Labcorp Holdings 10-Q 2022-03-31

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2022

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______ to ______

Commission File Number 1-11353

LABORATORY CORPORATION OF AMERICA HOLDINGS

(Exact name of registrant as specified in its charter)

(Registrant's telephone number, including area code) 336-229-1127

Securities registered pursuant to Section 12(b) of the Exchange Act.

Title of Each Class Trading Symbol Name of exchange on which registered

Common Stock, $0.10 par value LH New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒.

The number of shares outstanding of the issuer's common stock is 92.7 million shares as of April 28, 2022.

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PART I. FINANCIAL INFORMATION

PART II. OTHER INFORMATION

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PART I – FINANCIAL INFORMATION

LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in millions)

(unaudited)

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in millions, except per share data)

(unaudited)

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS

(in millions, except per share data)

(unaudited)

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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 the U.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 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, the National Medical Products Administration in China, the Pharmaceutical and Medical Devices Agency in Japan, the European Medicines Agency, the European Union and similar regulations and policies of agencies in other jurisdictions in which the Company conducts business;

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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 services ordered, or a reduction in tests ordered, specimens submitted, or services requested by existing customers, and delays in payments 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, 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;

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, 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 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; 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.

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, 2022, were $3,899.6, a decrease of 6.3% from $4,161.5 during the three months ended March 31, 2021. The decrease was due to lower organic revenue of 6.3% and unfavorable foreign currency translation of 0.4%, partially offset by acquisitions net of divestitures of 0.4%. The 6.3% decline in organic revenue was driven by a 9.8% decrease in COVID-19 PCR and antibody testing (COVID-19 Testing), partially offset by a 3.5% increase in the Company's organic Base Business. 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.

Strategic Review of Company Structure and Capital Allocation Strategy

In March 2021, the Company announced the undertaking of a comprehensive review by its board of directors and management team of Labcorp's structure and capital allocation strategy. In December 2021, the Company announced the board of directors' conclusion, as well as actions that the management team and the board of directors are taking to enhance shareholder returns. Through April 28, 2022, the actions taken include:

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

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

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

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

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

These actions demonstrate the Company’s continuing commitment to profitable growth through investments in science, innovation, and new technologies. Management and the board of directors are committed to continuing to evaluate all avenues for enhancing shareholder value.

RESULTS OF OPERATIONS (dollars in millions)

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

Revenues

Total revenues for the three months ended March 31, 2022, were $3,899.6, a decrease of 6.3% over $4,161.5 in the first quarter of 2021. The decrease was due to lower organic revenue of 6.3% and unfavorable foreign currency translation of 0.4%, partially offset by acquisitions net of divestitures of 0.4%. The 6.3% decline in organic revenue was driven by a 9.8% decrease in COVID-19 Testing, partially offset by a 3.5% increase in the company's organic Base Business.

Dx revenues for the three months ended March 31, 2022, were $2,454.1, a decrease of 11.0% over $2,757.8 in the first quarter of 2021. The decrease was due to organic revenue of 11.5%, partially offset by acquisitions of 0.5%. The 11.5% decrease in organic revenue was due to a 14.7% reduction from COVID-19 Testing, partially offset by a 3.2% increase in the Base Business. Total Base Business growth compared to the Base Business in the prior year was 5.6%.

Dx total volume (measured by requisitions) for the three months ended March 31, 2022, decreased by 5.0% as organic volume decreased by 5.3% and acquisition volume contributed 0.3%. Organic volume was impacted by an 8.5% decrease in COVID-19 Testing, partially offset by a 3.1% increase in Base Business. Price/mix decreased by 6.0% due to lower COVID-19 Testing of 6.3%, partially offset by acquisitions of 0.2% and organic Base Business growth of 0.1%. Base Business volume was up 4.4% compared to Base Business last year while price/mix was up 1.2%.

DD revenues for the three months ended March 31, 2022, were $1,459.3, an increase of 1.5% over $1,438.2 in the first quarter of 2021. The increase was due to organic Base Business growth of 4.3% and acquisitions net of divestitures of 0.1%, partially offset by lower COVID-19 Testing of 1.7% and foreign currency translation of 1.2%.

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Cost of Revenues

Cost of revenues increased 4.1% during the three months ended March 31, 2022, as compared with the corresponding period in 2021. Cost of revenues as a percentage of revenues during the three months ended March 31, 2022, increased to 68.4% as compared to 61.6% in the corresponding period in 2021. This increase was primarily due to a reduction in COVID-19 Testing, higher personnel expenses, and other inflationary costs, partially offset by LaunchPad savings.

Selling, General and Administrative Expenses

Selling, general and administrative expenses as a percentage of revenues were 11.9% and 10.3% during the three months ended March 31, 2022, and 2021, respectively. The increase is primarily due to a reduction in COVID-19 Testing, and higher personnel expenses, partially offset by LaunchPad savings.

Goodwill and Other Asset Impairments

The Company recorded impairment charges of $1.2 in other assets in Ukraine and Russia during the three months ended March 31, 2022. There were no goodwill and other asset impairments for the three months ended March 31, 2021.

Amortization of Intangibles and Other Assets

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

Restructuring and Other Charges

During the three months ended March 31, 2022, the Company recorded net restructuring and other charges of $12.6: $2.6 within Dx and $10.0 within DD. The charges were comprised of $5.4 related to severance and other personnel costs and $7.7 in facility closures, lease terminations, and general integration activities. The charges were adjusted by the reversal of a previously established liability of $0.4 in unused severance costs and $0.1 in unused facility-related costs.

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

Interest Expense

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

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Equity Method Income

Equity method income represents the Company's ownership share in joint venture partnerships along with equity investments in other companies in the health care industry. The decrease in income for the three months ended March 31, 2022, as compared with the corresponding period in 2021, was primarily due to the decreased profitability of the Company's joint ventures in 2022.

Other, net

The change in Other, net for the three months ended March 31, 2022, as compared to the three months ended March 31, 2021, is primarily due to investment gains of $8.0 for the three months ended March 31, 2022. In addition, foreign currency transaction losses of $2.6 were recognized for the three months ended March 31, 2022, and losses of $1.0 were recognized in the corresponding period of 2021.

Income Tax Expense

For the three months ended March 31, 2022 and 2021, the effective income tax rate was 23.1% and 24.6%, respectively. The current year effective tax rate was favorably impacted by the Company's foreign income inclusion. Additionally, the effective income tax rate recorded benefits related to stock-based compensation arrangements.

Operating Income by Segment

Dx operating income was $623.3 for the three months ended March 31, 2022, a decrease of $325.8 over operating income of $949.1 in the corresponding period of 2021, and Dx operating margin decreased 900 basis points year-over-year. The decrease in adjusted operating income and adjusted operating margin was primarily due to a reduction in COVID-19 Testing, higher personnel expense, and other inflationary costs, partially offset by organic Base Business growth and LaunchPad savings.

DD operating income was $124.2 for the three months ended March 31, 2022, a decrease of 20.6% over operating income of $156.4 in the corresponding period of 2021. The decrease was primarily due to COVID-19 Testing, a reduction in COVID-19 vaccine and therapeutic work, the interruption of some clinical trial activity due to the conflict in Ukraine, higher personnel expense, and other inflationary costs. These impacts were partially offset by organic Base Business growth and LaunchPad savings. The Company continues to invest in technology and processes to drive profitable growth in DD.

General corporate expenses are comprised primarily of administrative services such as executive management, human resources, legal, finance, corporate affairs, and information technology. Corporate expenses were $59.6 for the three months ended March 31, 2022, an increase of $12.0 over corporate expenses of $47.6 in the corresponding period of 2021, primarily due to higher personnel costs.

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

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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.

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

Cash and Cash Equivalents

Cash and cash equivalents at March 31, 2022, and 2021, totaled $1,233.5 and $1,890.8, respectively. Cash and cash equivalents consist of highly liquid instruments, such as time deposits, commercial paper, and other money market investments, which have original maturities of three months or less.

Cash Flows from Operating Activities

During the three months ended March 31, 2022, the Company's operations provided $356.0 of cash as compared to $1,157.6 during the same period in 2021. The $801.6 decrease in cash provided from operations in 2022 as compared with the corresponding 2021 period is primarily due to lower cash earnings and higher working capital requirements.

Cash Flows from Investing Activities

Net cash used for investing activities for the three months ended March 31, 2022, was $573.1 as compared to $132.4 for the three months ended March 31, 2021. The change in cash used for investing activities was primarily due to an increase in business acquisitions and higher capital expenditures during the three months ended March 31, 2022. Capital expenditures were $117.2 and $95.4 for the three months ended March 31, 2022, and 2021, respectively.

Cash Flows from Financing Activities

Net cash used by financing activities for the three months ended March 31, 2022, was $17.7 as compared to $450.1 for the three months ended March 31, 2021. The change in cash flows from financing activities for the three months ended March 31, 2022, as compared to the three months ended March 31, 2021, was primarily due to the repayment of the 2019 Term Loan in 2021 and a decrease of $68.5 in share repurchases.

On May 26, 2021, the Company issued new senior notes representing $1,000.0 in debt securities and consisting of $500.0 aggregate principal amount of 1.55% senior notes due 2026 and $500.0 aggregate principal amount of 2.70% senior notes due 2031. Interest on these notes is payable semi-annually in arrears on June 1 and December 1 of each year. Net proceeds from the offering of these notes were $989.4 after deducting underwriting discounts and other expenses of the offering. The net proceeds were used to redeem, prior to maturity, the Company's outstanding 3.20% senior notes due February 1, 2022 and 3.75% senior notes due August 23, 2022.

During the second quarter of 2021, the Company entered into fixed-to-variable interest rate swap agreements for its 2.70% senior notes due 2031 with an aggregate notional amount of $500.0 and variable interest rates based on three-month LIBOR plus 1.0706%. These instruments are designated as hedges against changes in the fair value of a portion of the Company's long-term debt. The aggregate fair value of $31.3 at March 31, 2022, was included as a component of other long-term liabilities and reduced the reported value of the senior notes.

On April 30, 2021, the Company amended and restated its revolving credit facility. It consists of a five-year revolving facility in the principal amount of up to $1,000.0, with the option of increasing the facility by up to an additional $500.0, subject to the agreement of one or more new or existing lenders to provide such additional amounts and certain other customary conditions. The Company is required to pay a facility fee on the aggregate commitments under the revolving credit facility, at a per annum rate ranging from 0.10% to 0.23%, depending on the Company’s debt ratings.

Under the Company's revolving credit facility, the Company is subject to negative covenants limiting subsidiary indebtedness and certain other covenants typical for investment grade-rated borrowers and the Company is required to maintain certain leverage ratios. The Company was in compliance with all covenants under the revolving credit facility at March 31, 2022, and expects that it will remain in compliance with its existing debt covenants for the next twelve months.

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

For the three months ended March 31, 2022, the Company did not repurchase any of the Company's common stock but received 0.6 shares of its common stock, arising from a partial acceleration from Barclays Bank PLC and a final settlement from Goldman Sachs & Co. LLC in connection with agreements under its ASR program initiated in December 2021. As of March 31, 2022, the Company had an outstanding authorization from the board of directors to purchase up to $1,631.5 more of the Company's common stock with no expiration date.

On December 9, 2021, the Company announced that it was initiating a quarterly dividend in the second quarter of 2022. On April 7, 2022, the Company announced a cash dividend of $0.72 per share of common stock for the second quarter, or approximately $67.6 in the aggregate. The dividend will be payable on June 9, 2022, to stockholders of record of all issued and outstanding shares of common stock as of the close of business on May 19, 2022. The 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.

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 15.7% of the Company's revenues for the three months ended March 31, 2022, and approximately 14.0% of the Company's revenue for the three months ended March 31, 2021, were denominated in currencies other than the U.S. dollar (USD). The Company's financial statements are reported in USD and, accordingly, fluctuations in exchange rates will affect the translation of revenues and expenses denominated in foreign currencies into USD for purposes of reporting the Company's consolidated financial results. In the first quarter of 2022 and the year ended December 31, 2021, 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 USD would have impacted income before income taxes for the three months ended March 31, 2022, by approximately $6.7. Gross accumulated currency translation adjustments recorded as a separate component of shareholders’ equity were ($74.6) and ($66.8) at March 31, 2022 and 2021, 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 time, ranging from months to 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, 2022, the Company had 27 open foreign exchange forward contracts relating to service contracts with various amounts maturing monthly through April 2022 with a notional value totaling approximately $711.0. At December 31, 2021, the Company had 28 open foreign exchange forward contracts relating to service contracts with various amounts maturing monthly through January 2022 with a notional value totaling approximately $600.7.

The Company is party to US 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.

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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.

In May 2021, to hedge against changes in the fair value portion of the Company's long-term debt, the Company entered into fixed-to-variable interest rate swap agreements for the 2.70% senior notes due 2031 with an aggregate notional value of $500.0 and variable interest rates based on three-month LIBOR plus 1.0706%.

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 March 31, 2022.

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, 2022, 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

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

See Note 8 (Commitments and Contingencies) to the Company’s condensed consolidated financial statements, above, which is incorporated herein by reference.

There have been no material changes in the risk factors that appear in Part I - Item 1A of the Company's Annual Report on Form 10-K for the year ended December 31, 2021.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds (dollars and shares in millions, except per share data)

The following table sets forth information with respect to purchases of shares of the Company’s common stock based on settled trades made during the three months ended March 31, 2022, by or on behalf of the Company:

(1) During the fourth quarter of 2021, the Company entered into an ASR program. At inception, the Company paid $1,000.0 and received 2.7 shares based on a calculation using 80% of the shares calculated at the price at the inception of agreements with two different banks, Goldman Sachs and Barclays. In March 2022, the Company received 0.6 shares of its common stock, arising from a partial acceleration with Barclays and a final settlement from Goldman Sachs, based on the average daily volume weighted average price per share of $277.40. On April 1, 2022, the Company received 0.2 shares of its common stock for final settlement from Barclays based on the average volume-weighted average price per share of $275.51.

As of March 31, 2022, the Company had outstanding authorization from the board of directors to purchase up to $1,631.5 of the Company's common stock. The repurchase authorization has no expiration date.

None.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

LABORATORY CORPORATION OF AMERICA HOLDINGS

Registrant

April 29, 2022