LEASES

12 Months Ended

Dec. 31, 2022

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 years ended December 31, 2022, 2021, and 2020, 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 to 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.

During the year ended December 31, 2022, the Company amended a real estate lease and, based on the updated terms, the classification of the lease changed from a finance lease to an operating lease. As a result, the Company recorded a $31 million operating lease right-of-use asset.

The Company's assets and liabilities for its lease agreements as of December 31, 2022 and 2021 were as follows:


Leases	Balance Sheet Classification	2022		2021
Assets
Operating	Operating lease right-of-use assets	$	585	$	597
Finance	Property, plant and equipment, net (a)	9		29
Total lease assets		$	594	$	626

Liabilities
Current:
Operating	Current portion of long-term operating lease liabilities	$	153	$	151
Finance	Current portion of long-term debt	2		2
Non-current:
Operating	Long-term operating lease liabilities	489		494
Finance	Long-term debt	7		32
Total lease liabilities		$	651	$	679

(a) Finance lease assets as of December 31, 2022 and 2021 were recorded net of accumulated amortization of $3 million and $8 million, respectively.

Components of lease cost for the years ended December 31, 2022, 2021 and 2020 were as follows:


Lease cost	2022		2021		2020

Operating lease cost (a)	$	345	$	321	$	300
Finance lease cost:

Amortization of leased assets	2		2		6
Interest on lease liabilities	1		2		3
Net lease cost	$	348	$	325	$	309

(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 $160 million, $140 million and $120 million for the years ended December 31, 2022, 2021 and 2020, respectively.

The maturity of the Company's lease liabilities as of December 31, 2022 is as follows:


Maturity of lease liabilities	Operating leases		Finance leases		Total
2023	$	167	$	2	$	169
2024	137		2		139
2025	104		2		106
2026	75		2		77
2027	59		1		60
Thereafter	173		1		174
Total lease payments	715		10		725
Less: Interest	73		1		74
Present value of lease liabilities	$	642	$	9	$	651

Lease term and discount rate as of December 31, 2022 and 2021 were as follows:


Lease term and discount rate	2022		2021
Weighted-average remaining lease term (years):
Operating leases	6		6
Finance leases	6		11

Weighted-average discount rate:
Operating leases	3.0	%	3.0	%
Finance leases	2.4	%	6.9	%

The Company's discount rates for its operating leases were primarily determined using the Company's incremental borrowing rate.

See Note 10 for cash flow information on cash paid for amounts included in the measurement of lease liabilities and leased assets obtained in exchange for new operating lease liabilities for the years ended December 31, 2022, 2021 and 2020.

LEASES