QUEST DIAGNOSTICS INCDGX
QUEST DIAGNOSTICS INC Leases Disclosure
LEASES
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 , representing the underlying asset during the lease term, and a lease , 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 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, 2025, 2024, and 2023, 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 19 years, some of which include options to extend the leases for up to approximately 20 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.
The Company's assets and liabilities for its lease agreements as of December 31, 2025 and 2024 were as follows:
| Leases | Balance Sheet Classification | 2025 | 2024 | |||||||||||||||||
| Assets | ||||||||||||||||||||
| Operating | Operating lease right-of-use assets | $ | 657 | $ | 651 | |||||||||||||||
| Finance | Property, plant and equipment, net (a) | 20 | 17 | |||||||||||||||||
| Total lease assets | $ | 677 | $ | 668 | ||||||||||||||||
| Liabilities | ||||||||||||||||||||
| Current: | ||||||||||||||||||||
| Operating | Current portion of long-term operating lease liabilities | $ | 174 | $ | 173 | |||||||||||||||
| Finance | Current portion of long-term debt | 3 | 1 | |||||||||||||||||
| Non-current: | ||||||||||||||||||||
| Operating | Long-term operating lease liabilities | 537 | 535 | |||||||||||||||||
| Finance | 18 | 16 | ||||||||||||||||||
| Total lease liabilities | $ | 732 | $ | 725 | ||||||||||||||||
(a) Finance lease assets as of December 31, 2025 and 2024 were recorded net of accumulated amortization of $4 million and $1 million, respectively.
Components of lease cost for the years ended December 31, 2025, 2024 and 2023 were as follows:
| Lease cost | 2025 | 2024 | 2023 | |||||||||||
| Operating lease cost (a) | $ | 470 | $ | 402 | $ | 353 | ||||||||
| Finance lease cost: | ||||||||||||||
| Amortization of leased assets | 3 | 1 | 2 | |||||||||||
| Interest on lease liabilities | 2 | 1 | — | |||||||||||
| Net lease cost | $ | 475 | $ | 404 | $ | 355 | ||||||||
(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 $253 million, $204 million and $161 million for the years ended December 31, 2025, 2024 and 2023, respectively.
The maturity of the Company's lease liabilities as of December 31, 2025 is as follows:
| Maturity of lease liabilities | Operating leases | Finance leases | Total | |||||||||||||||||
| 2026 | $ | 196 | $ | 4 | $ | 200 | ||||||||||||||
| 2027 | 179 | 4 | 183 | |||||||||||||||||
| 2028 | 143 | 2 | 145 | |||||||||||||||||
| 2029 | 98 | 2 | 100 | |||||||||||||||||
| 2030 | 58 | 2 | 60 | |||||||||||||||||
| Thereafter | 149 | 16 | 165 | |||||||||||||||||
| Total lease payments | 823 | 30 | 853 | |||||||||||||||||
| Less: Interest | 112 | 9 | 121 | |||||||||||||||||
| Present value of lease liabilities | $ | 711 | $ | 21 | $ | 732 | ||||||||||||||
Lease term and discount rate as of December 31, 2025 and 2024 were as follows:
| Lease term and discount rate | 2025 | 2024 | |||||||||
| Weighted-average remaining lease term (years): | |||||||||||
| Operating leases | 6 | 5 | |||||||||
| Finance leases | 10 | 13 | |||||||||
| Weighted-average discount rate: | |||||||||||
| Operating leases | 4.8 | % | 4.4 | % | |||||||
| Finance leases | 7.2 | % | 6.9 | % | |||||||
The Company's discount rates for its operating leases were primarily determined using the Company's incremental borrowing rate.
See Note 9 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, 2025, 2024 and 2023.
About Leases Disclosures
Lease disclosures under ASC 842 provide a comprehensive view of a company's leased asset portfolio, including the split between operating and finance leases, discount rates used to present-value future payments, and the maturity schedule of lease obligations. This section reveals a significant source of off-balance-sheet commitments that were largely hidden before the current standard.
Key signals: the weighted-average discount rate affects the size of recorded lease liabilities — a higher rate reduces the reported obligation, so compare the chosen rate against the company's incremental borrowing rate. The operating versus finance lease mix affects both EBITDA and operating income presentation. Watch the maturity table for concentration risk: large payment cliffs in specific years may create cash flow pressure. Variable lease payments excluded from the liability measurement represent real obligations that do not appear on the balance sheet. Compare total lease costs against prior-year operating lease expense to assess the true economic burden.