LEASES

12 Months Ended

Dec. 31, 2019

The Company determines if an arrangement is or contains a lease at contract inception. The Company leases office space, patient service centers, clinical laboratories, warehouses, logistic hubs and equipment primarily through operating leases with a limited number of finance leases. A right-of-use asset, representing the underlying asset during the lease term, and a lease liability, representing the payment obligation arising from the lease, are recognized on the balance sheet at lease commencement based on the present value of the payment obligation. For operating leases, expense is recognized on a straight-line basis over the lease term. For finance leases, interest expense on the lease liability is recognized using the effective interest method and amortization of the right-of-use asset is recognized on a straight-line basis over the shorter of the estimated useful life of the asset or the lease term. Short-term leases with an initial term of 12 months or less are not recorded on the balance sheet; the Company recognizes lease expense for these leases on a straight-line basis over the lease term. For the year ended December 31, 2019, lease expense associated with short-term leases was not material.

The Company primarily uses its collateralized incremental borrowing rate in determining the present value of lease payments as the Company's leases generally do not provide an implicit rate. Such incremental borrowing rates, which take into account interest rates offered to companies that have similar credit ratings as the Company, are determined using a portfolio approach which groups the Company’s leases based on tenor.

The Company has lease agreements with (i) right-of-use asset payments and (ii) non-lease components (i.e. payments related to maintenance fees, utilities, etc,) which have been combined and accounted for as a single lease component.

The Company's leases have remaining terms of less than 1 year to 15 years, some of which include options to extend the leases for up to 15 years. The Company's lease terms may include renewal options that are reasonably certain to be exercised and termination options that are reasonably certain not to be exercised. Certain leases also include options to purchase the leased property.

Certain of the Company's lease agreements include rental payments adjusted periodically for inflation or a market rate which are included in the lease liabilities.



Leases	Balance Sheet Classification	December 31, 2019
Assets
Operating	Operating lease right-of-use assets	$	518
Finance	Property, plant and equipment, net (a)	35
Total lease assets		$	553

Liabilities
Current:
Operating	Current portion of long-term operating lease liabilities	$	145
Finance	Current portion of long-term debt	3
Non-current:
Operating	Long-term operating lease liabilities	413
Finance	Long-term debt	30
Total lease liabilities		$	591

(a) Finance lease assets were recorded net of accumulated amortization of $24 million as of December 31, 2019.

Components of lease cost for the year ended December 31, 2019 were as follows:



Lease cost	Year Ended December 31, 2019

Operating lease cost (a)	$	294
Finance lease cost:
Amortization of leased assets	7
Interest on lease liabilities	3
Net lease cost	$	304

(a) Includes short-term leases and variable lease costs (primarily usage-based maintenance fees and utilities related to real estate leases and certain equipment-related and vehicle-related costs) of $120 million for the year ended December 31, 2019.

Rental expense for real estate, laboratory equipment and vehicles under operating leases amounted to $220 million and $219 million for the years ended December 31, 2018 and 2017, respectively.

The maturity of the Company's lease liabilities as of December 31, 2019 is as follows:



Maturity of lease liabilities	Operating leases		Finance leases		Total
2020	$	151	$	6	$	157
2021	129		6		135
2022	102		5		107
2023	82		3		85
2024	52		3		55
Thereafter	105		31		136
Total lease payments	621		54		675
Less: Interest	63		21		84
Present value of lease liabilities	$	558	$	33	$	591

Minimum rental commitments under noncancelable operating leases, primarily real estate, in effect as of December 31, 2018 are as follows:



Year Ending December 31,
2019	$	181
2020	143
2021	106
2022	79
2023	60
Thereafter	122
Minimum lease payments	$	691

Lease term and discount rate as of December 31, 2019 were as follows:



Lease term and discount rate
Weighted-average remaining lease term (years):
Operating leases	5
Finance leases	12

Weighted-average discount rate:
Operating leases	3.4	%
Finance leases	8.7	%

The Company's discount rates for its operating leases were primarily determined using the Company's incremental borrowing rate. The Company's weighted-average discount rate for its finance leases principally reflects the implicit interest rate on a lease obligation assumed in a business combination.

See Note 9 for cash flow information on cash paid for amounts included in the measurement of lease liabilities, leased assets obtained in exchange for new operating lease liabilities, and leased assets obtained in exchange for new finance lease liabilities for the years ended December 31, 2019.

LEASES