9%, and favorable foreign
currency translation of 1.4%. The 45.1% increase in organic revenue includes the
32.9% contribution from COVID-19 Testing and a 12.2% increase in the Company's
organic Base Business.
Dx revenues for the quarter were $2,757.8, an increase of 62.0% compared to
revenues of $1,702.0 in the first quarter of 2020. The increase in revenues was
primarily due to organic growth of 60.8%, acquisitions of 0.9%, and favorable
foreign currency translation of 0.4%. The 60.8% in organic revenue was due to a
54.5% contribution from COVID-19 Testing and a 6.3% increase in the Base
Business, which includes the negative impact of weather of 2.0%.
Total volume, measured by requisitions, increased by 27.3% as organic volume
increased by 26.6% and acquisition volume contributed 0.7%. The organic volume
growth was due to a 27.9% contribution from COVID-19 Testing, partially offset
by a 1.3% reduction in revenue days. Price increased by 34.7% due to COVID-19
Testing of 26.6%, organic Base Business of 7.5%, favorable foreign currency
translation of 0.4% and acquisitions of 0.2%.
DD revenues for the first quarter were $1,438.2, an increase of 25.7% over
revenues of $1,143.8 in the first quarter of 2020. The increase in revenues was
primarily due to organic growth of 21.9%, acquisitions of 1.0%, and favorable
foreign currency translation of 2.9%. The 21.9% increase in organic revenue was
due to a 19.7% increase in the Base Business and a 2.2% contribution from
COVID-19 Testing performed through its Central Laboratories business. While
continuing to be negatively impacted by the pandemic, DD benefited from
broad-based demand across all service lines, including COVID-19 vaccine and
therapeutic work.
Cost of Revenues
                                             Three Months Ended March 31,
                                             2021                       2020         Change
Cost of revenues                      $      2,562.5                $ 2,095.8        22.3  %
Cost of revenues as a % of revenues             61.6   %                 

74.2 %



Cost of revenues increased 22.3% during the three months ended March 31, 2021,
as compared with the corresponding period in 2020. Cost of revenues as a
percentage of revenues during the three months ended March 31, 2021, decreased
to
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61.6% as compared to 74.2% in the corresponding period in 2020. This decrease was primarily due to the impact of COVID-19 Testing, organic Base Business growth, and acquisitions, partially offset by higher personnel costs. Selling, General and Administrative Expenses

                                                              Three Months 

Ended March 31,

                                                                2021                  2020                 Change
Selling, general and administrative expenses              $       429.8           $    395.5                    8.7  %

Selling, general and administrative expenses as a % of revenues

                                                           10.3   %             14.0  %


During the three months ended March 31, 2021, the Company incurred $5.6 of
acquisition and divestiture related costs, $2.3 in COVID-related costs and $2.3
in management transition costs. In addition, the Company recorded $1.3 of
non-capitalized costs associated with the implementation of a major system as
part of its LaunchPad business process improvement initiative and $(2.4) related
to miscellaneous other items. These items increased selling, general and
administrative expenses by $9.1.
During the three months ended March 31, 2020, the Company incurred $8.4 in
acquisition and divestiture costs and $2.8 in management transition costs. In
addition, the Company recorded $0.9 of non-capitalized costs associated with the
implementation of a major system as part of its LaunchPad business process
improvement initiative and reversed $0.6 related to miscellaneous other items.
These items increased selling, general and administrative expenses by $11.9.
Excluding these charges, selling, general and administrative expenses as a
percentage of revenues were 10.1% and 13.5% during the three months ended
March 31, 2021, and 2020, respectively, primarily due to leveraging the
Company's infrastructure on higher revenue.
Goodwill and Other Asset Impairments
                                                Three Months Ended March 

31,

                                                     2021                   

2020 Change

  Goodwill and other asset impairments   $       -                        $ 

437.4 N/A



During the three months ended March 31, 2020, the Company recorded goodwill and
other asset impairment charges of $437.4, $426.4 within DD and $11.0 within Dx,
representing 3.7% of the Company's total goodwill and intangible assets. The
Company concluded that the fair value was less than carrying value for certain
of its reporting units and recorded goodwill impairment of $418.7 in DD and $3.7
in Dx. The Company also recorded a charge of $2.7 for the impairment of a DD
tradename, $7.3 for Dx software and $5.0 for the impairment of the DD floating
rate secured note receivable due in 2022. There were no goodwill and other asset
impairments for the three months ended March 31, 2021.
Amortization of Intangibles and Other Assets
                                                             Three Months Ended March 31,
                                                               2021                  2020                 Change
Dx                                                      $          28.1          $     26.2                    7.3  %
DD                                                                 64.0                36.1                   77.3  %

Total amortization of intangibles and other assets $ 92.1

      $     62.3                   47.8  %


The increase in amortization of intangibles and other assets primarily reflects
the impact of acquisitions occurring after March 31, 2020, and $29.2 of
accelerated amortization related to the Covance trade name as a result a
rebranding initiative, partially offset by lower amortization due to the
impairment of intangible assets in 2020.
Restructuring and Other Special Charges
                                          Three Months Ended March 31,
                                                2021                     2020       Change
Restructuring and other charges   $          19.2                      $ 

25.4 (24.4) %



During the three months ended March 31, 2021, the Company recorded net
restructuring and other charges of $19.2: $7.5 within Dx and $11.7 within DD.
The charges were comprised of $4.2 related to severance and other personnel
costs and $15.1 in facility closures, lease terminations, and general
integration activities. The charges were offset by the reversal of a previously
established liability of $0.1 in unused facility-related costs.
During the three months ended March 31, 2020, the Company recorded net
restructuring and other special charges of $25.4: $8.1 within Dx and $17.3
within DD. The charges were comprised of $5.1 related to severance and other
personnel costs, $4.7 for a DD lab facility impairment, and $15.8 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 $0.2 in unused facility reserves.

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Interest Expense
                          Three Months Ended March 31,
                                2021                   2020        Change
Interest expense   $        (48.5)                   $ (55.0)      (11.8) %


The decrease in interest expense for the three months ended March 31, 2021, as
compared with the corresponding period in 2020, is primarily due to the
repayment of the 4.625% senior notes and the 2019 Term Loan.
Equity Method Income
                                    Three Months Ended March 31,
                                          2021                     2020        Change
Equity method income, net   $          4.5                       $ (6.6)      (168.2) %


 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 Dx. The
increase in income for the three months ended March 31, 2021, as compared with
the corresponding period in 2020, was primarily due the write off or write down
of certain of the Company's investments in 2020 primarily due to the negative
impact of the COVID-19 global pandemic and increased profitability of the
Company's joint ventures in 2021.
Other, net
                     Three Months Ended March 31,
                          2021                    2020         Change
Other, net   $         5.5                      $ (16.1)      (134.2) %


 The change in other, net for the three months ended March 31, 2021, as compared
to the three months ended March 31, 2020, is primarily due to the write off or
write down of certain of the Company's investments in 2020 primarily due to the
negative impact of the COVID-19 global pandemic as compared to net investment
gains in 2021. In addition, foreign currency transaction losses of $1.0 were
recognized for the three months ended March 31, 2021, and losses of $2.8 were
recognized in the corresponding period of 2020.
Income Tax Expense
                                                         Three Months Ended March 31,
                                                           2021                  2020                 Change
Income tax expense                                  $        251.7           $     49.2                   411.6  %

Income tax expense as a % of earnings before income taxes

                                                         24.6   %      

(18.4) %



The 2021 tax rate was favorable to the 2020 tax rate due primarily to the 2020
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.
Operating Income by Segment
                                          Three Months Ended March 31,
                                          2021                       2020           Change
   Dx operating income             $        949.1                 $  205.2       $   743.9
   Dx operating margin                       34.4   %                 12.1  %         22.3  %
   DD operating income (loss)               156.4                   (338.7)      $   495.1
   DD operating margin                       10.9   %                (29.6) %         40.5  %
   General corporate expenses               (47.6)                   (59.1)           11.5
   Total operating income (loss)   $      1,057.9                 $ (192.6) 

$ 1,250.5



Dx operating income was $949.1 for the three months ended March 31, 2021, an
increase of $743.9 over operating income of $205.2 in the corresponding period
of 2020, and Dx operating margin increased 2,230 basis points year-over-year.
The increase was primarily due to the increase in COVID-19 Testing, organic Base
Business growth and LaunchPad savings, partially offset by higher personnel
costs. The Company remains on track to deliver approximately $200.0 of net
savings from its three-year Dx LaunchPad initiative by the end of 2021.
DD operating income was $156.4 for the three months ended March 31, 2021, an
increase over operating loss of $338.7 in the corresponding period of 2020. The
increase was primarily due to goodwill and other asset impairments in 2020 and
in 2021 organic Base Business growth, COVID-19 Testing, and LaunchPad savings,
partially offset by higher personnel costs. The Company continues to develop and
execute new LaunchPad programs to support profitable growth in DD.
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 $47.6 for the three
months
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ended March 31, 2021, a decrease of $11.5 over corporate expenses of $59.1 in
the corresponding period of 2020, primarily due to higher executive transition
costs in 2020.
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.
In summary, the Company's cash flows were as follows for the three months ended
March 31, 2021, and 2020, respectively:
                                                                         

Three Months Ended March 31,

                                                                          2021                    2020
Net cash provided by operating activities                          $        1,157.6          $     203.8
Net cash used for investing activities                                       (132.4)              (106.6)
Net cash used for financing activities                                       (450.1)              (102.8)
Effect of exchange rate changes on cash and cash equivalents                   (5.1)                (8.3)
Net increase (decrease) in cash and cash equivalents               $        

570.0 $ (13.9)



Cash and Cash Equivalents
Cash and cash equivalents at March 31, 2021, and 2020, totaled $1,890.8 and
$323.6, 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 three months ended March 31, 2021, the Company's operations provided
$1,157.6 of cash as compared to $203.8 during the same period in 2020. The
$953.8 increase in cash provided from operations in 2021 as compared with the
corresponding 2020 period is primarily due to higher cash earnings and lower
working capital.
Investing Activities
Net cash used for investing activities for the three months ended March 31,
2021, was $132.4 as compared to net cash used for investing activities of $106.6
for the three months ended March 31, 2020. The change in cash used for investing
activities was primarily due to an increase in business acquisitions during the
three months ended March 31, 2021 partially offset by lower capital
expenditures. Capital expenditures were $95.4 and $106.6 for the three months
ended March 31, 2021, and 2020, respectively.
Financing Activities
Net cash used for financing activities for the three months ended March 31,
2021, was $450.1 compared to $102.8 for the three months ended March 31, 2020.
The change in cash flows from financing activities for the three months ended
March 31, 2021, as compared to the three months ended March 31, 2020, were
primarily due to repayment of the 2019 Term Loan in February 2021, partially
offset by a $31.5 reduction in share repurchases.
On April 30, 2021, the Company amended and restated its revolving credit
facility. It consists of a five-year revolving facility in the principal amount
of up to $1,000.0, with the option of increasing the facility by up to an
additional $500.0 (which was previously $350.0), subject to the agreement of one
or more new or existing lenders to provide such additional amounts and certain
other customary conditions. The Company is required to pay a facility fee on the
aggregate commitments under the revolving credit facility, at a per annum rate
ranging from 0.100% to 0.225% (which was a per annum rate ranging from 0.100% to
0.25% prior to the amendment and restatement), depending on the Company's debt
ratings. Borrowings under the revolving credit facility will accrue interest at
a per annum rate equal to, at the Company's election, either (x) a LIBOR rate
plus a margin ranging from 0.775% to 1.275% or (y) a base rate plus a margin
ranging from 0% to 0.275%, in each case, depending on the Company's debt
ratings.
Under the Company's revolving credit facility, the Company is subject to
negative covenants limiting subsidiary indebtedness and certain other covenants
typical for investment grade-rated borrowers and the Company is required to
maintain certain leverage ratios. The Company was in compliance with all
covenants under the revolving credit facility at March 31, 2021, and expects
that it will remain in compliance with its existing debt covenants for the next
twelve months. In February 2021, the Company fully repaid the remaining $375.0
of the 2019 Term Loan.
At March 31, 2021, the Company had $1,890.8 of cash and $1,000.0 of available
borrowings under its revolving credit facility, which does not mature until
2026.
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As of March 31, 2021, the Company had outstanding authorization from the board
of directors to purchase up to $731.5 of the Company's common stock. The
repurchase authorization has no expiration date.
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. The Company's
expectation is that it will seek to maintain an investment grade debt rating
regardless of what, if anything, results from the Company's current review of
its structure and capital allocation strategy.
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk (dollars in
millions)
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 14.0% of the Company's revenues for the three months ended
March 31, 2021, and approximately 12.8% of the Company's revenue for the three
months ended March 31, 2020, 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 first
quarter of 2021 and the year ended December 31, 2020, 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 three months ended March 31, 2021, by approximately
$6.7. Gross accumulated currency translation adjustments recorded as a separate
component of shareholders' equity were $(66.8) and $(147.5) at March 31, 2021,
and 2020, 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 March 31, 2021, the
Company had 30 open foreign exchange forward contracts relating to service
contracts with various amounts maturing monthly through April 2021 with a
notional value totaling approximately $672.2. At December 31, 2020, the Company
had 31 open foreign exchange forward contracts relating to service contracts
with various amounts maturing monthly through January 2021 with a notional value
totaling approximately $601.2.
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 from time to time is subject to interest at variable
rates. As a result, fluctuations in interest rates can 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.
Borrowings under the Company's term loan credit facility, now repaid, and
revolving credit facility are subject to variable interest rates, unless fixed
through interest rate swaps or other agreements. As of March 31, 2021, and
December 31, 2020, the Company had $0.0 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.
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
                                       28

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INDEX


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 March 31,
2021.
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 March 31, 2021, that
have materially affected, or are reasonably likely to materially affect, the
Company's internal control over financial reporting.
                                       29

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INDEX

LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES

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