10-K

2007 Annual Report

on Form 10 – K

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-K

Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the Fiscal Year Ended December 31, 2007
Commission File Number 001-12215
Quest Diagnostics Incorporated
3 Giralda Farms
Madison, New Jersey 07940
(973) 520-2700
Delaware
(State of Incorporation)
16-1387862
(I.R.S. Employer Identification Number)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class	Name of Each Exchange on Which Registered
Common Stock, $.01 par value per share	New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:	None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes x No o

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.
Yes o No x

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 x No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K. o

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

Large accelerated filer x Accelerated filer o Non-accelerated filer o (Do not check if a smaller reporting company)

Smaller reporting company o

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

As of June 30, 2007, the aggregate market value of the approximately 156 million shares of voting and non-voting common equity held by non-affiliates of the registrant was approximately $8.1 billion, based on the closing price on such date of the registrant’s Common Stock on the New York Stock Exchange.

As of February 1, 2008, there were outstanding 194,149,127 shares of Common Stock, $.01 par value per share.

Documents Incorporated by Reference

Document	Part of Form 10-K into which incorporated
Portions of the registrant’s Proxy Statement to be filed by April 28, 2008	Part III

Such Proxy Statement, except for the portions thereof which have been specifically incorporated by reference, shall not be deemed “filed” as part of this report on Form 10-K.

TABLE OF CONTENTS

	Item	Page
Item 1.	Business	1
	Our Strategy and Strengths	1
	Business Operations	2
	The United States Clinical Testing Market	8
	General	10
	Billing and Reimbursement	13
	Regulation	16
	Available Information	19
Item 1A.	Risk Factors	19
	Cautionary Factors That May Affect Future Results	27
Item 1B.	Unresolved Staff Comments	28
Item 2.	Properties	29
Item 3.	Legal Proceedings	30
Item 4.	Submission of Matters to a Vote of Security Holders	31
Item 5.	Market for Registrant’s Common Stock, Related Stockholder Matters and Issuer Purchases of Equity Securities	32
Item 6.	Selected Financial Data	33
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	33
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	33
Item 8.	Financial Statements and Supplementary Data	34
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	34
Item 9A.	Controls and Procedures	34
Item 9B.	Other Information	34
Item 10.	Directors, Executive Officers and Corporate Governance	35
Item 11.	Executive Compensation	36
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholders’ Matters	36
Item 13.	Certain Relationships and Related Transactions, and Director Independence	36
Item 14.	Principal Accounting Fees and Services	36
Item 15.	Exhibits, Financial Statement Schedules	37
Selected Historical Financial Data of Our Company		39
Management’s Discussion and Analysis of Financial Condition and Results of Operations		41
Management’s Report on Internal Control Over Financial Reporting		58
Report of Independent Registered Public Accounting Firm		F-1
Consolidated Financial Statements and Related Notes		F-2
Supplementary Data: Quarterly Operating Results (unaudited)		F-45
Schedule II – Valuation Accounts and Reserves		F-46

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Item 1. Business

          Quest Diagnostics Incorporated is the nation’s leading provider of diagnostic testing, information and services. We provide insights that enable patients, physicians and others to make decisions to improve health services.

          Quest Diagnostics was incorporated in Delaware in 1990; its predecessor companies date back to 1967. We conduct business through our headquarters in Madison, New Jersey, and our laboratories, patient service centers, offices and other facilities around the United States and in selected locations outside the United States. Unless the context otherwise requires, the terms “Quest Diagnostics,” the “Company,” “we” and “our” mean Quest Diagnostics Incorporated and its consolidated subsidiaries.

          During 2007, we generated net revenues of $6.7 billion and processed approximately 145 million test requisitions. Additional financial information concerning Quest Diagnostics, including our consolidated subsidiaries, for each of the years ended December 31, 2007, December 31, 2006 and December 31, 2005 is included in the consolidated financial statements and notes thereto in “Financial Statements and Supplementary Data” in Part II, Item 8.

OUR STRATEGY AND STRENGTHS

          Our mission is to be the undisputed world leader in diagnostic testing, information and services. Our vision states that we are dedicated people improving the health of patients through unsurpassed diagnostic insights and innovation. We focus on patients, growth and people to help achieve our goals.

          We offer an array of high value diagnostics services and products that are attractive to patients, physicians, payers, and other providers to become the diagnostic services provider of choice in key areas of the diagnostic testing market. We believe that successful execution of this strategy will drive continued growth. Additionally, we believe that we will be able to grow over the long term at a rate above the U.S. clinical laboratory industry growth rate, to expand margins and to increase international revenues to 10% of consolidated revenues. We plan to do this by gaining more customers and selling more services and products to existing customers. The elements of our strategy are discussed below:

• Deliver a superior patient experience. The patient is at the center of everything that we do. Increasingly patients have a choice when it comes to selecting a healthcare provider and we strive to give them new and compelling reasons to put their trust in us. We have made significant investments in training our employees to provide a differentiated patient experience. We believe that this will drive patient and physician loyalty. Additionally, we have deployed automated patient appointment scheduling to most of our patient service centers. This enables patients to schedule appointments at times that are convenient for them and to essentially eliminate waiting times. We believe that we are the only clinical test provider that offers this service in almost all of its patient service centers.

• Continuously drive Six Sigma quality. We strive to provide the highest quality in all that we do, including: phlebotomy and specimen transport services; analytical testing processes in our laboratories; accurate and timely lab reports; and billing information. We use Six Sigma and Lean processes to continuously reduce defects, enhance quality and further increase the efficiency of our operations. Six Sigma is a management approach that utilizes a thorough understanding of customer needs and requirements, root cause analysis, process improvements and rigorous tracking and measuring to enhance quality. Lean is a management approach that seeks to streamline processes and eliminate waste. We also use Six Sigma and Lean principles to help standardize operations and processes across our Company and identify and adopt company best practices. We believe our focus on continuously driving Six Sigma quality in all aspects of our business results in superior service to our customers and drives loyalty.

• Leverage our unparalleled assets and capabilities. We are the leader in the U.S. clinical testing business and we have the most extensive clinical testing network in the nation. We offer national access to testing services, operating a nationwide network of approximately 2,100 of our own patient service centers, principal laboratories located in more than 30 major metropolitan areas throughout the United States and approximately 150 smaller “rapid-response” laboratories. We are the leading cancer diagnostics provider through our network of specialty testing centers, approximately 40 outpatient anatomic pathology centers, and hospitals throughout the country where we provide inpatient anatomic pathology and medical director services. We have a leading medical and scientific staff of approximately 900 M.D.s and Ph.D.s. We serve approximately half of the physicians and half of the hospitals in the United States. We also provide paramedical examinations in approximately 70 locations in the United States and Canada. We are the leading provider in the United States of gene-based and other esoteric testing, offering the broadest test menu of more than 3,000 tests. We believe that customers and payers prefer testing providers that offer a comprehensive range of tests and services and the most convenient access to those services and that, as a result, we will be able to profitably enhance our market position.

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•	Continue to lead in medical innovation and information technology solutions. We are a leading innovator in the clinical testing market with unmatched medical and technical expertise. We have the most comprehensive test menu and leading medical and scientific experts available for consultation. Over the past several years, we have expanded our business in more complex and faster-growing testing areas, including gene-based and esoteric testing and anatomic pathology services, reducing the percentage of our revenues from routine testing services. We remain a leading innovator in the clinical testing industry by continuing to introduce new tests, technology and services, including in the evolving area of personalized and targeted medicine. As an industry leader with the largest and broadest U.S. network and expanding presence outside the U.S., we believe we are the best channel for developers of new equipment and tests to introduce their products to the marketplace. Through our relationship with the academic community and pharmaceutical and biotechnology firms, we believe that we are a leader in bringing technical innovation to the market. For example, in 2007, we introduced the ClariSure™ test for identifying chromosome abnormalities associated with 85 developmental disorders in children. The ClariSure test is a laboratory-developed test that uses proprietary technologies and laboratory-developed arrays.
	We empower healthcare organizations and clinicians with information technology solutions that can improve patient care and medical practice. We develop differentiated products, such as ChartMaxx® and the Care360™ Physician Portal, that are designed to support the creation and management of electronic patient records, by bringing together, in one patient-centric view, information that includes physician’s records and laboratory and hospital data. Our Care360™ products, which are used by more than 125,000 physicians, enable physicians to order diagnostic tests and review test results online. In addition, the Care360 Physician Portal enables physicians to electronically prescribe medication, view clinical and administrative information from various sources, file certain documents into a patient-centric health record maintained in our repository and share confidential information with medical colleagues. We believe that these products enhance the value we provide to our customers and result in increased customer loyalty.
•	Expand our geographic reach. In addition to growth opportunities in the U.S., we see opportunities to expand our presence in the United Kingdom and Mexico and to bring our experience and expertise in diagnostic testing to international markets, particularly to developing countries where the testing markets are highly fragmented and less mature. During 2007 we established a presence in the growing market in India, and we will offer clinical testing for life insurance companies, clinical trials testing for global pharmaceutical companies and advanced esoteric testing for hospitals, physicians and patients.
•	Expand our diagnostic scope. Technology advances are enabling testing to move closer to the patient and are becoming increasingly available and reliable. This enables more timely and effective decisions, with the opportunity to improve patient care and reduce medical costs. Since July 2006, we have acquired three businesses that offer point-of-care, or near patient, testing: HemoCue, Focus Diagnostics and Enterix. We intend to expand their product menus, develop novel technology platforms and systems to meet the needs of our clients as well as pursue potential additional acquisitions to supplement our offering. We are developing electronic data links to our Care360 system, enabling the integration of tests performed in a near patient setting with those performed in our laboratories. We are well-positioned to offer choice and integrated solutions to physicians, hospitals, clinics and retail customers for the testing methods that are most appropriate for each patient and practice.

          In support of our strategy, in recent years we have undertaken several acquisitions. Our recent acquisitions are enabling us to expand our capabilities, further leverage our assets and differentiate our Company from our competition, diversify our revenues and accelerate our growth. We are focused on completing the successful integration of these acquisitions to realize their full value. We expect to continue to selectively evaluate acquisitions in the United States and in select international markets.

BUSINESS OPERATIONS

          Quest Diagnostics is the leading provider of diagnostic testing, information and services in the United States, providing insights that enable patients and physicians to make decisions to improve health services. We offer patients and physicians the broadest access to diagnostic testing services through our nationwide network of laboratories and owned patient service centers. The Company provides interpretive consultation through the largest medical and scientific staff in the industry, with approximately 900 M.D.s and Ph.D.s around the country. We are the leading provider of gene-based testing and other esoteric testing, anatomic pathology services, including dermatopathology, and testing for drugs-of-abuse. The Company is also a leading provider of testing for clinical trials, and risk assessment services for the life insurance industry. Our diagnostics products business manufactures and markets diagnostic test kits and specialized point-of-care testing. We empower healthcare organizations and clinicians with robust information technology solutions. Our activities are discussed below.

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          In 2007, our clinical testing business accounted for greater than 90% of our net revenues, with the balance derived from insurer services, clinical trials testing, diagnostic products and healthcare information technology. Most of our services are provided in the United States. Clinical testing includes routine testing, anatomic pathology, gene-based and esoteric testing and drugs-of-abuse testing, which generated approximately 55%, 15%, 18% and 3%, respectively, of our 2007 net revenues. Risk assessment services for the life insurance industry, clinical trials testing, diagnostic products and healthcare information technology combined generated approximately 9% of our 2007 net revenues. In 2007, we derived approximately 3% of our net revenues from foreign operations.

          Clinical Testing. Clinical testing is an essential element in the delivery of healthcare services. Physicians use clinical tests to assist in the detection, diagnosis, evaluation, monitoring and treatment of diseases and other medical conditions. Clinical testing is generally categorized as clinical laboratory testing and anatomic pathology services. Clinical laboratory testing is performed on body fluids, such as blood and urine. Anatomic pathology services are performed on tissues, including biopsies, and other samples, such as human cells. Many clinical tests are considered routine and can be performed by most commercial clinical laboratories. Tests that are not routine and that require highly skilled personnel and generally require more sophisticated equipment are considered esoteric tests. Esoteric tests, including gene-based tests, are generally referred to laboratories that specialize in performing those tests.

          We are the largest commercial clinical testing company in the U.S., with a leading position in most U.S. geographic markets and service offerings. We offer customers the broadest access in the nation to clinical and anatomic pathology testing, and the most extensive test menu. Including our joint ventures, we operate a network of approximately 2,100 of our own patient service centers, principal laboratories located in more than 30 major metropolitan areas throughout the United States and approximately 150 smaller “rapid-response” laboratories. We also operate approximately 40 outpatient anatomic pathology centers, and provide inpatient anatomic pathology and medical director services for hospitals throughout the U.S.

          We provide interpretive consultation through the largest medical and scientific staff in the industry, with approximately 900 M.D.s and Ph.D.s around the country. As testing methods become more complex, we believe that providing sound medical and scientific consultation regarding the correct application of tests and the correct interpretation of test results will help spur the adoption of new tests, improve patient outcomes and enhance client satisfaction. Our medical and scientific directors are available for consultation with our customers.

          Routine clinical testing. We are the leading provider in the United States of routine clinical testing, including testing for drugs-of-abuse.

          We perform routine testing through our network of major laboratories, rapid response laboratories and patient service centers. We also perform routine testing at the hospital laboratories we manage. Our major laboratories offer a full line of routine clinical tests. Rapid response laboratories are smaller facilities where we can quickly perform an abbreviated menu of routine tests for customers that require rapid turnaround times. Patient service centers are facilities where specimens are collected, and are typically located in or near a building used by medical professionals. We operate 24 hours a day, 365 days a year. We perform and report most routine tests within 24 hours. The majority of test results are delivered electronically.

          Routine tests measure various important bodily health parameters such as the functions of the kidney, heart, liver, thyroid and other organs. Commonly ordered tests include:

• blood chemistries, including cholesterol levels;

• complete blood cell counts;

• urinalyses;

• pregnancy and other prenatal tests;

• alcohol and other substance-abuse tests; and

• allergy tests such as the ImmunoCap^® test.

          Anatomic Pathology. We are the leading provider of anatomic pathology services, including dermatopathology, in the U.S. Anatomic pathology involves the diagnosis of cancer and other diseases and medical conditions through the examination of tissue and cell samples taken from patients. We provide anatomic pathology and other cancer diagnostic testing through our centers of excellence and approximately 40 outpatient anatomic pathology centers. Additionally, we provide inpatient anatomic pathology and medical director services for hospitals throughout the country. We have a substantial presence in target markets to deliver our services locally and enable our pathologists to establish strong relationships with our referring physician base.

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          We significantly strengthened our anatomic pathology services offering through our May 2007 acquisition of AmeriPath Group Holdings, Inc., (“AmeriPath”). We provide a full-range of cancer diagnostic services to all specialties including: dermatopathology, gastroenterology, hematology, urology and oncology. We have approximately 800 board-certified pathologists, including luminaries in their field, with a passion for and dedication to serving patients with the highest quality service.

          We have a strong history of leadership and innovation in cancer diagnostics. We introduced the Leumeta™ family of tests for leukemia and lymphoma. These are proprietary plasma-based molecular tests that may some day eliminate the need for painful bone marrow biopsies. We offer Pap testing using liquid-based technology in addition to conventional Pap testing and provide physicians the option of computer assisted Pap screening. We were among those leading the industry in educating physicians about molecular testing for human papilloma virus (“HPV”), the leading cause of cervical cancer.

          Gene-Based and Other Esoteric Testing. Gene-based and esoteric tests are typically ordered when a physician requires additional information to complete a diagnosis, establish a prognosis or choose or monitor a therapeutic regimen. Esoteric tests include procedures in the areas of molecular diagnostics, protein chemistry, cellular immunology and advanced microbiology. Commonly ordered esoteric tests include viral and bacterial detection tests, drug therapy monitoring tests, autoimmune panels and complex cancer evaluations. Esoteric tests are those tests that require professional “hands-on” attention from highly skilled technical personnel, that generally require more sophisticated technology, equipment or materials and that may be performed less frequently than routine tests. Consequently, esoteric tests are generally reimbursed at higher levels than routine tests. Because it is not cost-effective for most hospitals, independent laboratories or physician office laboratories to develop and perform a broad menu of esoteric tests, or to perform low-volume esoteric testing in-house, these tests generally are outsourced to an esoteric clinical testing laboratory, such as our Nichols Institute or Focus Diagnostics, that specializes in performing these complex tests.

          We are the leading provider in the United States of gene-based and other esoteric testing. We believe that we have the largest gene-based and esoteric testing business in the United States, with over $1.2 billion in net revenues during 2007. We conduct complex and specialized testing, including molecular diagnostics, on both coasts through our world renowned Nichols Institute laboratory facilities, which are among the leading esoteric clinical testing laboratories in the world.

          Our esoteric laboratories offer reference testing services to large academic medical centers, hospitals and commercial laboratories. Our esoteric testing laboratories perform hundreds of complex tests that are not routinely performed by our regional laboratories, generally in the following fields:

• endocrinology and metabolism (the study of glands, their hormone secretions and their effects on body growth and metabolism);

• genetics (the study of chromosomes, genes and their protein products and effects);

• hematology (the study of blood and bone marrow cells) and coagulation (the process of blood clotting);

• immunogenetics and human leukocyte antigens (HLA) (solid organ and bone marrow transplantation; eligibility for vaccines and immunotherapy);

• immunology (the study of the immune system including antibodies, immune system cells and their effects and autoimmune diseases);

• microbiology and infectious diseases (the study of microscopic forms of life including parasites, bacteria, viruses, fungi and other infectious agents);

• oncology (the study of abnormal cell growth including benign tumors and cancer);

• serology (a science dealing with body fluids and their analysis, including antibodies, proteins and other characteristics); and

• toxicology (the study of chemicals and drugs and their effects on the body’s metabolism).

          New test introduction. We are a leading innovator, bringing new and improved tests to the market. Gene-based and other esoteric tests are the fastest growing area within the diagnostic testing industry. We believe that the unveiling of the human genome and the linkages of genes and the proteins they produce with disease are resulting in, and will continue to result in, more complex and thorough predictive and diagnostic testing. We are well positioned to benefit from this growth. We intend to focus on commercializing diagnostic applications of discoveries in the areas of cancer, cardiovascular disease and infectious disease as well as functional genomics and proteomics, including the area of personalized medicine. We are committed to introducing clinically relevant and leading edge diagnostic tests. We bring tests to market that we develop as well as through relationships with diagnostic technology developers. We are a leader in

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transferring technical innovations to the market through our relationships with the academic community and pharmaceutical and biotechnology firms, as well as through collaborations with emerging medical technology companies that develop and commercialize novel diagnostics, pharmaceutical and device technologies. As the industry leader, we believe that we are the best partner for developers of new technology and tests to introduce their products to the marketplace.

          We focus our resources on key disease states, including cancer, cardiovascular disease and infectious disease, and technologies that will help doctors care for their patients through better screening, diagnosis, prognosis, treatment choice and monitoring. During 2007, we introduced new and improved assays and services, principally in the following areas:

• Oncology.

- We expanded our Leumeta™ family of plasma-based molecular leukemia and lymphoma tests, introducing four additional tests. As we reach critical mass with our proprietary Leumeta menu, we are planning collaborations with oncology centers on independent clinical studies to directly compare bone marrow cell-based tests with our Leumeta plasma-based tests. We have also added new fluorescence in situ hybridization, or FISH-based, tests to aid in prognosis and therapeutic response monitoring for multiple leukemia and lymphoma cancers.

- We developed and introduced an Alpha-Fetoprotein (AFP) and Glypican-3 tests to determine risk, diagnosis and prognosis of hepatocellular carcinoma (HCC). HCC is the fifth most common cancer in the world, and patients most at risk for this liver-based malignancy are those with chronic hepatitis B or C virus infections, and those with hepatic cirrhosis.

• Infectious Disease.

- We offer Hepascore™, a non-invasive test to predict significant liver fibrosis or cirrhosis in patients with viral hepatitis C. The test uses multiple variables to generate a score and the likelihood of each fibrosis stage.

- We introduced a test to detect posaconazole, an antifungal drug. The test is designed to avoid interference by another commonly used antifungal agent.

- We introduced the first commercially available laboratory test in the U.S. for detecting the mosquito-borne chikungunya virus. This test, which is performed using molecular polymerase chain reaction (PCR), will enable physicians to test patients who may have contracted the virus, such as individuals returning from regions in Africa and Asia where chikungunya is endemic.

• Genetics.

- Our new amino acid analysis test represents a major advance over prior quantitation techniques, essential in the diagnosis of metabolic disorders and nutritional deficiencies in children and adults. Employing a combination of Liquid Chromatography (LC) and Mass Spectrometry (MS), this new method can be used to measure and report up to 47 individual amino acids. For newborns, time and accuracy are critical, so this advance is especially helpful for pediatricians to diagnose inborn errors of metabolism that can impair a child’s mental and physical development.

- We have begun to introduce tests that employ a new micro-array technology known as Comparative Genomic Hybridization (CGH) to detect genomic alterations. We own the intellectual property underlying this micro-array technology, which is used to analyze information contained within an individual’s genetic makeup. CGH micro-array technologies compare and contrast a specimen’s DNA to the DNA of a healthy individual to identify, at a high resolution, extra or missing genetic material in the specimen. Our first CGH test, ClariSure, introduced to the market has been applied to the diagnosis of mental retardation and developmental delay (MR/DD). In 2008, we plan to expand the use of CGH technology to leukemia testing.

- We have developed automation of a genetic test to determine whether parents are carriers of the genetic mutation that causes Fragile X syndrome, the most common form of inherited mental retardation. This automation will enable broad-based population screening for Fragile X.

• Liquid Chromatography-Tandem Mass Spectrometry. We are a leader in improving the techniques and utilization of liquid chromatography-tandem mass spectrometry (LC-MS/MS) so it can be used in a high-volume routine testing environment for improved testing, monitoring and treatment of patients with steroidal and hormonal conditions. Using this platform, we developed and introduced a more accurate and sensitive 25-OH Vitamin D test as well as a testosterone test for hypogonadal males, women and children,

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	because in these patient populations, fluctuations in minute amounts of testosterone can have important health and treatment implications.
•	Transplant Care. We continue to expand our transplantation menu and support by developing and offering Chagas Disease screening and verification testing in addition to screening to improve the quality of the donor blood supply. Chagas is a parasitic-based disease most commonly found in rural Latin American countries. With the ease of travel to these areas, it is important to be able to screen the blood and tissue donor supply, as patients can be infected through organ or tissue transplantation or blood transfusion.
•	Coagulation. During 2007, the medical and other press highlighted the challenges establishing the correct initial dosing levels for patients being placed on warfarin (Coumadin®) therapy for a number of anti-clotting medical needs. We were ready with the Cytochrome P450 2C9 and VKORC1 Mutation Analysis test to determine an individual patient’s genetic factors that are important in predicting response and assist in dosing. Through our Nichols Institute website, we were the first reference laboratory to provide a web-link to the WarfarinDosing.org website to assist physicians in determining initial warfarin doses utilizing the genetic test and other factors. In 2007 we included the availability of medical consultation on difficult cases with specialized interpretation and results reports and showcased our expertise in a Case-Oriented Symposium on Bleeding and Thrombosis.

          We believe that offering a full range of gene-based and other esoteric tests, including new tests, strengthens our market offering and market position and enhances our reputation as the nation’s leading test provider.

          Clinical Trials Testing. We believe that we are the second largest provider of central laboratory testing performed in connection with clinical research trials on new drugs and vaccines. Clinical research trials are required by the U.S. Food and Drug Administration and other international regulatory authorities to assess the safety and efficacy of new drugs and vaccines. We have clinical trials testing centers in the United States and the United Kingdom, and we provide clinical trials testing in Australia, China and Singapore through affiliated laboratories. We are launching a clinical trials testing center in India. Approximately 45% of our net revenues from clinical trials testing in 2007 represented testing for GlaxoSmithKline plc (GSK). We are the primary provider of central laboratory testing to support GSK’s clinical trials testing requirements worldwide.

          Insurer and Employer Services. We believe that we are the largest provider of risk assessment services to the life insurance industry in the United States and Canada. Our risk assessment services comprise underwriting support services to the life insurance industry including teleunderwriting, specimen collection and paramedical examinations, clinical testing, medical record retrieval, case management, motor vehicle reports, telephone inspections, prescription histories and credit checks. The clinical tests performed and data gathered by us are specifically designed to assist an insurance company in objectively evaluating the mortality and morbidity risks posed by policy applicants. The majority of the testing is performed on specimens of individual life insurance policy applicants, but also includes specimens of individuals applying for other types of insurance policies. We also provide risk assessment services for insurance companies doing business in many countries outside the United States. We plan in 2008 to commence providing risk assessment services in India. We operate approximately 70 locations in the United States and Canada where we coordinate providing paramedical examinations. We also contract with third parties for these services at approximately 120 locations across the United States and Canada. We are actively performing paramedical examinations in select patient service centers because many life insurance applicants prefer this option to a home or workplace examination.

          We believe that we are the leading provider of clinical testing to employers for drugs-of-abuse. Our Drug Testing Index, which is an annual report of our aggregate drug testing results, is used nationally by employers, the federal government and the media to help understand and explain drug abuse among the nation’s workforce. We also provide wellness testing to employers to enable employees to take an active role in improving their health and empowering employers with aggregated health information. Our Blueprint for Wellness program offers employers actionable data to power their health improvement and cost containment programs.

          Diagnostic Products, Including Point-of-care, or Near Patient, Testing. Technology advances are enabling testing to move closer to the patient and are becoming increasingly available and reliable. Over time, some testing that is now done in clinical laboratories will cease to be performed in clinical laboratories and will be performed closer to the patient. We believe that our point-of-care testing strategy will strengthen our relationship with our customers by enabling us to offer more solutions that improve the effectiveness of our customers and the care of their patients by enabling faster diagnosis and treatment. We are well-positioned to offer options and integrated solutions to physicians, hospitals and clinics for the testing methods that are most appropriate for each patient and practice.

          We develop and manufacture products that enable healthcare professionals to make healthcare diagnoses, including products for point-of-care, or near patient, testing for the professional market. Since July 2006, we have acquired several companies, including Focus Diagnostics, Enterix, and HemoCue, that enhance our offerings and better enable us to serve these markets. We will consider additional acquisitions or licenses of selective products to complement

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the products and services we provide. We offer an electronic data link through our Care360 Physician Portal so that the results of the InSure^TM Quik FIT point-of-care tests, as well as tests performed by our laboratories, will be available in one electronic medical record. We intend to offer additional data links in the future. This will differentiate our point-of-care test products from other products that are not integrated into an electronic repository.

          Focus Diagnostics is a leading provider of infectious disease testing that has established a reputation for being first to introduce new tests to the market, including diagnostic tests for Lyme disease, West Nile Virus and SARS. Focus Diagnostics develops, manufactures and markets diagnostic products, such as HerpeSelect^® ELISA tests that detect patient antibodies to specific types of Herpes Simplex Virus, which can be performed on a variety of instrument platforms. Focus received Food and Drug Administration (“FDA”) 510(k) clearance to sell in the U.S. its new multiplexed Plexus^® product to detect type specific antibodies to herpes simplex virus. Focus has also submitted an application to the FDA for 510(k) clearance to allow U.S. sales of Plexus^® products for the detection of antibodies specific to Epstein-Barr virus. Both the Plexus^® products have received the CE mark and are available for purchase in European Union countries. Focus Diagnostics sells its diagnostic products to large academic medical centers, hospitals and commercial laboratories globally.

          Enterix, an Australia-based company, manufactures the InSure^TM fecal immunochemical (FIT) test for screening for colorectal cancer. It has developed and plans to release early in 2008 the InSure^TM Quik FIT test for point-of-care testing.

          HemoCue, headquartered in Angelholm, Sweden, specializes in point-of-care testing. HemoCue is the leading global provider in point-of-care testing for hemoglobin, with a growing market share for professional glucose and microalbumin testing. The measurement of hemoglobin is important for blood donors and for patients being considered for transfusion therapy, or undergoing dialysis or chemotherapy, where instant test results can lead to immediate treatment decisions. HemoCue’s handheld systems are used in physician’s offices, blood banks, hospitals, diabetes clinics and public health clinics. In developing countries these systems are used as the primary means to screen for anemia. Approximately one-half of HemoCue’s products are sold outside the United States. HemoCue has a strong product development pipeline, based on its pioneering use of its patented microfluidic systems.

          In October 2007, HemoCue received FDA 510(k) clearance for its White Blood Cell Analyzer, a whole-blood test performed on finger-stick samples that assist physicians diagnosing infection, inflammation, bone marrow failure, autoimmune diseases and many other medical conditions now routinely tested by reference laboratories. In addition, Focus Diagnostics received FDA 510(k) clearance for its HerpeSelect® Express™ HSV-2, a test for aiding in the diagnosis of herpes simplex type-2 virus, the primary cause of genital herpes. With 510(k) clearance for marketing, physicians who operate CLIA-certified moderately complex laboratories may now use these products to quickly produce results in a single office visit. These two tests will help physicians quickly determine the presence of an infection and allow physicians to make immediate treatment decisions for their patients. We have applied for CLIA-waived status for these two products and a microalbumin test which, if granted, would permit physicians to use these products in a much larger segment of physician offices.

          International. We have laboratory facilities in Mexico City, Mexico; San Juan, Puerto Rico; and Heston, England. These laboratories support our clinical trials business and clinical testing in their local markets. In addition, we have established operations in Gurgaon, India, that will support our business activities in that country. We see opportunities to bring our experience and expertise in diagnostic testing and point-of-care products to international markets, particularly developing countries where the testing markets are highly fragmented and less mature.

          Healthcare Information Technology. We empower healthcare organizations and clinicians with information technology solutions that can improve patient care and medical practice. We develop differentiated products that are designed to support the creation and management of patient records, by bringing together, in one patient-centric view, information from various sources, including physician’s records and laboratory and hospital data. We believe that these products enhance the value we provide to our customers and result in increased customer loyalty by providing more convenient ordering and reporting of clinical tests and better access to patient-centric information.

          We develop and integrate clinical connectivity and data management solutions for healthcare organizations, physicians and clinicians primarily through our Care360 suite of products and the ChartMaxx^® electronic document management system for hospitals. The Care360 products, including our Care360 Physician Portal, enable physicians to order diagnostic tests and review test results from Quest Diagnostics online. In addition, the Care360 Physician Portal enables physicians to electronically prescribe medication, view clinical and administrative information in a patient-centric record maintained in our repository and share confidential information with medical colleagues in a HIPAA-compliant manner. Demand has been growing for our information technology solutions as physicians have expanded their usage of the Internet. By the end of 2007, approximately 125,000 physicians were using our Care360 products and, excluding our recently acquired AmeriPath business, approximately 65% of our test orders and approximately 75% of our test results were being transmitted electonically. In December 2007, approximately 140,000 e-prescribing scripts were processed through Care360.

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          Additionally, we have recently acquired the capabilities to deploy a health information exchange system comprised of proprietary technologies that enable healthcare providers to access and manage a range of patient data from multiple sources at the point-of-care. These capabilities will enable us to provide solutions to the many health information exchanges that are being developed.

THE UNITED STATES CLINICAL TESTING MARKET

          Most clinical tests are performed by one of three types of laboratories: commercial clinical laboratories; hospital-affiliated laboratories; and physician-office laboratories. We believe that hospital-affiliated laboratories account for approximately 60% of the market, commercial clinical laboratories approximately one-third and physician-office laboratories the balance.

          Key Trends. There are a number of key trends that we expect to have a significant impact on the clinical testing business in the U.S. and on our business. These trends present both opportunities and risks. We believe that the industry will continue to grow over the long term and that we are well positioned to benefit from the long-term growth expected in the industry.

          Demographics. The growing and aging population is increasing the demand for clinical testing.

          Increased testing. We believe that we are entering the decade of diagnostics, moving to preventative care from curative care. Physicians increasingly are relying on testing to aid in the identification of risk factors and symptoms of disease, the choice of therapeutic regimen and the evaluation of treatment results. Physicians, consumers and payers increasingly recognize the value of testing as a means to improve health and reduce the overall cost of healthcare through early detection and prevention.

          Science and technology advances. Medical advancements allow for more accurate and earlier diagnosis and treatment of diseases. Continuing research and development in the area of genomics is expected to yield new, more sophisticated and specialized diagnostic tests.

          Health information technologies. Demand is growing toward comprehensive care management solutions that serve patients, payers and practitioners by improving access to patient data, increasing patient participation in care management, reducing medical errors and improving clinical outcomes. There is an increasing focus on interconnectivity and desire for real time data aggregation. Electronic medical records and patient health records continue to grow.

          Customer consolidation. Our customers, including health insurance plans, employers, pharmaceutical companies and other intermediaries, have been consolidating. We expect that this trend will continue. Consolidation is increasing customer bargaining power and enhancing their purchasing sophistication.

          Highly competitive. The clinical testing industry remains fragmented, is highly competitive and is subject to new competition. Competition is growing from non-traditional competitors. New market entrants with extensive resources may make acquisitions or expand into our traditional areas of operations. We also are expanding into new diagnostic testing areas that are highly competitive.

          Regulatory and policy environment. Government oversight of and attention to the healthcare industry in the United States is significant and may increase.

          Globalization. There is a growing demand for healthcare services in emerging market countries. Opportunities are arising to participate in the restructuring or growth of the healthcare systems in these countries. Additionally, our customers are establishing positions outside the United States. Demographic changes globally may also create opportunities.

          Customers and Payers. We provide testing services to a broad range of customers, with orders for clinical testing generally generated by physician offices, hospitals and employers. In most cases, the customer that orders the testing is not responsible for the payments of services. We consider a party that refers a test to us a “customer” and a party that reimburses us a “payer.” Depending on the billing arrangement and applicable law, the payer may be (1) a third party responsible for providing health insurance coverage to patients, such as a health insurance plan, self-insured employer benefit fund, or the traditional Medicare or Medicaid program, (2) the patient or (3) the physician or other party (such as a hospital, another laboratory or an employer) who referred the testing to us.

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          The following table shows current estimates of the breakdown of the percentage of our total volume of requisitions and net revenues associated with our clinical testing business during 2007 applicable to each payer group:

	Requisition Volume as % of Total Volume		Net Revenues as % of Total Clinical Laboratory Testing Net Revenues
Traditional Medicare and Medicaid Programs		15% - 20%		15% - 20%
Physicians, Hospitals, Employers and Other Monthly-Billed Clients		30% - 35%		20% - 25%
Health Insurance Plans: Fee-for-Service		30% - 35%		40% - 45%
Health Insurance Plans: Capitated		15% - 20%		5% - 10%
Patients		2% - 5%		5% - 10%

          Health insurers, including managed care organizations and other health insurance providers, which typically reimburse us as a contracted provider on behalf of their members for clinical testing services performed, represent approximately one-half of our net revenues from clinical testing. Reimbursement from our two largest health insurer payers totaled approximately 11% of our net revenues in 2007. Aetna, which accounted for over 6% of our consolidated net revenues for 2007, was our largest health insurer payer.

          Physicians. Physicians requiring testing for patients are the primary referral source of our clinical testing volume. Physicians determine which laboratory to recommend or use, based on a variety of factors, including service; patient access and convenience, including inclusion in a health plan network; price; and depth and breadth of test and service offering.

          Most of our clinical testing is referred by primary care physicians. We historically have provided a strong value proposition in routine and esoteric clinical testing. During 2007, we acquired AmeriPath, expanding our service capabilities. This will enable us to leverage our capabilities and to more effectively compete in several physician sub-specialties, including dermatology, urology, gastroenterology, hematology and oncology, where historically we had a smaller market share. We plan to continue to enhance our test menu and service capabilities.

          Health Insurance Plans. Health insurance plans, including fully insured and self-funded employers, typically negotiate directly or indirectly with a number of clinical laboratories, and represent approximately one-half of our total clinical testing volumes and one-half of our net revenues from clinical testing. In certain markets, such as California, health insurance plans may delegate to independent physician associations (“IPAs”) the ability to negotiate for clinical testing services on behalf of certain members. The trend of consolidation among health insurance plans has continued.

          Health insurance plans and IPAs often demand that clinical test service providers accept discounted fee structures or assume all or a portion of the financial risk associated with providing testing services through capitated payment arrangements and discounted fee-for-service arrangements. Under capitated payment arrangements, we provide services at a predetermined monthly reimbursement rate for each covered member, generally regardless of the number or cost of services provided by us. Average reimbursement rates under capitated payment arrangements are typically less than our overall average reimbursement rate. Health insurance plans continue to focus product offerings on point-of-service (“POS”) plans, and consumer driven health plans (“CDHPs”) that offer a greater choice of healthcare providers. Pricing for these programs is typically negotiated on a fee-for-service basis, which generally results in higher revenue per requisition than under capitation arrangements. Increased patients in CDHPs and high deductible plans involve greater patient cost-sharing; this could negatively impact patient collection experience.

          Most of our agreements with major health insurance plans are non-exclusive arrangements. Certain health insurance plans, however, have been increasingly willing to limit the laboratory network to only a single national laboratory to obtain improved pricing. In cases where members choose to use a non-contracted provider due to service, quality or convenience, the non-contracted provider is generally reimbursed at rates considered “reasonable and customary.” Contracted rates are generally lower than “reasonable and customary” rates because of the potential for greater volume as a contracted provider. A non-contracted clinical test service provider with quality and service preferred by physicians and patients to that of contracted providers could potentially realize greater profits than if it was a contracted provider, provided that physicians and patients continue to have choice in selecting their clinical test provider and any potential additional cost to the patient of using a non-contracted provider is not considered prohibitive.

          We also may be a member of a “complementary network.” A complementary network is generally a set of contractual arrangements that a third party will maintain with various providers that allow for discounted fees for the

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benefit of members of the customers that arrange access through the third party. A member of a health insurance plan may choose to access a non-contracted provider that is a member of a complementary network; if so, the provider will be reimbursed at a rate negotiated by the complementary network.

          We offer QuestNet^TM, a service in which we develop and administer customized networks of clinical test providers for health insurers. QuestNet^TM networks provide physicians and patients multiple choices for clinical testing. Health insurance plans that use these networks realize cost reductions by reducing testing performed by non-contracted providers and from simplified payment administration for clinical testing services.

          Hospitals and Other Laboratories. Hospitals generally maintain an on-site laboratory to perform testing on patients and refer less frequently needed and highly specialized procedures to outside laboratories, which typically charge the hospitals on a negotiated fee-for-service basis. Fee schedules for hospital reference testing are typically negotiated on behalf of the hospitals by group purchasing organizations. We believe that most hospital laboratories perform approximately 90% to 95% of their patients’ clinical tests. We provide services to hospitals throughout the United States that vary from esoteric testing, to helping manage their laboratories, to serving as the medical directors of the hospital’s histology or clinical laboratory. We believe that we are the industry’s market leader in servicing hospitals. Hospitals generally continue to look for ways to fully utilize their existing laboratory capacity: they perform tests needed by their patients and compete with commercial laboratories for outreach (non-hospital patients) testing. Continuing to obtain referrals from hospitals depends on our ability to provide high quality services that are more cost-effective than if the hospitals were to perform the services themselves. We believe that our combination of full-service, bi-coastal esoteric testing capabilities, medical and scientific professionals for consultation, innovative connectivity products, focus on Six Sigma quality and dedicated sales and service professionals has positioned us to be an attractive partner for hospital customers.

          Most physicians have admitting privileges or other relationships with hospitals as part of their medical practice. Many hospitals leverage their relationships with community physicians and encourage the physicians to send their outreach testing to the hospital’s laboratory. In addition, hospitals that own physician practices generally require the physicians to refer tests to the hospital’s affiliated laboratory. Hospitals can have greater leverage with health insurers than do commercial clinical laboratories, particularly hospitals that have a significant market share; hospitals thus are frequently able to negotiate higher reimbursement rates with health insurance plans than commercial clinical laboratories for comparable clinical testing services.

          We also have joint venture arrangements with leading integrated healthcare delivery networks in several metropolitan areas. These joint venture arrangements, which provide testing for affiliated hospitals as well as for unaffiliated physicians and other healthcare providers in their geographic areas, serve as our principal laboratory facilities in their service areas. Typically, we have either a majority ownership interest in, or day-to-day management responsibilities for, our hospital joint venture relationships.

          We also provide testing services to federal, state and local governmental agencies, and perform esoteric testing services for other commercial clinical laboratories that do not have a full range of testing capabilities. These customers are charged on a fee-for-service basis.

          Insurers and Employers. We provide services to life insurance companies and employers. Life insurance companies use clinical tests and other services we provide to assist in making policy issuance and premium rating decisions. Factors such as the number of applications for fully-underwritten life insurance policies can affect the utilization of clinical testing and other services we provide to our insurance customers. We seek to grow our insurance revenues by increasing our market share and by offering new and innovative clinical tests and other services. Our life insurance customers have been consolidating, which has resulted in increased individual customer purchasing power. We expect that this trend will continue. We charge our life insurance customers on a fee-for-service basis, typically under multi-year agreements.

          Employers use clinical tests for drugs-of-abuse to determine an individual’s employability and his or her “fitness for duty.” Companies with high turnover and safety conscious environments provide the highest volumes of testing. Factors such as the general economy and job market can impact the utilization of clinical testing. We seek to grow our employer volumes through offering new and innovative programs to help companies with their goal in maintaining a safe and productive workplace. One of these innovations is our Blueprint for Wellness program where we provide wellness screenings to employers and their employees.

GENERAL

          Sales and Marketing. Our sales force is organized to focus on customer groups and service types. The majority of representatives focus on marketing clinical laboratory testing, anatomic pathology and related services to physicians, including physician specialists. Supporting our physician sales teams are genomics and esoteric testing specialists, who are specially trained and focused on educating our clients on new and more complex tests. In addition,

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we have a health plan sales organization that focuses on regional and national insurance and healthcare organizations. We also have a hospital sales organization that focuses on meeting the unique clinical testing needs of hospitals and promotes the specialized capabilities of our Nichols Institute esoteric testing laboratories and our Focus Diagnostics infectious and immunologic disease testing laboratory. A smaller portion of our sales force focuses on selling substance-of-abuse and wellness testing to employers. We also have a sales force that focuses on selling risk assessment testing services to life insurance companies. In addition, we have a sales organization that focuses on selling diagnostic products to hospitals, commercial clinical laboratories, physician office laboratories, blood banks and clinics. We also have a sales force that focuses on our clinical trials services to drug developers. We focus our sales efforts on obtaining and retaining profitable accounts. We have an active customer management process to evaluate the growth potential and profitability of all accounts.

          Information Technology. Information systems are used extensively in virtually all aspects of our business, including clinical laboratory testing, test reporting, billing, customer service, logistics and management of medical data. We endeavor to establish systems that create value and efficiencies for our patients and customers. The successful delivery of our services depends, in part, on the continued and uninterrupted performance of our information technology systems.

          We have made substantial investments in our healthcare information technology systems, and believe that they help differentiate us. Innovations in our healthcare information technology have the potential to improve patient care, promote efficiency and reduce expense. Both at the federal and state levels, there are public and private efforts to bring together healthcare providers, information technology vendors and other stakeholders to facilitate the creation of standards for the exchange and use of electronic healthcare data, including standard clinical code sets. If certain healthcare data and information technology standards were adopted, we could be required to make substantial investments in our systems to comply with such standards or systems.

          Our systems may be vulnerable to damage from a variety of causes, including telecommunications or network failures, human acts and natural disasters. Moreover, despite the security measures we have implemented, our systems may be subject to physical or electronic break-in attempts, computer viruses and similar disruptive problems. We also have taken precautionary measures to prevent unanticipated problems that could affect our systems. Nonetheless, system failures, such as those that interrupt our ability to process test orders, deliver test results or perform tests in a timely manner, could adversely affect our reputation and result in a loss of customers and net revenues.

          Some of our historic growth has come through acquisitions and we continue to use non-standardized billing, laboratory or other core information systems. We have standardized some of our systems and are implementing standard laboratory information and billing systems across our operations, including those from our most recent acquisitions. We expect implementation will take several more years to complete, and will result in significantly more centralized systems, improve operating efficiency, provide management with more timely and comprehensive information and enhance control over our operational environment. Failure to properly implement the new systems could materially adversely affect our business. During system conversions of this magnitude, workflow is re-engineered to take advantage of best practices and enhanced system capabilities, which may cause temporary disruptions in service.

          Quality Assurance. In our clinical testing business, our goal is to continually improve the processes for collection, storage and transportation of patient specimens, as well as the precision and accuracy of analysis and result reporting. Our quality assurance efforts focus on positive patient identification of specimens and reports, proficiency testing, process audits, statistical process control and personnel training for all of our laboratories and patient service centers. We continue to implement our Six Sigma and standardization initiatives to help achieve our goal of becoming recognized as the undisputed quality leader in the healthcare services industry. In 1998, our Nichols Institute esoteric testing laboratory in California was the first clinical laboratory in North America to achieve International Organization for Standardization, or ISO, 9001 certification. Several other of our laboratories also are ISO certified. These certifications are international standards for quality management systems.

          We have extensive internal proficiency testing, quality control and audits for our clinical laboratory operations. Quality control samples are processed in parallel with the analysis of patient specimens. The results of tests on quality control samples are monitored to identify trends, biases or imprecision in our analytical processes. We also perform internal process audits as part of our comprehensive quality assurance program.

          We have external proficiency testing and accreditation for our clinical laboratory operations. All of our laboratories participate in various external quality surveillance programs. They include, but are not limited to, proficiency testing programs administered by the College of American Pathologists (“CAP”), as well as some state agencies. CAP is an independent, non-governmental organization of board-certified pathologists approved by the Centers for Medicare and Medicaid Services (“CMS”) to inspect clinical laboratories to determine compliance with the standards required by the Clinical Laboratory Improvement Amendments of 1988. CAP offers an accreditation program to which laboratories may voluntarily subscribe. All of our major regional and esoteric laboratories and most of our rapid response laboratories are accredited by CAP. Accreditation includes on-site inspections and participation in the CAP (or equivalent) proficiency testing program. Also, all of our

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cytotechnologists and pathologists participate in an individual proficiency testing program.

          Our diagnostic products businesses maintain extensive quality assurance programs focused on compliance with applicable regulatory requirements in the United States, Europe and Australia. Focus Diagnostics, Enterix and HemoCue maintain sites certified in accordance with, or audited to, ISO 13485.

          Intellectual Property Rights. We own significant intellectual property, including patents, patent applications, technology, trade secrets, know-how, copyrights and trademarks in the United States and other countries. Our Company also is licensed under U.S. and non-U.S. patents, patent applications, technology, trade secrets, know-how, copyrights and trademarks owned by others. In the aggregate, these intellectual property assets and licenses are of material importance to our business. We believe, however, that no single patent, technology, trademark, intellectual property asset or license is material to our business as a whole.

          Our approach is to manage our intellectual property assets to safeguard them and to maximize their value to our enterprise. We generally actively defend our intellectual property assets and pursue protection on our products, processes and other intellectual property where possible.

          Our success in remaining a leading innovator in the diagnostic testing industry by continuing to introduce new tests, technology and services will depend, in part, on our ability to license new and improved technologies on favorable terms. Other companies or individuals, including our competitors, may obtain patents or other property rights on tests or processes that we may be performing, particularly in such emerging areas as gene-based testing and other specialty testing, that could prevent, limit or interfere with our ability to develop, perform or sell our tests or operate our business. As a result, we may be involved in intellectual property litigation and we may be found to infringe on the proprietary rights of others, which could force us to do one or more of the following:

• cease developing, performing or selling products or services that incorporate the challenged intellectual property;

• obtain and pay for licenses from the holder of the infringed intellectual property right;

• redesign or reengineer our tests;

• change our business processes; or

• pay substantial damages, court costs and attorneys’ fees, including potentially increased damages for any infringement held to be willful.

          Competition. While there has been significant consolidation in the clinical testing industry in recent years, our industry remains fragmented and highly competitive. We primarily compete with three types of clinical testing providers: hospital-affiliated laboratories, other commercial clinical laboratories and physician-office laboratories. Our largest independent clinical laboratory competitor is Laboratory Corporation of America Holdings, Inc. In addition, we compete with many smaller regional and local commercial clinical laboratories, specialized esoteric laboratories and laboratories owned by physicians and hospitals. In anatomic pathology, additional competitors include anatomic pathology practices, including those in academic institutions. In addition, there has been a trend among specialty physician practices to bring pathologists into those practices.

          We believe that healthcare providers consider a number of factors when selecting a testing provider, including:

• service capability and quality;

• accuracy, timeliness and consistency in reporting test results;

• pricing;

• patient insurance coverage;

• number and type of tests performed by the provider;

• number, convenience and geographic coverage of patient service centers;

• reputation in the medical community;

• healthcare information technology solutions;

• qualifications; and

• ability to develop new and useful tests.

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          We believe that we are an effective competitor in each of these areas. We also believe that the differentiation we are creating through our focus on a superior patient experience, Six Sigma quality, unparalleled access and distribution, the most comprehensive test menu and innovative test and information technology offerings provide us with a competitive advantage and enables us to compete on more than price alone.

          We believe that large commercial clinical laboratories may be able to increase their share of the overall clinical testing market due to their large service networks and lower cost structures. These advantages should enable larger clinical laboratories to more effectively serve large customers and members of large healthcare plans. In addition, we believe that consolidation in the clinical testing industry will continue. However, a significant portion of clinical testing is likely to continue to be performed by hospitals, which generally have affiliations with community physicians that refer testing to us. As a result of these affiliations, we compete against hospital-affiliated laboratories primarily on the basis of service capability and quality as well as other non-pricing factors. Our failure to provide service superior to hospital-affiliated laboratories and other laboratories could have a material adverse effect on our net revenues and profitability. In addition, recent market activity, including actions by payers to exclude large national clinical laboratories from contracts, may enhance the relative competitive position of regional laboratories.

          The diagnostic testing industry is faced with changing technology and new product introductions. Advances in technology may lead to the development of more cost-effective tests that can be performed outside of a commercial clinical laboratory such as (1) point-of-care tests that can be performed by physicians in their offices; (2) complex tests that can be performed by hospitals in their own laboratories; and (3) home testing that can be carried out without requiring the services of clinical laboratories. Development of such technology and its use by our customers and patients would reduce the demand for our laboratory testing services and negatively impact our net revenues. However, as a result of our point-of-care test strategy, we believe that we are well positioned to service this market for physicians and hospitals. We also believe that our overall point-of-care test strategy will strengthen our relationship with our customers by enabling us to offer more solutions that improve their effectiveness and the care of their patients by enabling faster diagnosis and treatment.

          The diagnostic product market is highly competitive. We have many competitors, some of which have much more extensive experience in this market and some of which have greater resources than our Company. We compete in this area by attempting to find and exploit unique differentiated products, including products that take advantage of our healthcare information technology solutions. There is no guarantee that we will be able to compete successfully in this market.

          Employees. At December 31, 2007, we employed approximately 43,500 people. This total excludes employees of the joint ventures where we do not have a majority interest. We have no collective bargaining agreements with any unions covering any employees in the United States, and we believe that our overall relations with our employees are good.

BILLING AND REIMBURSEMENT

          Billing. We generally bill for clinical testing services on a fee-for-service basis under one of two fee schedules. These fees are generally subject to negotiation with or discounted to non-governmental payers. The fee schedules are:

• “Client” fees charged to physicians, hospitals, and institutions for which a clinical laboratory performs testing services on a wholesale basis and which are billed on a monthly basis.

• “Patient” fees charged to individual patients and third-party payers, like Medicare and Medicaid.

          Billing for clinical testing services is very complicated, so we have compliance policies and procedures that increase our billing costs. Patients, insurance companies, Medicare, Medicaid, physicians, hospitals and employer groups all have different billing requirements. Billing arrangements require us to bill various payers. We incur additional costs as a result of our participation in Medicare and Medicaid programs because clinical laboratory testing and anatomic pathology services are subject to complex, stringent and frequently ambiguous federal and state laws and regulations, including those relating to billing and reimbursement. These regulatory requirements increase costs related to: (1) the complexity of our billing processes; (2) training and education of our employees and customers; (3) compliance and legal costs; and (4) costs related to, among other factors, medical necessity denials and advance beneficiary notices. Changes in laws and regulations could further complicate our billing and increase our billing expense. CMS establishes procedures and continuously evaluates and implements changes to the reimbursement process. Other factors that complicate billing include:

• differences between our fee schedules and the reimbursement rates of the payers;

• disparity in coverage and information requirements among various payers;

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• missing, incomplete or inaccurate billing information provided by ordering physicians;

• state laws that dictate who and when we must bill for services;

• billings to payers with whom we do not have contracts; and

• disputes with payers as to which party is responsible for payment.

          In 2007, our bad debt expense was 4.5% of our net revenues. We believe that most of our bad debt expense is primarily the result of missing or incorrect billing information on requisitions received from healthcare providers and the failure of patients to pay the portion of the receivable that is their responsibility, rather than credit related issues. In general, we perform the requested tests and report test results regardless of whether the billing information is incorrect or missing. We subsequently attempt to contact the healthcare provider or patient to obtain any missing information and to rectify incorrect billing information. Missing or incorrect information on requisitions complicates and slows down the billing process, creates backlogs of unbilled requisitions and generally increases the aging of accounts receivable and bad debt expense. The increased use of electronic ordering reduces the incidence of missing or incorrect information.

          Billing Compliance. As an integral part of our billing compliance program, we investigate reported failures or suspected failures to comply with federal and state healthcare reimbursement requirements. Any Medicare or Medicaid overpayments resulting from non-compliance are reimbursed by us. As a result of these efforts, we have periodically identified and reported overpayments, reimbursed the overpayments and taken appropriate corrective action.

          Penalties for violations of laws relating to billing federal healthcare programs and for violations of federal and state fraud and abuse laws include: (1) exclusion from participation in Medicare/Medicaid programs; (2) asset forfeitures; (3) civil and criminal fines and penalties; and (4) the loss of various licenses, certificates and authorizations necessary to operate our business. Civil monetary penalties for a wide range of violations are not more than $10,000 per violation plus three times the amount claimed and, in the case of kickback violations, not more than $50,000 per violation plus up to three times the amount of remuneration involved. A parallel civil remedy under the federal False Claims Act provides for damages not more than $11,000 per violation plus up to three times the amount claimed.

          Government Reimbursements. The healthcare industry has experienced significant changes in reimbursement practices during the past several years. Government payers, such as Medicare and Medicaid, have taken steps and may continue to take steps to control the cost, utilization and delivery of healthcare services, including clinical test services. With regard to the clinical test services performed on behalf of Medicare beneficiaries, we must bill the Medicare program directly and must accept the carrier’s fee schedule amount as payment in full. In addition, state Medicaid programs are prohibited from paying more (and in most instances, pay significantly less) than Medicare. Currently, Medicare does not require the beneficiary to pay a co-payment for clinical laboratory testing. Certain Medicaid programs require Medicaid recipients to pay co-payment amounts for clinical laboratory testing. Medicare patients generally are required to make co-payments for anatomic pathology services.

          Federal law contains a Medicare fee schedule payment methodology for clinical testing services performed for patients covered under Part B of the Medicare program, and a national ceiling on the amount that carriers could pay under their local Medicare fee schedules. Federal law also contains a Medicare fee schedule payment methodology for pathology and other physician services performed for patients covered under Part B of the Medicare program. These laws are periodically adjusted, but an adjustment to the national fee schedule for clinical testing services based on the consumer price index cannot occur before January 1, 2009. In December 2007, Congress changed the national physician fee schedule, replacing the scheduled 10% cut to the physician fee reimbursement rate with a 0.5% increase through June 30, 2008 and maintaining through June 30, 2008 the ability of independent clinical laboratories to bill Medicare directly for the technical component of certain pathology services provided to hospitals. We expect that Congress will take up the issue of the fee schedules again in 2008, and we cannot predict whether they will change. If Medicare fee schedules are reduced, or if independent clinical laboratories are prohibited from billing Medicare directly for the technical component of pathology services provided to hospitals, it could have a material adverse effect on our business.

          Average Medicare reimbursement is not materially different than our overall average reimbursement rate from other third party fee for service payers. Despite the added cost and complexity of participating in the Medicare and Medicaid programs, we continue to participate in such programs because we believe that our other business may depend, in part, on continued participation in these programs, since certain customers may want a single laboratory capable of performing all of their clinical testing services, regardless of who pays for such services.

          We are generally permitted to bill Medicare beneficiaries directly for statutorily excluded clinical testing services. An advance beneficiary notice (“ABN”) is a notice signed by the beneficiary which documents the patient’s informed decision to personally assume financial liability for clinical tests which are likely to be denied and not reimbursed by Medicare because they are deemed to be not medically necessary (these tests include limited coverage tests for which the ordering physician did not provide an appropriate diagnosis code and certain tests ordered on a patient at a frequency greater than covered by Medicare). If a Medicare beneficiary signs an ABN, we are also generally permitted to bill the

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beneficiary for clinical tests that Medicare does not cover due to “medical necessity” limitations. We do not have any direct contact with most of these patients and, in such cases, cannot control the proper use of the ABN by the physician or the physician’s office staff, who must obtain the ABN on our behalf. If the ABN is not timely provided to the beneficiary or is not completed properly, we may end up performing tests that we cannot subsequently bill to the patient if payment is denied by Medicare due to coverage limitations. CMS is currently considering potential changes to rules regarding ABN’s that may effectively increase the number of tests that we cannot subsequently bill to the patient.

          Clinical laboratories that bill Medicare or Medicaid could be excluded from participation in any federal healthcare programs if it is determined that they have submitted bills or requests from payment for items or services substantially in excess of the laboratory’s usual charges for such items or services without good cause. The Department of Health and Human Services Office of Inspector General has periodically proposed to define the terms “substantially in excess” and “usual charges,” but has not done so.

          CMS is permitted to adjust statutorily prescribed fees for clinical test services if the standard rules by which those payments are calculated will result in fees that are “grossly excessive.” CMS rules set forth a process and factors for establishing a “realistic and equitable” payment amount for clinical test services under Medicare Part B (and services paid under a prospective payment system) if existing payment amounts are determined to be inherently unreasonable; payment amounts may be considered unreasonable if they are either grossly excessive or deficient. Under CMS rules, if CMS or a carrier determines that an overall payment adjustment of less than 15% is needed to produce a realistic and equitable payment amount, then the payment amount is not considered “grossly excessive or deficient.” However, if a determination is made that a payment adjustment of 15% or more is justified, CMS could provide an adjustment of less than 15%, but not more than 15%, in any given year. Fees payable by Medicare could be reduced prospectively as a result of the application of these rules.

          Historically, most Medicare and Medicaid beneficiaries were covered under the traditional Medicare and Medicaid programs directly administered by the federal government. Over the last several years, the federal government has sponsored programs to expand private health insurance options for Medicare beneficiaries and has encouraged such beneficiaries to switch from the traditional programs to the private programs, called “Medicare Advantage” programs. There has been rapid growth of health insurance plans offering Medicare Advantage programs and of beneficiary enrollment in these plans. In recent years, in an effort to control costs, states also have increasingly mandated that Medicaid beneficiaries enroll in private managed care arrangements. If these efforts continue to be successful, we may experience a further shift of traditional Medicare and Medicaid beneficiaries to private health insurance options.

          Reduced Utilization of Clinical Testing. Government payers, such as Medicare and Medicaid, have taken steps and may continue to take steps to control the utilization and delivery of healthcare services, including clinical test services. Medicare carriers have adopted policies under which they do not pay for many commonly ordered clinical tests unless the ordering physician has provided an appropriate diagnosis code supporting the medical necessity of the test. Physicians are required by law to provide diagnostic information when they order clinical tests for Medicare and Medicaid patients.

          Medicare Administrative Contractors. Historically, many different local intermediaries administered Medicare Part A and many different local carriers administered Medicare Part B (which covers services provide by independent clinical laboratories). Carriers often had inconsistent policies on matters such as: (1) test coverage; (2) automated chemistry panels; (3) diagnosis coding; (4) claims documentation; and (5) fee schedules (subject to the national fee schedule limitations). Inconsistent carrier rules and policies increase the complexity of the billing process for clinical laboratories. Federal law requires Medicare contracting reform. All historic intermediaries and carriers are being replaced, using a competitive bidding process, with Medicare Administrative Contractors who will handle both Part A and Part B. Approximately one half of the Medicare Administrative Contractors have been selected. It is expected that the revised system, when completed, will reduce the administrative complexity of billing for services provided to Medicare beneficiaries.

          Competitive Bidding. CMS is required to conduct a demonstration project to determine whether competitive bidding can be used to provide clinical testing services for Medicare beneficiaries at fees below current Medicare payment rates while maintaining quality and access to care. CMS will conduct two separate demonstrations in isolated markets. The first will be conducted in the Metropolitan Statistical Area composed of the San Diego-Carlsbad-San Marcos, California area beginning in 2008. Under a plan announced by CMS in December 2007, bids were due February 15, 2008, winners will be selected in April 2008 and the pilot will begin July 1, 2008. CMS has not yet identified the site of the second competitive bidding demonstration project.

          The industry remains concerned about the general lack of responsiveness by CMS to industry concerns and questions regarding the demonstration project and continues discussing with members of Congress and Committee staffs industry concerns regarding quality, patient access and CMS’ flawed implementation of the demonstration project. We believe that clinical testing services are not commodities and that the quality of services and access to those services could be adversely impacted by implementation of competitive bidding. In an effort to delay or stop the demonstration project,

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the Company, other industry participants and several professional societies are supporting a complaint filed in the United States District Court for the Southern District of California in January 2008 on behalf of three local laboratories.

          President Bush recently proposed a fiscal 2009 federal budget that includes savings of approximately $2.4 billion over five years by establishing competitive bidding for clinical laboratory services provided to Medicare beneficiaries. If competitive bidding were implemented on a regional or national basis for clinical testing, it could materially adversely affect the clinical testing industry and us.

REGULATION

          The Company’s business is subject to or impacted by extensive and frequently changing laws and regulations, including inspections and audits by governmental agencies, in the United States (including at both the federal and state levels) and the other jurisdictions in which the Company engages in business. We also must comply with other laws and regulations, including in the United States and in the other jurisdictions in which we engage in business, that apply to conducting business generally (e.g., the U.S. Foreign Corrupt Practices Act and similar laws of other jurisdictions). Set forth below are highlights of the key regulatory schemes applicable to the Company’s business.

          CLIA and State Clinical Laboratory Licensing Regulations. All of our laboratories and, where applicable, patient service centers are licensed and accredited by the appropriate federal and state agencies. The Clinical Laboratories Improvement Amendments of 1988 (“CLIA”) regulates virtually all clinical laboratories by requiring that they be certified by the federal government and comply with various operational, personnel and quality requirements intended to ensure that the services provided are accurate, reliable and timely. The cost of compliance with CLIA makes it cost prohibitive for many physicians to operate clinical laboratories in their offices. However, manufacturers of laboratory equipment and test kits could seek to increase their sales by marketing point-of-care test equipment to physicians and by selling to both physicians and patients test kits approved by the FDA for home use. Diagnostic tests approved or cleared by the FDA for home use are automatically deemed to be “waived” tests under CLIA and may be performed in physician office laboratories with minimal regulatory oversight under CLIA as well as by patients in their homes.

          CLIA does not preempt state laws that are more stringent than federal law. State laws may require additional personnel qualifications, quality control, record maintenance and/or proficiency testing. State laws also may require detailed review of our scientific validations and technical procedures for each test before approval for use or marketing of services.

          Fraud and Abuse Rules. Federal anti-kickback laws and regulations prohibit making payments or furnishing other benefits to influence the referral of tests billed to Medicare, Medicaid or certain other federal healthcare programs. The penalties for violation of these laws and regulations may include monetary fines, criminal and civil penalties and/or suspension or exclusion from participation in Medicare, Medicaid and other federal healthcare programs. Several states have similar laws.

          In addition, federal and state anti-self-referral laws generally prohibit Medicare and Medicaid payments for clinical tests referred by physicians who have a personal investment in, or a compensation arrangement with, the testing laboratory. Many states have similar anti-self-referral and other laws that are not limited to Medicare and Medicaid referrals and could also affect investment and compensation arrangements with physicians.

          Under federal regulations implementing safe harbors to the federal anti-kickback laws and exceptions to the federal anti-self-referral laws, certain donors (but not laboratories) may provide e-prescribing items and services to referral sources at no charge, and a broader range of donors (including laboratories) may provide a broader range of electronic health records information technology software and services (including e-prescribing) conditioned on the recipient’s payment of at least fifteen percent (15%) of the cost of the donated software and services and compliance with other conditions.

          Drug Testing. The Substance Abuse and Mental Health Services Administration (“SAMHSA”) regulates drug testing for public sector employees and employees of certain federally regulated businesses. All laboratories that perform such testing must be certified as meeting SAMHSA’s detailed performance and quality standards. All of our laboratories that perform such testing are so certified.

          Controlled Substances. The federal Drug Enforcement Administration (“DEA”) regulates access to controlled substances used to perform drugs-of-abuse testing in the United States. To obtain access to controlled substances, laboratories must be licensed by the DEA. All of our laboratories in the United States that use controlled substances are licensed by the DEA.

          Medical Waste, Hazardous Waste and Radioactive Materials. Clinical laboratories in the United States are subject to federal, state and local regulations relating to the handling and disposal of regulated medical waste, hazardous waste and radioactive materials. We generally use outside vendors to dispose of such waste and contractually require

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them to comply with applicable laws and regulations.

          FDA. The FDA has regulatory responsibility over instruments, test kits, reagents and other devices used to perform diagnostic testing by clinical laboratories in the United States. The FDA also regulates testing that we perform for clinical trials, drugs-of-abuse testing for employers, testing for blood bank purposes and testing of donors of human cells for purposes such as in vitro fertilization. In the past, the FDA has claimed regulatory authority over all laboratory-developed tests, but it has stated that it is exercising enforcement discretion in not regulating most laboratory-developed tests performed by high complexity CLIA-certified laboratories. However, the FDA may be changing its stance regarding a subset of laboratory-developed tests. The FDA has issued a guidance document, still in draft form, describing certain laboratory-developed tests that FDA calls “In Vitro Diagnostic Multivariate Index Assays” that the FDA may regulate as medical devices. If the FDA regulates these tests as medical devices it can impose extensive requirements on them and the laboratories that offer this subset of laboratory-developed tests. Many of the esoteric tests that we develop internally are first offered as laboratory-developed tests. FDA regulation of a subset of laboratory-developed tests or increased regulation of the various medical devices used in laboratory-developed testing would lead to increased regulatory burden and additional costs and delays in introducing new tests, including genetic tests, and may prevent us from marketing certain new products or services. The FDA also recently finalized a guidance document relating to Analyte Specific Reagents which could restrict laboratory access to certain products now available or increase the costs of those products if, in response to its adoption, manufacturers voluntarily withdraw their products from the market.

          Our diagnostic product business is subject to regulation by the FDA, as well as by foreign governmental agencies, including countries within the European Union who have adopted the Directive on In Vitro Diagnostic Medical Devices (“IVDD”). These agencies enforce laws and regulations that govern the development, testing, manufacturing, labeling, advertising, marketing, distribution and market surveillance of diagnostic products. Prior to marketing or selling most diagnostic products, currently we are required to secure clearance or approval from the FDA and (when appropriate) counterpart non-U.S. regulatory agencies, although the IVDD allows us to market in Europe many products using a process in which the manufacturer certifies that the device conforms to the regulatory and quality requirements for the device. Following the introduction of a diagnostic product into the market, the FDA and non-U.S. agencies engage in periodic reviews of the manufacturing processes and product performance. Compliance with these regulatory controls can affect the time and cost associated with the development, introduction and continued availability of new products. These agencies possess the authority to take various administrative and legal actions against us, such as fines, product suspensions, submission of warning letters, recalls, product seizures, injunctions and other civil and criminal sanctions. Where appropriate, voluntary compliance actions, such as voluntary recalls, may be undertaken.

          Occupational Safety. The federal Occupational Safety and Health Administration (“OSHA”) has established extensive requirements relating specifically to workplace safety for healthcare employers in the United States. This includes requirements to develop and implement multi-faceted programs to protect workers from exposure to blood-borne pathogens, such as HIV and hepatitis B and C, including preventing or minimizing any exposure through sharps or needle stick injuries.

          Transportation. For purposes of transportation, most clinical laboratory specimens and some laboratory supplies are considered hazardous materials subject to regulation by the Department of Transportation, the Public Health Service, the United States Postal Service and the International Air Transport Association.

          Corporate Practice of Medicine. Many states, including some in which our businesses are located, prohibit business corporations from engaging in the practice of medicine. In certain states, business corporations are prohibited from employing licensed healthcare professionals to provide services on behalf of the corporation; these rules vary from state to state. The manner in which licensed physicians can be organized to perform medical services may be governed by the laws of the state in which medical services are provided and by the medical boards or other entities authorized by these states to oversee the practice of medicine. In some states, anatomic pathology services are delivered through physician-owned entities that employ the practicing pathologists.

          Contracts and Relationships with Physicians. In our anatomic pathology business, we employ pathologists. Many of our pathologists enter into an employment agreement. These agreements have varying terms, but generally can be terminated at any time, upon advance notice. Most of the agreements contain covenants generally limiting the activities of the pathologist within a defined geographic area for a limited period of time after termination of employment. The agreements may be subject to limitations under state law that may limit the enforceability of these covenants.

          Our pathologists are required to hold a valid license to practice medicine in the jurisdiction in which they practice. If they provide inpatient services, they must become a member of the medical staff at the relevant hospital, with privileges in pathology.

          Fee-Splitting. Some states restrict the splitting or sharing of fees between physicians and non-physicians. These laws may apply to some of the arrangements that we have with pathologists; the laws vary from state to state.

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          Privacy and Security of Health Information; Standard Transactions. Pursuant to the Health Insurance Portability and Accountability Act (HIPAA), federal regulators have issued regulations regarding protecting the privacy and security of certain healthcare information and standards for electronic healthcare transactions in the United States.

          The privacy regulations establish comprehensive federal standards regarding the uses and disclosures of protected health information by health plans, healthcare providers and healthcare clearinghouses. The regulations establish a complex regulatory framework on a variety of subjects, including:

• the circumstances under which uses and disclosures of protected health information are permitted or required without a specific authorization by the patient, including but not limited to treatment purposes, activities to obtain payment for our services and our healthcare operations activities;

• a patient’s rights to access, amend and receive an accounting of certain disclosures of protected health information;

• the content of notices of privacy practices for protected health information; and

• administrative, technical and physical safeguards required of entities that use or receive protected health information.

          We have implemented practices to meet the requirements of the HIPAA privacy regulations, which restrict our ability to use or disclose patient-identifiable healthcare information without patient authorization, for purposes other than payment, treatment or healthcare operations (as defined by HIPAA), except for disclosures for various public policy purposes and other permitted purposes. We also must comply with more stringent state laws, where such laws exist. In addition, for healthcare data transfers relating to citizens of other countries, we need to comply with the laws of those other countries.

          The HIPAA security regulations establish requirements for safeguarding electronic patient information. We have implemented policies and standards to comply with these regulations. The HIPAA electronic transactions regulations establish uniform standards for electronic transactions and code sets, including the electronic transactions and code sets used for billing claims, remittance advices, enrollment and eligibility. We have completed conversion to the required standard format for our electronic fee-for-service claim transactions and our electronic fee-for-service remittance transactions.

          HIPAA regulations on adoption of national provider identifiers require healthcare providers to adopt new, unique identifiers for reporting on claims transactions. We are completing compliance with these regulations by obtaining the required information from our physician clients, and expect that the process will continue through 2008.

          Compliance. We seek to conduct our business in compliance with all applicable laws and regulations. Many of the laws and regulations applicable to us, however, including those relating to billing and reimbursement of tests and those relating to relationships with physicians and hospitals, are vague or indefinite and have not been interpreted by the courts. They may be interpreted or applied by a prosecutorial, regulatory or judicial authority in a manner that could require us to make changes in our operations, including our pricing and/or billing practices. The applicability or interpretation of laws and regulations also may not be clear in light of emerging changes in clinical testing science and healthcare technology. Such occurrences, regardless of their outcome, could, among other things:

• increase our operating costs including, but not limited to, those costs associated with performing clinical or anatomic tests or manufacturing or distributing products, and administrative requirements related to billing;

• decrease the amount of reimbursement related to testing services performed;

• damage our reputation; or

• adversely affect important business relationships with third parties.

          If we fail to comply with applicable laws and regulations, we could suffer civil and criminal penalties, fines, exclusion from participation in governmental healthcare programs and the loss of various licenses, certificates and authorizations necessary to operate our business, as well as incur additional liabilities from third party claims, all of which could have a material adverse effect on our business. Certain federal and state statues, regulations and other laws, including the qui tam provisions of the federal False Claims Act, allow private individuals to bring lawsuits against healthcare companies on behalf of government payers, private payers and/or patients alleging inappropriate billing practices.

          The federal or state governments may bring claims based on theories as to our current practices that we believe are lawful. The federal government has substantial leverage in negotiating settlements since the amount of potential damages far exceeds the rates at which we are reimbursed, and the government has the remedy of excluding a non-

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compliant provider from participation in the Medicare and Medicaid programs, which represented approximately 17% of our net revenues during 2007. We believe that, based on our experience with government settlements and public announcements by various government officials, the federal government continues to strengthen its position on health fraud. In addition, legislative provisions relating to health fraud and abuse give federal enforcement personnel substantially increased funding, powers and remedies to pursue suspected cases of fraud and abuse.

          We have a long-standing and well-established compliance program. The Quality, Safety & Compliance Committee of our Board of Directors oversees our compliance program and requires periodic management reports regarding our compliance program. Our program emphasizes the development of training programs intended to ensure the strict implementation and observance of all applicable laws, regulations and Company policies. Further, we conduct in-depth reviews of procedures and facilities to assure regulatory compliance throughout our operations. We conduct annual training of our employees on these compliance policies and procedures.

AVAILABLE INFORMATION

          We file annual, quarterly and current reports, proxy statements and other information with the Securities and Exchange Commission (SEC). You may read and copy any document that we file with the SEC at the SEC’s public reference room at 100 F Street, NE, Washington, DC 20549. Please call the SEC at 1-800-SEC-0330 for information regarding the public reference room. The SEC maintains an internet site that contains annual, quarterly and current reports, proxy and information statements and other information that issuers (including Quest Diagnostics) file electronically with the SEC. Our electronic SEC filings are available to the public at the SEC’s internet site, www.sec.gov.

          Our internet site is www.questdiagnostics.com. You can access Quest Diagnostics’ Investor Relations webpage at www.questdiagnostics.com/investor. We make available free of charge, on or through our Investor Relations webpage, our Company’s proxy statements, Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and any amendments to those reports filed or furnished pursuant to the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as soon as reasonably practical after such material is filed with, or furnished to, the SEC. We also make available, through our Investor Relations webpage, statements of beneficial ownership of our equity securities filed by our directors, officers, 10% or greater shareholders and others under Section 16 of the Exchange Act.

          We have a corporate governance webpage. You can access information regarding our corporate governance at www.questdiagnostics.com/governance. We post the following on our corporate governance webpage:

• Code of Business Ethics

• Integrity Commitment

• Values

• Corporate Governance Guidelines

• Charters for our Audit and Finance Committee, Compensation Committee, Executive Committee, Governance Committee and Quality, Safety and Compliance Committee

• Certificate of Incorporation

• Bylaws

          You can request a copy of these documents, including exhibits, at no cost, by contacting Investor Relations, 3 Giralda Farms, Madison, New Jersey 07940 (973-520-2700). The information on our website is not incorporated by reference into this Report.

Item 1A. Risk Factors

          You should carefully consider all of the information set forth in this Report, including the following risk factors, before deciding to invest in any of our securities. The risks below are not the only ones that we face. Additional risks not presently known to us, or that we presently deem immaterial, may also negatively impact us. Our business, financial condition, results of operations or cash flows could be materially impacted by any of these factors.

          This Report also includes forward-looking statements that involve risks or uncertainties. Our results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including the risks we face described below and elsewhere. See “Cautionary Factors that May Affect Future Results” on page 27.

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The clinical testing business is highly competitive, and if we fail to provide an appropriately priced level of service or otherwise fail to compete effectively it could have a material adverse effect on our net revenues and profitability.

          While there has been significant consolidation in recent years in the clinical testing business, it remains a fragmented and highly competitive industry.

          We primarily compete with three types of clinical test providers: hospital-affiliated laboratories, other independent clinical laboratories and physician-office laboratories. We also compete with anatomic pathology practices and large physician group practices. Hospitals generally maintain on-site laboratories to perform testing on their patients (inpatient or outpatient). In addition, many hospitals compete with independent clinical laboratories for outreach (non-hospital patients) testing. Most physicians have admitting privileges or other relationships with hospitals as part of their medical practice and hospitals may seek to leverage their relationships with community physicians and encourage the physicians to send their outreach testing to the hospital’s laboratory. In addition, hospitals that own physician practices generally require the physicians to refer tests to the hospital’s laboratory. As a result of this affiliation between hospitals and community physicians, we compete against hospital-affiliated laboratories primarily based on quality of service. Our failure to provide a broad test menu or service superior to hospital-affiliated laboratories and other laboratories could have a material adverse effect on our business.

          If we fail to compete effectively, our business could be adversely affected and our net revenues and profitability could be damaged.

Government payers, such as Medicare and Medicaid, have taken steps to control the utilization and pricing of healthcare services, including clinical test services.

          We face efforts by government payers to reduce utilization and pricing for clinical testing services.

          From time to time, Congress has legislated reductions in, or frozen updates to, the Medicare Clinical Laboratory Fee Schedule. In addition, CMS has adopted policies limiting or excluding coverage for clinical tests that we perform. We also are subject to Congressional mandates, such as a mandate for Medicare to conduct a demonstration project to determine whether competitive bidding for clinical test services can reduce costs without adversely impacting quality and beneficiary access to services. We also provide physician services which are reimbursed by Medicare under a physician fee schedule, which is subject to adjustment on an annual basis. CMS changes add to our costs by increasing complexity and administrative requirements. Medicaid reimbursement varies by state and is subject to administrative and billing requirements and budget pressures.

          In addition, over the last several years, the federal government has sponsored programs to expand private health insurance programs for Medicare beneficiaries, called “Medicare Advantage” programs, and has encouraged such beneficiaries to switch from the traditional programs to the private programs. There has been rapid growth of health insurance plans offering Medicare Advantage programs, and of beneficiary enrollment in these programs. Also in recent years, states have increasingly mandated that Medicaid beneficiaries enroll in private managed care arrangements. If these efforts continue to be successful, we may experience a further shift of traditional Medicare and Medicaid beneficiaries to private health insurance options.

          We expect efforts to reduce reimbursements, to impose more stringent cost controls and to reduce utilization of clinical test services will continue. These efforts, including changes in law or regulations, may have a material adverse impact on our business.

Healthcare insurers have taken steps to control the utilization and pricing of healthcare services, including clinical test services.

          We also face efforts by non-governmental third party payers, including healthcare insurance plans, to reduce utilization and pricing for clinical testing services.

          The healthcare industry has experienced a trend of consolidation among healthcare insurance plans, resulting in fewer but larger insurance plans with significant bargaining power to negotiate fee arrangements with healthcare providers, including clinical laboratories. These healthcare insurance plans, and independent physician associations, may demand that clinical laboratories accept discounted fee structures or assume all or a portion of the financial risk associated with providing testing services to their members through capitated payment arrangements. In addition, some healthcare insurance plans have been willing to limit the PPO or POS laboratory network to only a single national laboratory to obtain improved fee-for-service pricing. There are also more patients in consumer driven products and high deductible plans that involve greater patient cost-sharing.

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          The increased consolidation among healthcare insurers also has increased the potential risk of ceasing to be a contracted provider with any such insurer.

          We expect efforts to reduce reimbursements, to impose more stringent cost controls and to reduce utilization of clinical test services will continue. These efforts, including future changes in third-party payer rules, practices and policies, or ceasing to be a contracted provider to a healthcare insurer, may have a material adverse effect on our business.

Business development activities are inherently risky, and integrating our operations with businesses we acquire may be difficult and, if unsuccessfully executed, may have a material adverse effect on our business.

          We plan selectively to enhance our business from time to time through business development activities, such as strategic acquisitions, licensing, investments and alliances. However, these enhancement plans are subject to the availability of appropriate opportunities and competition from other companies seeking similar opportunities. Moreover, the success of any such effort may be affected by a number of factors, including our ability to properly assess and value the potential business opportunity, and to integrate it into our business. The success of our strategic alliances depends not only on our contributions and capabilities, but also on the property, resources, efforts and skills contributed by our strategic partners. Further, disputes may arise with strategic partners, due to conflicting priorities or conflicts of interests.

          Each acquisition involves the integration of a separate company that previously operated independently and has different systems, processes and cultures. Integration of acquisitions involves a number of risks including the diversion of management’s attention to the assimilation of the operations of businesses we have acquired, difficulties in the integration of operations and systems and the realization of potential operating synergies, the assimilation and retention of the personnel of the acquired companies, challenges in retaining the customers of the combined businesses, and potential adverse effects on operating results. The process of combining companies may be disruptive to both of our businesses and may cause an interruption of, or a loss of momentum in, such businesses as a result of the following difficulties, among others:

• loss of key customers or employees;

• difficulty in standardizing information and other systems;

• difficulty in consolidating facilities and infrastructure;

• failure to maintain the quality of services that our Company has historically provided;

• diversion of management’s attention from the day-to-day business of our Company as a result of the need to deal with the foregoing disruptions and difficulties; and

• the added costs of dealing with such disruptions.

          In addition, integration of clinical testing companies is further complicated because most clinical testing is performed under arrangements that are terminable at will or on short notice. Thus, an acquisition may result in a customer’s decision to stop using us for clinical testing.

          If we are unable successfully to integrate strategic acquisitions in a timely manner, our business and our growth strategies could be negatively affected. Even if we are able to successfully complete the integration of the operations of other companies or businesses we may acquire in the future, we may not be able to realize all or any of the benefits that we expect to result from such integration, either in monetary terms or a timely manner.

Our business could be negatively affected if we are unable successfully to continue to improve our efficiency.

          As noted above, government payers and healthcare insurers have taken steps to control the utilization and pricing of healthcare services, including clinical testing services, and such steps may continue. If we are unable to continue to improve our efficiency to enable us to mitigate these activities, our business could be negatively affected.

Adverse resolution of the investigation related to NID may cause us material losses and have an adverse impact on our client base and reputation.

          NID and the Company each received a subpoena from the United States Attorney’s Office for the Eastern District of New York during the fourth quarter of 2004. The subpoenas requested a wide range of business records, including documents regarding parathyroid hormone (“PTH”) test kits manufactured by NID and PTH testing performed by the Company. The Company has voluntarily and actively cooperated with the investigation, providing information, witnesses and business records of NID and the Company, including documents related to PTH tests and test kits, as well as other tests and test kits. In the second and third quarters of 2005, the FDA conducted an inspection of NID and issued a Form 483 listing the observations made by the FDA during the course of the inspection. NID responded to the Form 483.

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          During the third quarter of 2007, the government and the Company began settlement discussions. In the course of those discussions, the government has disclosed to the Company certain of the government’s legal theories regarding the amount of damages allegedly incurred by the government, which include alleged violations of civil and criminal statutes including the False Claims Act and the Food, Drug and Cosmetics Act. Violations of these statutes and related regulations could lead to a warning letter, injunction, fines or penalties, exclusion from federal health care programs and/or criminal prosecution, as well as claims by third parties. The Company has analyzed the government’s position and presented its own analysis which argued against many of the government’s claims. In light of that analysis and based on the status of settlement discussions, the Company has established a reserve, in accordance with generally accepted accounting principles, reflected in discontinued operations, of $241 million in connection with these claims. Of the total reserve, $51 million and $190 million was recorded in the third and fourth quarters, respectively, of 2007. The Company estimates that the amount reserved represents the minimum expected probable loss with respect to this matter. The Company does not believe that a reasonable estimate for these losses in excess of the established reserve can be made at this time. The Company has recorded a deferred tax benefit associated with that portion of the reserve that it expects will be tax deductible. Eventual losses related to these matters may substantially exceed the reserve, and the impact could be material to the Company’s results of operations, cash flows and financial condition in the period that such matters are determined or paid.

          The Company continues to engage in discussions with the United States Attorney’s Office and those discussions potentially could lead to an agreement in principle to resolve some or all of the matters in the near future. There can be no assurance, however, when or whether a settlement may be reached, or as to its terms. If the Company cannot reach an acceptable settlement agreement with the United States Attorney’s Office, the Company would defend itself and NID and could incur significant costs in doing so.

We are subject to numerous legal and regulatory requirements governing our activities, and we may face substantial fines and penalties, and our business activities may be impacted, if we fail to comply.

          The Company’s business is subject to or impacted by extensive and frequently changing laws and regulations in the United States (including at both the federal and state levels), and the other jurisdictions in which the Company engages in business. While we seek to conduct our business in compliance with all applicable laws, many of the laws and regulations applicable to us are vague or indefinite and have not been interpreted by the courts, including those relating to:

• billing and reimbursement of clinical tests;

• certification of clinical laboratories;

• the anti-self-referral and anti-kickback laws and regulations;

• the laws and regulations administered by the U.S. Food and Drug Administration;

• the corporate practice of medicine;

• operational, personnel and quality requirements intended to ensure that clinical testing services are accurate, reliable and timely;

• physician fee splitting;

• relationships with physicians and hospitals;

• safety and health of laboratory employees; and

• handling, transportation and disposal of medical specimens, infectious and hazardous waste and radioactive materials.

          These laws and regulations may be interpreted or applied by a prosecutorial, regulatory or judicial authority in a manner that could require us to make changes in our operations, including our pricing and/or billing practices. We may not be able to maintain, renew or secure required permits, licenses or any other regulatory approvals needed for the operation of our business. If we fail to comply with applicable laws and regulations, or if we fail to maintain, renew or obtain necessary permits and licenses, we could suffer civil and criminal penalties, fines, exclusion from participation in governmental healthcare programs and the loss of various licenses, certificates and authorizations necessary to operate our business, as well as incur additional liabilities from third party claims. If any of the foregoing were to occur, our reputation could be damaged, important business relationships with third parties could be adversely affected and it could have a material adverse effect on our business.

          We regularly receive requests for information, and occasionally subpoenas, from governmental authorities. We also are subject from time to time to qui tam claims brought by former employees or other “whistle blowers.” The federal government continues to strengthen its position and scrutiny over healthcare fraud. In addition, legislative provisions

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relating to healthcare fraud and abuse give federal enforcement personnel substantially increased funding, powers and remedies to pursue suspected fraud and abuse. The federal government has substantial leverage in negotiating settlements since the amount of potential damages far exceeds the rates at which we are reimbursed for our products and services, and the government has the remedy of excluding a non-compliant provider from participation in the Medicare and Medicaid programs, which represented approximately 17% of our consolidated net revenues for the year ended December 31, 2007. Regardless of merit or eventual outcome, these types of investigations and related litigation can result in:

• diversion of management time and attention;

• expenditure of large amounts of cash on legal fees, costs and payment of damages;

• limitations on our ability to continue some of our operations;

• enforcement actions, fines and penalties or the assertion of private litigation claims and damages;

• decreased demand for our services and products; and

• injury to our reputation.

          Although we believe that we are in compliance, in all material respects, with applicable laws and regulations, there can be no assurance that a regulatory agency or tribunal would not reach a different conclusion. Any noncompliance by us with applicable laws and regulations could have a material adverse impact on our results of operations. Moreover, even when an investigation is resolved favorably, the process may be time consuming and the legal costs and diversion of management focus may be extensive.

          Changes in applicable laws and regulations may result in existing practices becoming more restricted, or subject our existing or proposed services and products to additional costs, delay, modification, withdrawal or reconsideration. Such changes could require us to modify our business objectives and could have a material adverse impact on the Company’s business.

Failure to timely or accurately bill for our services could have a material adverse effect on our business.

          Billing for clinical test services is extremely complicated and is subject to extensive and non-uniform rules and administrative requirements. Depending on the billing arrangement and applicable law, we bill various payers, such as patients, insurance companies, Medicare, Medicaid, physicians, hospitals and employer groups. Changes in laws and regulations could increase the complexity and cost of our billing process. Additionally, auditing for compliance with applicable laws and regulations as well as internal compliance policies and procedures adds further cost and complexity to the billing process. Further, our billing systems require significant technology investment and, as a result of marketplace demands, we need to continually invest in our billing systems.

          Missing or incorrect information on requisitions adds complexity to and slows the billing process, creates backlogs of unbilled requisitions, and generally increases the aging of accounts receivable and bad debt expense. We believe that much of our bad debt expense in recent years is attributable to the lack of, or inaccurate, billing information. Failure to timely or correctly bill may lead to our not being reimbursed for our services or an increase in the aging of our accounts receivable, which could adversely affect our results of operations and cash flows. Failure to comply with applicable laws relating to billing federal healthcare programs could lead to various penalties, including (1) exclusion from participation in Medicare/Medicaid programs; (2) asset forfeitures; (3) civil and criminal fines and penalties; and (4) the loss of various licenses, certificates and authorizations necessary to operate our business, any of which could have a material adverse effect on our results of operations or cash flows.

Failure in our information technology systems, including failures resulting from our systems conversions, could disrupt our operations and cause the loss of customers or business opportunities.

          Information technology (IT) systems are used extensively in virtually all aspects of our business, including clinical testing, test reporting, billing, customer service, logistics and management of medical data. Our success depends, in part, on the continued and uninterrupted performance of our IT systems. IT systems may be vulnerable to damage from a variety of sources, including telecommunications or network failures, human acts and natural disasters. Moreover, despite the security measures we have implemented, our IT systems may be subject to physical or electronic break-ins, computer viruses and similar disruptive problems. We also have taken precautionary measures to prevent unanticipated problems that could affect our IT systems. Nevertheless, we may experience damages to our systems, and system failures and interruptions.

          In addition, we are in the process of implementing standard laboratory information and billing systems, which we expect will take several years to complete. Failure to properly implement this standardization process could materially adversely affect our business. During system conversions of this type, workflow is re-engineered to take advantage of best practices and enhanced system capabilities, which may cause temporary disruptions in service. In addition, the

23

implementation process, including the transfer of databases and master files to new data centers, presents significant conversion risks that need to be managed carefully.

          If we experience systems problems, including with our implementation of standard laboratory or billing systems, they may interrupt our ability to operate. For example, the problems may impact our ability to process test orders, deliver test results or perform or bill for tests in a timely manner. If our operations are interrupted, it could adversely affect our reputation and result in a loss of customers and net revenues.

Failure to develop, or acquire licenses for, new tests, technology and services could negatively impact our testing volume and net revenues.

          The diagnostics testing industry is faced with changing technology and new product introductions. Other companies or individuals, including our competitors, may obtain patents or other property rights that would prevent, limit or interfere with our ability to develop, perform or sell our tests or operate our business or increase our costs. In addition, they could introduce new tests that may result in a decrease in the demand for our tests or cause us to reduce the prices of our tests. Our success in continuing to introduce new tests, technology and services will depend, in part, on our ability to license new and improved technologies on favorable terms. We may be unable to develop or introduce new tests. We also may be unable to continue to negotiate acceptable licensing arrangements, and arrangements that we do conclude may not yield commercially successful diagnostic tests. If we are unable to license these testing methods at competitive rates, our research and development costs may increase as a result. In addition, if we are unable to develop and introduce, or license, new tests, technology and services to expand our esoteric testing business, our testing methods may become outdated when compared with our competition and our testing volume and revenue may be materially and adversely affected.

The development of new, more cost-effective tests that can be performed by our customers or by patients could negatively impact our testing volume and net revenues.

          Advances in technology may lead to the development of more cost-effective tests that can be performed outside of an independent clinical laboratory such as (1) point-of-care tests that can be performed by physicians in their offices, (2) esoteric tests that can be performed by hospitals in their own laboratories or (3) home testing that can be performed by patients in their homes or by physicians in their offices. Although the CLIA compliance costs make it cost prohibitive for many physicians to operate clinical laboratories in their offices, manufacturers of laboratory equipment and test kits could seek to increase their sales by marketing point-of-care test equipment to physicians. Diagnostic tests approved or cleared by the FDA for home use are automatically deemed to be “waived” tests under CLIA and may be performed in physician office laboratories with minimal regulatory oversight under CLIA as well as by patients in their homes. Test kit manufacturers could seek to increase sales to both physicians and patients of test kits approved by the FDA for point-of-care testing or home use. Development of such technology and its use by our customers would reduce the demand for our laboratory-based testing services and negatively impact our net revenues.

Our outstanding debt may impair our financial and operating flexibility.

          As of December 31, 2007, we had approximately $3.4 billion of long-term debt outstanding. Except for outstanding letters of credit and operating leases, we do not have any off-balance sheet financing arrangements in place or available. Our debt agreements contain various restrictive covenants. These restrictions could limit our ability to use operating cash flow in other areas of our business because we must use a portion of these funds to make principal and interest payments on our debt. We have obtained ratings on our debt from Standard and Poor’s and Moody’s Investor Services. There can be no assurance that any rating so assigned will remain for any given period of time or that a rating will not be lowered or withdrawn entirely by a rating agency if in that rating agency’s judgment future circumstances relating to the basis of the rating, such as adverse changes in our Company or our industry, so warrant. If such ratings are lowered, the borrowing costs on our senior unsecured revolving credit facility, secured receivables facility and term loan would increase. Changes in our credit ratings, however, do not require repayment or acceleration of any of our debt.

          We or our subsidiaries may incur additional indebtedness in the future. Our ability to make principal and interest payments will depend on our ability to generate cash in the future. If we incur additional debt a greater portion of our cash flows may be needed to satisfy our debt service obligations and if we do not generate sufficient cash to meet our debt service requirements, we may need to seek additional financing. In this case, it may be more difficult, or we may be unable, to obtain financing on terms that are acceptable to us. As a result, we would be more vulnerable to general adverse economic, industry and capital markets conditions as well as the other risks associated with indebtedness.

Our ability to attract and retain qualified employees is critical to the success of our business and the failure to do so may materially adversely affect our performance.

          Our people are a critical resource and competition for qualified employees is strong. If we were to lose, or to fail to attract and retain, key management personnel or qualified skilled technical or professional employees at our clinical laboratories, research centers or manufacturing facilities, the Company’s earnings and revenues could be adversely affected. In addition, if we were to lose, or to fail to attract and retain, skilled pathologists with positive relationships with

24

their respective local medical communities, particularly those with subspecialties, the Company’s earnings and revenues could be adversely affected.

Failure to establish, and perform to, appropriate quality standards to assure that the highest level of quality is observed in the performance of our testing services and in the design, manufacture and marketing of our products could adversely affect the results of our operations and adversely impact our reputation.

          The provision of clinical testing services, including anatomic pathology services, and related services, and the design, manufacture and marketing of diagnostic products involve certain inherent risks. The services that we provide and the products that we design, manufacture and market are intended to provide information for healthcare providers in providing patient care. Therefore, users of our services and products may have a greater sensitivity to errors than the users of services or products that are intended for other purposes.

          Manufacturing or design defects, unanticipated use of our products, or inadequate disclosure of risks relating to the use of the product can lead to injury or other adverse events. These events could lead to recalls or safety alerts relating to our products (either voluntary or required by governmental authorities) and could result, in certain cases, in the removal of a product from the market. Any recall could result in significant costs as well as negative publicity that could reduce demand for our products. Personal injuries relating to the use of our products can also result in product liability claims being brought against us. In some circumstances, such adverse events could also cause delays in new product approvals.

          Similarly, negligence in performing our services can lead to injury or other adverse events. We may be sued under physician liability or other liability law for acts or omissions by our pathologists, laboratory personnel and hospital employees who are under the supervision of our hospital-based pathologists. We are subject to the attendant risk of substantial damages awards and risk to our reputation.

The failure of our IT systems to keep pace with technological advances may significantly reduce our revenues or increase our expenses.

          Public and private initiatives to create healthcare information technology (HCIT) standards and to mandate standardized clinical coding systems for the electronic exchange of clinical information, including test results, could require costly modifications to our existing HCIT systems. While we do not expect HCIT standards to be adopted or implemented without adequate time to comply, if we fail to adopt or delay in implementing HCIT standards, we could lose customers and business opportunities.

Our operations and reputation may be impaired if we do not adequately secure information.

          In our business, we generate or maintain sensitive information, such as patient data. If we do not adequately safeguard that information and it were to become available to persons or entities that should not have access to it, our business could be impaired and our reputation could suffer.

We are subject to numerous political, legal, operational and other risks as a result of our international operations which could impact our business in many ways.

          Although we conduct most of our business in the U.S., our expanding international operations increase our exposure to the inherent risks of doing business in international markets. Depending on the market, these risks include, without limitation:

• changes in the local economic environment;

• political instability;

• social changes;

• intellectual property legal protections and remedies;

• trade regulations;

• procedures and actions affecting approval, production, pricing, reimbursement and marketing of products and services;

• exchange controls;

• weak legal systems which may affect our ability to enforce contractual rights;

• changes in local laws or regulations; and

• potentially longer payment and collection cycles.

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          International operations also require us to devote significant management resources, to implement our controls and systems in new markets, to comply with the U.S. Foreign Corrupt Practices Act and similar laws in local jurisdictions and to overcome challenges based on differing languages and cultures.

          We expect to expand further our international operations, through acquisition or otherwise, which would increase these risks. As a result of these risks, our financial condition or results of operations could be materially adversely affected.

Our operations may be adversely impacted by the effects of natural disasters such as hurricanes and earthquakes, hostilities or acts of terrorism and other criminal activities.

          Our operations may be adversely impacted by the effects of natural disasters such as hurricanes and earthquakes, hostilities or acts of terrorism or other criminal activities. Such events may result in a temporary decline in the number of patients who seek clinical testing services. In addition, such events may temporarily interrupt our ability to transport specimens, to receive materials from our suppliers or otherwise to provide our services.

Adverse results in material litigation could have an adverse financial impact and an adverse impact on our client base and reputation.

          We are involved in various legal proceedings arising in the ordinary course of business including, among other things, disputes as to intellectual property, professional liability and employee-related matters, as well as inquiries from governmental agencies and Medicare or Medicaid carriers regarding billing issues. Some of the proceedings against us involve claims that are substantial in amount and could divert management’s attention from operations. The proceedings also may result in substantial monetary damages, as well as damage to our reputation, and decrease the demand for our services and products, all of which could have a material adverse effect on our business. We do not have insurance or are substantially self-insured for a significant portion of any liability with respect to such claims. The ultimate outcome of the various proceedings or claims could have a material adverse effect on our financial condition, results of operations or cash flows in the period in which the impact of such matters is determined or paid.

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CAUTIONARY FACTORS THAT MAY AFFECT FUTURE RESULTS

Some statements and disclosures in this document are forward-looking statements. Forward-looking statements include all statements that do not relate solely to historical or current facts and can be identified by the use of words such as “may”, “believe”, “will”, “expect”, “project”, “estimate”, “anticipate”, “plan” or “continue.” These forward-looking statements are based on our current plans and expectations and are subject to a number of risks and uncertainties that could cause our plans and expectations, including actual results, to differ materially from the forward-looking statements. Investors are cautioned not to unduly rely on such forward-looking statements when evaluating the information presented in this document. The following important factors could cause our actual financial results to differ materially from those projected, forecasted or estimated by us in forward-looking statements:
	(a)	Heightened competition from independent clinical testing companies, and from hospitals with respect to testing for non-patients and from physicians.
	(b)	Increased pricing pressure from customers and payers.
	(c)	Impact of changes in payer mix, including any shift from fee-for-service to discounted or capitated fee arrangements.
	(d)	Adverse actions by government or other third-party payers, including unilateral reduction of fee schedules payable to us, competitive bidding, and an increase in the practice of negotiating for exclusive arrangements that involve aggressively priced capitated or fee for service payments by health insurers or other payers.
	(e)	The impact upon our testing volume and collected revenue or general or administrative expenses resulting from our compliance with Medicare and Medicaid administrative policies and requirements of third party payers. These include:
		(1)	the requirements of Medicare carriers to provide diagnosis codes for many commonly ordered tests and the possibility that third party payers will increasingly adopt similar requirements;
		(2)	the policy of CMS to limit Medicare reimbursement for tests contained in automated chemistry panels to the amount that would have been paid if only the covered tests, determined on the basis of demonstrable “medical necessity,” had been ordered;
		(3)	continued inconsistent practices among the different local carriers administering Medicare;
		(4)	inability to obtain from patients an advance beneficiary notice form for tests that cannot be billed without prior receipt of the form; and
		(5)	increased challenges in operating as a non-contracted provider with respect to healthcare insurers.
	(f)	Adverse results from pending or future government investigations, lawsuits or private actions. These include, in particular, monetary damages, loss or suspension of licenses, and/or suspension or exclusion from the Medicare and Medicaid programs and/or criminal penalties.
	(g)	Failure to efficiently integrate acquired businesses, and to manage the costs related to any such integration, or to retain key technical, professional or management personnel.
	(h)	Denial of CLIA certification or other licenses for any of our clinical laboratories under the CLIA standards, revocation or suspension of the right to bill the Medicare and Medicaid programs or other adverse regulatory actions by federal, state and local agencies.
	(i)	Changes in federal, state or local laws or regulations, including changes that result in new or increased federal or state regulation of commercial clinical laboratories or tests developed by commercial clinical laboratories, including regulation by the FDA.
	(j)	Inability to achieve expected benefits from our acquisitions of other businesses.
	(k)	Inability to achieve additional benefits from our Six Sigma and efficiency initiatives.
	(l)	Adverse publicity and news coverage about the clinical testing industry or us.
	(m)	Computer or other IT system failures that affect our ability to perform tests, report test results or properly bill customers, including potential failures resulting from the standardization of our IT systems and other system conversions, telecommunications failures, malicious human acts (such as electronic break-ins or computer viruses) or natural disasters.
	(n)	Development of technologies that substantially alter the practice of clinical test medicine, including

27

	technology changes that lead to the development of more cost-effective tests such as (1) point-of-care tests that can be performed by physicians in their offices, (2) esoteric tests that can be performed by hospitals in their own laboratories or (3) home testing that can be carried out without requiring the services of clinical laboratories.
(o)	Issuance of patents or other property rights to our competitors or others that could prevent, limit or interfere with our ability to develop, perform or sell our tests or operate our business.
(p)	Development of tests by our competitors or others which we may not be able to license, or usage of our technology or similar technologies or our trade secrets by competitors, any of which could negatively affect our competitive position.
(q)	Regulatory delay or inability to commercialize newly licensed tests or technologies or to obtain appropriate reimbursements for such tests.
(r)	Inability to obtain or maintain adequate patent and other proprietary rights protections of our products and services or to successfully enforce our proprietary rights.
(s)	Impact of any national healthcare information network and the adoption of standards for health information technology interoperability that are incompatible with existing software and hardware infrastructure requiring widespread replacement of systems and/or software.
(t)	Inability to promptly or properly bill for our services or to obtain appropriate payments for services that we do bill.
(u)	Changes in interest rates and changes in our credit ratings from Standard & Poor’s and Moody’s Investor Services causing an unfavorable impact on our cost of and access to capital.
(v)	Inability to hire and retain qualified personnel or the loss of the services of one or more of our key senior management personnel.
(w)	Terrorist and other criminal activities, hurricanes, earthquakes or other natural disasters, which could affect our customers, transportation or systems, or our facilities, and for which insurance may not adequately reimburse us.

Item 1B. Unresolved Staff Comments

          There are no unresolved SEC comments that require disclosure.

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Item 2. Properties

          Our executive offices are located in Madison, New Jersey. We maintain clinical testing laboratories in major metropolitan areas and elsewhere throughout the continental United States; in several instances a joint venture of which we are a partner maintains the laboratory. We also maintain offices, a data center, billing centers, call centers, an assembly center, distribution centers, and a clinical trials testing laboratory at locations throughout the United States. In addition, we maintain offices, manufacturing facilities and clinical laboratories in locations outside the United States, including in Sweden, Puerto Rico, Mexico, the United Kingdom, India and Australia. Our properties that are not owned are leased on terms and for durations that are reflective of commercial standards in the communities where these properties are located. We believe that, in general, our facilities are suitable and adequate for our current and anticipated future levels of operation and are adequately maintained. We believe that if we were unable to renew a lease on any of our facilities, we could find alternative space at competitive market rates and relocate our operations to such new location without material disruption to our business. Several of our principal facilities are highlighted below.

Location	Leased or Owned
Phoenix, Arizona	Leased by Joint Venture
Long Beach, California (Cypress, California)	Leased
Los Angeles, California	Leased
Sacramento, California	Leased
San Jose, California	Leased
San Juan Capistrano, California	Owned
Valencia, California	Leased
Denver, Colorado	Leased
New Haven, Connecticut	Owned
Washington, D.C. (Chantilly, Virginia)	Leased
Miami, Florida (2)	One owned, one leased
Tampa, Florida	Owned
Atlanta, Georgia	Owned
Chicago, Illinois (2)	One owned, one leased
Indianapolis, Indiana	Leased by Joint Venture
Kansas City, Kansas	Owned
New Orleans, Louisiana	Owned
Baltimore, Maryland	Owned
Boston, Massachusetts	Leased
Detroit, Michigan	Leased
St. Louis, Missouri	Owned
Las Vegas, Nevada	Owned
New York, New York (Teterboro, New Jersey)	Owned
Long Island, New York	Leased
Cincinnati, Ohio	Owned
Dayton, Ohio	Leased by Joint Venture
Oklahoma City, Oklahoma	Leased by Joint Venture
Portland, Oregon	Leased
Erie, Pennsylvania	Leased by Joint Venture
Philadelphia, Pennsylvania	Leased
Pittsburgh, Pennsylvania	Leased
Dallas, Texas	Leased
Houston, Texas	Leased
Seattle, Washington	Leased

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Item 3. Legal Proceedings

          In addition to the matters described below, in the normal course of business, we have been named, from time to time, as a defendant in various legal actions, including arbitrations, class actions and other litigation, arising in connection with our activities as a provider of diagnostic testing, information and services. These legal actions may include lawsuits alleging negligence or other similar legal claims. Certain of the actual or threatened legal actions include claims for substantial compensatory and/or punitive damages or claims for indeterminate amounts of damages, and could have an adverse impact on our client base and reputation.

          The Company is also involved, from time to time, in other reviews, investigations and proceedings by governmental agencies regarding our business, including, among other matters, operational matters, certain of which may result in adverse judgments, settlements, fines, penalties, injunctions or other relief. The number of these reviews, investigations and proceedings has increased in recent years with regard to many firms in the healthcare services industry, including our Company.

          We maintain various liability insurance coverages for claims that could result from providing or failing to provide clinical testing services, including inaccurate testing results and other exposures. Our insurance coverage limits our maximum exposure on individual claims; however, we are essentially self-insured for a significant portion of these claims.

          The Company contests liability or the amount of damages as appropriate in each pending matter. In view of the inherent difficulty of predicting the outcome of such matters, particularly in cases where claimants seek substantial or indeterminate damages or where investigations or proceedings are in the early stages, we cannot predict with certainty the loss or range of loss, if any, related to such matters, how or if such matters will be resolved, when they ultimately will be resolved, or what the eventual settlement, fine, penalty or other relief, if any, might be. Subject to the foregoing, and except for the NID Matter (see also Note 15 in “Notes to Consolidated Financial Statements” in Part II, Item 8), we believe, based on current knowledge, that the outcome of all other pending matters will not have a material adverse effect on our consolidated financial condition, although the outcome of such matters could be material to our results of operations and cash flows in the period that such matters are determined or paid, depending on, among other things, the levels of our revenues or income for such period.

NID Matter.

          As previously disclosed, NID, a test kit manufacturing subsidiary, and the Company each received a subpoena from the United States Attorney’s Office for the Eastern District of New York during the fourth quarter of 2004. The subpoenas requested a wide range of business records, including documents regarding parathyroid hormone (“PTH”) test kits manufactured by NID and PTH testing performed by the Company. The Company has voluntarily and actively cooperated with the investigation, providing information, witnesses and business records of NID and the Company, including documents related to PTH tests and test kits, as well as other tests and test kits. In the second and third quarters of 2005, the FDA conducted an inspection of NID and issued a Form 483 listing the observations made by the FDA during the course of the inspection. NID responded to the Form 483.

          During the fourth quarter of 2005, NID instituted its second voluntary product hold within a six-month period, due to quality issues, which adversely impacted the operating performance of NID. As a result, the Company evaluated a number of strategic options for NID, and on April 19, 2006, decided to cease operations at NID. Upon completion of the wind down of operations in the third quarter of 2006, the operations of NID were classified as discontinued operations. During the third quarter of 2006, the government issued two additional subpoenas, one to NID and one to the Company. The subpoenas covered various records, including records related to tests and test kits in addition to PTH.

          During the third quarter of 2007, the government and the Company began settlement discussions. In the course of those discussions, the government has disclosed to the Company certain of the government’s legal theories regarding the amount of damages allegedly incurred by the government, which include alleged violations of civil and criminal statutes including the False Claims Act and the Food, Drug and Cosmetics Act. Violations of these statutes and related regulations could lead to a warning letter, injunction, fines or penalties, exclusion from federal health care programs and/or criminal prosecution, as well as claims by third parties. The Company has analyzed the government’s position and presented its own analysis which argued against many of the government’s claims. In light of that analysis and based on the status of settlement discussions, the Company has established a reserve, in accordance with generally accepted accounting principles, reflected in discontinued operations, of $241 million in connection with these claims. Of the total reserve, $51 million and $190 million was recorded in the third and fourth quarters, respectively, of 2007. The Company estimates that the amount reserved represents the minimum expected probable loss with respect to this matter. The Company does not believe that a reasonable estimate for these losses in excess of the established reserve can be made at this time. The Company has recorded a deferred tax benefit associated with that portion of the reserve that it expects will be tax deductible. Eventual losses related to these matters may substantially exceed the reserve, and the impact could be material to the Company’s results of operations, cash flows and financial condition in the period that such matters are determined or

30

paid.

          The Company continues to engage in discussions with the United States Attorney’s Office and those discussions potentially could lead to an agreement in principle to resolve some or all of the matters in the near future. There can be no assurance, however, when or whether a settlement may be reached, or as to its terms. If the Company cannot reach an acceptable settlement agreement with the United States Attorney’s Office, the Company would defend itself and NID and could incur significant costs in doing so.

Other Matters.

          During the second quarter of 2005, the Company received a subpoena from the U. S. Attorney’s Office for the District of New Jersey. The subpoena seeks the production of business and financial records regarding capitation and risk sharing arrangements with government and private payers for the years 1993 through 1999. Also, during the third quarter of 2005, the Company received a subpoena from the U.S. Department of Health and Human Services, Office of the Inspector General. The subpoena seeks the production of various business records including records regarding our relationship with health maintenance organizations, independent physician associations, group purchasing organizations, and preferred provider organizations relating back to as early as 1995. The Company is cooperating with the U.S. Attorney’s Office and the Office of the Inspector General.

          During the second quarter of 2006, each of the Company and its subsidiary, Specialty Laboratories, Inc. (“Specialty”), received a subpoena from the California Attorney General’s Office. The subpoenas seek various documents including documents relating to billings to MediCal, the California Medicaid program. The subpoenas seek documents from various time frames ranging from three to ten years. The Company and Specialty are cooperating with the California Attorney General’s Office. We understand that there may be pending qui tam claims brought by former employees or other “whistle blowers” as to which we cannot determine the extent of any potential liability. We also are aware of certain pending individual or class action lawsuits related to billing practices filed under the qui tam provisions of the civil False Claims Act and/or other federal and state statutes, regulations or other laws.

Item 4. Submission of Matters to a Vote of Security Holders

          None.

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PART II

Item 5. Market for Registrant’s Common Stock, Related Stockholder Matters and Issuer Purchases of Equity Securities

          Our common stock is listed and traded on the New York Stock Exchange under the symbol “DGX.” As of February 1, 2008, we had approximately 5,800 record holders of our common stock; we believe that the number of beneficial holders of our common stock exceeds the number of record holders. The following table sets forth, for the periods indicated, the high and low sales price per share as reported on the New York Stock Exchange Consolidated Tape and dividend information.

	Common Stock Market Price
						Dividends Declared
	High		Low
2006
First Quarter	$	54.33		$	48.79		$	0.10
Second Quarter		60.35			49.26			0.10
Third Quarter		64.69			57.69			0.10
Fourth Quarter		61.11			48.59			0.10
2007
First Quarter	$	54.29		$	48.07		$	0.10
Second Quarter		54.75			47.98			0.10
Third Quarter		58.63			51.36			0.10
Fourth Quarter		58.23			51.91			0.10

          We expect to fund future dividend payments with cash flows from operations, and do not expect the dividend to have a material impact on our ability to finance future growth.

          We did not repurchase any shares of our common stock during the fourth quarter of our fiscal year ended December 31, 2007.

          In 2003, our Board of Directors authorized a share repurchase program, which permitted us to purchase up to $600 million of our common stock. In July 2004, our Board of Directors authorized us to purchase up to an additional $300 million of our common stock. Under a separate authorization from our Board of Directors, in December 2004 we repurchased 5.4 million shares of our common stock for approximately $254 million from GlaxoSmithKline plc. Our Board of Directors expanded the share repurchase authorization in January 2005 and January 2006 by an additional $350 million and an additional $600 million, respectively. As of December 31, 2007 and since the inception of the share repurchase program in May 2003, we have repurchased 44.1 million shares of our common stock at an average price of $45.35 for $2.0 billion. At December 31, 2007, approximately $104 million of the share repurchase authorizations remained available. The share repurchase program has no set expiration or termination date.

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Performance Graph

          Set forth below is a line graph comparing the cumulative total shareholder return on Quest Diagnostics’ common stock since December 31, 2002, based on the market price of the Company’s common stock and assuming reinvestment of dividends, with the cumulative total shareholder return of companies on the Standard & Poor’s 500 Stock Index and the S&P 500 Healthcare Equipment & Services Index.

			Total Shareholder Return									Performance Graph Values
Date	Closing DGX Price(1)		DGX			S&P 500			S&P 500 H.C.			DGX		S&P 500		S&P 500 H.C.
12/31/2003	$	36.56		28.49	%		28.68	%		28.16	%	$	128.49	$	128.68	$	128.16
12/31/2004	$	47.78		31.62	%		10.88	%		17.75	%	$	169.12	$	142.69	$	150.91
12/31/2005	$	51.48		8.51	%		4.91	%		17.81	%	$	183.51	$	149.70	$	177.78
12/31/2006	$	53.00		3.71	%		15.79	%		0.25	%	$	190.30	$	173.34	$	178.23
12/31/2007	$	52.90		.58	%		5.49	%		13.37	%	$	191.40	$	182.86	$	202.05

(1) All values are adjusted to reflect the Company’s two-for-one stock split that occurred on June 20, 2005.

Item 6. Selected Financial Data

          See page 39.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

          See page 41.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

          See Management’s Discussion and Analysis of Financial Condition and Results of Operations.

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Item 8. Financial Statements and Supplementary Data

          See Item 15(a)1 and Item 15(a)2.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

          None.

Item 9A. Controls and Procedures

Conclusion Regarding Effectiveness of Disclosure Controls and Procedures

          Under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, we have evaluated the effectiveness of our disclosure controls and procedures (as defined under Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended). Based upon that evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this annual report.

Management’s Report on Internal Control Over Financial Reporting

          See page 58.

Changes in Internal Control

          On May 31, 2007, the Company completed the acquisition of AmeriPath. AmeriPath disclosed two “material weaknesses” in internal controls over financial reporting in its 2006 Annual Report on Form 10-K and first quarter 2007 Quarterly Report on Form 10-Q. The material weaknesses relate to the following: (i) the adequacy of general controls relating to certain AmeriPath information technology systems, and (ii) the adequacy of the support and analysis for accounts receivable allowances. Subsequent to the acquisition of AmeriPath, the Company has revised certain of AmeriPath’s controls, and has implemented oversight procedures related to accounts receivable allowances and general controls in its information technology systems. These changes have been designed to ensure adherence with the Company’s overall methodology, supervision and monitoring processes related to internal control over financial reporting. After giving consideration to the control weaknesses identified at AmeriPath, management believes that the financial statements included in this Annual Report on Form 10-K present fairly in all material respects the Company’s consolidated financial condition, results of operations and cash flows for the periods presented.

          During the fourth quarter of 2007, there have been no other changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934) that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Item 9B. Other Information

          None.

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PART III

Item 10. Directors, Executive Officers and Corporate Governance

          Our Code of Business Ethics applies to all employees, executive officers and directors, including our Chief Executive Officer, Chief Financial Officer and Controller. You can find our Code of Business Ethics on our internet site, www.questdiagnostics.com. We will post any amendments to the Code of Business Ethics, and any waivers that are required to be disclosed by the rules of either the SEC or the New York Stock Exchange, on our internet site. You can request a copy of our Code of Business Ethics, at no cost, by contacting Investor Relations, 3 Giralda Farms, Madison, New Jersey 07940 (973-520-2700).

          Because our common stock is listed for trading on the New York Stock Exchange, in 2007 our Chief Executive Officer was required to make, and he made, an annual certification to the New York Stock Exchange stating that he was not aware of any violation by Quest Diagnostics of the corporate governance listing standards of the Exchange. Our Chief Executive Officer made his certification to that effect to the New York Stock Exchange on approximately May 23, 2007. In addition, we have filed, as exhibits to this Annual Report on Form 10-K, the certifications of our Chief Executive Officer and our Chief Financial Officer required under Section 302 of the Sarbanes-Oxley Act of 2002 to be filed with the SEC regarding the quality of our Company’s public disclosure.

          Information regarding the directors and executive officers of the Company appearing in our Proxy Statement to be filed by April 28, 2008 (“Proxy Statement”) under the captions “Matters to be Considered at the Meeting - Election of Directors,” “Information about our Corporate Governance – Audit and Finance Committee,” and “Additional Information Regarding Executive Compensation - Section 16(a) Beneficial Ownership Reporting Compliance” is incorporated by reference herein.

Executive Officers of the Registrant

          Officers of the Company are elected annually by the Board of Directors and hold office at the discretion of the Board of Directors. The following persons serve as executive officers of the Company.

          Surya N. Mohapatra, Ph.D. (58) is Chairman of the Board, President and Chief Executive Officer. Prior to joining the Company in February 1999 as Senior Vice President and Chief Operating Officer, he was Senior Vice President of Picker International, a worldwide leader in advanced medical imaging technologies. Dr. Mohapatra was appointed President and Chief Operating Officer in June 1999, Chief Executive Officer in May 2004 and Chairman of the Board in December 2004. He is a director of ITT Corporation. Dr. Mohapatra has been a director of the Company since 2002.

          Robert A. Hagemann (51) is Senior Vice President and Chief Financial Officer. He joined Corning Life Sciences, Inc. in 1992, where he held a variety of senior financial positions before being named Vice President and Corporate Controller of the Company in 1996. Mr. Hagemann has served as Chief Financial Officer since August 1998.

          Joan E. Miller, Ph.D. (53) is Senior Vice President - Pathology and Hospital Services. Dr. Miller joined Corning Life Sciences, Inc. in 1992 and since has held positions of increasing responsibility. Dr. Miller was named Senior Managing Director, Nichols Institute in 2002 and Vice President, Hospital Business in 2003. Since June 2007, Dr. Miller has overseen the Company’s hospital services business, including its esoteric testing facilities, and its anatomic pathology services business, including AmeriPath.

          Michael E. Prevoznik (46) is Senior Vice President and General Counsel. Mr. Prevoznik joined the Company as Vice President and General Counsel in August 1999. In 2003, he assumed responsibility for governmental affairs. Prior to joining the Company, Mr. Prevoznik served in positions of increasing responsibility within the compliance organization at SmithKline Beecham, most recently as Vice President, Compliance, with responsibility for coordinating all SmithKline Beecham compliance activities worldwide.

          Wayne R. Simmons (52) is Vice President - Operations. Since July 2007, he has overseen the Company’s U.S. clinical testing operations. Mr. Simmons joined the Company in February 2004 as Vice President for our central region. Prior to joining Quest Diagnostics, Mr. Simmons served in positions of increasing responsibility with Philips Medical Systems, including, since 2002, as Vice President of Supply Chain, in which position he was responsible for operations at Philips Medical Systems CT Operations facilities globally.

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Item 11. Executive Compensation

          Information appearing in our Proxy Statement under the captions “Compensation Discussion and Analysis,” “Additional Information Regarding Executive Compensation” and “Report of the Compensation Committee” is incorporated by reference herein.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholders’ Matters

          Information regarding equity compensation plans and security ownership of certain beneficial owners and management appearing in our Proxy Statement under the captions “Information about our Corporate Governance – Stock Ownership of Directors and Executive Officers” and “Additional Information Regarding Executive Compensation – Equity Compensation Plan Information” is incorporated by reference herein.

Item 13. Certain Relationships and Related Transactions, and Director Independence

          Information regarding certain relationships and related transactions appearing in our Proxy Statement under the captions “Information About Our Corporate Governance – Related Person Transactions”, “Information about our Corporate Governance – Independence of the Board of Directors” and “Information about our Corporate Governance – Director Independence” is incorporated by reference herein.

Item 14. Principal Accounting Fees and Services

          Information regarding principal accountant fees and services appearing in our Proxy Statement under the captions “Fees and Services of PricewaterhouseCoopers LLP” and “Audit and Finance Committee Pre-Approval Policies and Procedures” is incorporated by reference herein.

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PART IV

Item 15. Exhibits, Financial Statement Schedules

(a)     Documents filed as part of this Report.
	1. Index to financial statements and supplementary data filed as part of this Report.

Item	Page
Financial Statements
Report of Independent Registered Public Accounting Firm	F-1
Consolidated Balance Sheets	F-2
Consolidated Statements of Operations	F-3
Consolidated Statements of Cash Flows	F-4
Consolidated Statements of Stockholders’ Equity	F-5
Notes to Consolidated Financial Statements	F-6
Supplementary Data: Quarterly Operating Results (unaudited)	F-45

2. Financial Statement Schedule.

Item	Page
Schedule II – Valuation Accounts and Reserves	F-46

3. Exhibits

          An exhibit index has been filed as part of this Report beginning on page E-1 and is incorporated herein by reference.

(b)     Exhibits filed as part of this Report.

          An exhibit index has been filed as part of this Report beginning on page E-1 and is incorporated herein by reference.

(c)     None.

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Signatures

          Pursuant to the requirements of Sections 13 or 15(d) 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, on February 22, 2008.

QUEST DIAGNOSTICS INCORPORATED

(Registrant)

By:	/s/ Surya N. Mohapatra, Ph.D.
	Surya N. Mohapatra, Ph.D.
	Chairman of the Board,
	President and Chief Executive Officer

          Each individual whose signature appears below constitutes and appoints Michael E. Prevoznik and William J. O’Shaughnessy, Jr., and each of them singly, his or her true and lawful attorneys-in-fact and agents with full power of substitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K filed with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all the said attorneys-in-fact and agents or any of them or their or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

          Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on February 22, 2008.

Signature	Capacity
/s/ Surya N. Mohapatra, Ph.D.	Chairman of the Board,
	President and Chief Executive Officer
Surya N. Mohapatra, Ph.D.	(Principal Executive Officer)
/s/ Robert A. Hagemann	Senior Vice President
	and Chief Financial Officer
Robert A. Hagemann	(Principal Financial Officer)
/s/ Thomas F. Bongiorno	Vice President, Corporate Controller
	and Chief Accounting Officer
Thomas F. Bongiorno	(Principal Accounting Officer)
/s/ John C. Baldwin, M.D.	Director
John C. Baldwin, M.D.
/s/ Jenne K. Britell, Ph.D.	Director
Jenne K. Britell, Ph.D.
/s/ William F. Buehler	Director
William F. Buehler
/s/ Rosanne Haggerty	Director
Rosanne Haggerty
/s/ Gary M. Pfeiffer	Director
Gary M. Pfeiffer
/s/ Daniel C. Stanzione, Ph.D.	Director
Daniel C. Stanzione, Ph.D.
/s/ Gail R. Wilensky, Ph.D.	Director
Gail R. Wilensky, Ph.D.
/s/ John B. Ziegler	Director
John B. Ziegler

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SELECTED HISTORICAL FINANCIAL DATA OF OUR COMPANY

          The following table summarizes selected historical financial data of our Company and our subsidiaries at the dates and for each of the periods presented. We derived the selected historical financial data for the years 2003 through 2007 from the audited consolidated financial statements of our Company. In September 2004, the Emerging Issues Task Force reached a final consensus on Issue 04-8, “The Effect of Contingently Convertible Instruments on Diluted Earnings per Share” (“Issue 04-8”), effective December 31, 2004. Pursuant to Issue 04-8, we included the dilutive effect of our 1¾% contingent convertible debentures issued November 26, 2001 in our dilutive earnings per common share calculations using the if-converted method, regardless of whether or not the holders of these securities were permitted to exercise their conversion rights, and retroactively restated previously reported diluted earnings per common share. Effective January 1, 2006, the Company adopted Statement of Financial Accounting Standards, or SFAS, No. 123, revised 2004, “Share-Based Payment” (“SFAS 123R”), using the modified prospective approach and therefore has not restated results for prior periods. Under this approach, awards that are granted, modified or settled after January 1, 2006 will be measured and accounted for in accordance with SFAS 123R. Unvested awards that were granted prior to January 1, 2006 will continue to be accounted for in accordance SFAS No. 123, “Accounting for Stock-Based Compensation”, as amended by SFAS 148, “Accounting for Stock-Based Compensation-Transition and Disclosure – an amendment to SFAS No. 123”, except that compensation cost will be recognized in the Company’s results of operations. During the third quarter of 2006, the Company completed its wind down of NID, a test kit manufacturing subsidiary, and classified the operations of NID as discontinued operations. The selected historical financial data presented below has been restated to report the results of NID as discontinued operations for all periods presented. The selected historical financial data is only a summary and should be read together with the audited consolidated financial statements and related notes of our Company and management’s discussion and analysis of financial condition and results of operations included elsewhere in this Annual Report on Form 10-K.

	Year Ended December 31,
	2007 (a)			2006 (b)			2005 (c)			2004			2003 (d)
	(in thousands, except per share data)
Operations Data:
Net revenues	$	6,704,907		$	6,268,659		$	5,456,726		$	5,066,986		$	4,686,030
Operating income		1,091,336	(e)		1,128,077	(f)		1,007,548	(g)		880,854	(h)		784,691
Income from continuing operations		553,828			625,692	(i)		573,196	(j)		492,415	(k)		429,173
(Loss) / income from discontinued operations		(213,889	)  (l)		(39,271	)  (m)		(26,919	)  (n)		6,780			7,544
Net income		339,939			586,421			546,277			499,195			436,717
Earnings per common share - basic: (o)
Income from continuing operations	$	2.87		$	3.18		$	2.84		$	2.42		$	2.07
(Loss) / income from discontinued operations		(1.11	)		(0.20	)		(0.13	)		0.03			0.04
Net income	$	1.76		$	2.98		$	2.71		$	2.45		$	2.11
Earnings per common share – diluted: (o) (p)
Income from continuing operations	$	2.84		$	3.14		$	2.79		$	2.32		$	1.99
(Loss) / income from discontinued operations		(1.10	)		(0.20	)		(0.13	)		0.03			0.03
Net income	$	1.74		$	2.94		$	2.66		$	2.35		$	2.02
Dividends per common share (o)	$	0.40		$	0.40		$	0.36		$	0.30		$	0.075
Balance Sheet Data (at end of year):
Cash and cash equivalents	$	167,594		$	149,640		$	92,130		$	73,302		$	154,958
Accounts receivable, net		881,967			774,414			732,907			649,281			609,187
Goodwill, net		5,220,104			3,391,046			3,197,227			2,506,950			2,518,875
Total assets		8,565,693			5,661,482			5,306,115			4,203,788			4,301,418
Long-term debt		3,377,212			1,239,105			1,255,386			724,021			1,028,707
Total debt		3,540,793			1,555,979			1,592,225			1,098,822			1,102,657
Total stockholders’ equity		3,324,242			3,019,171			2,762,984			2,288,651			2,394,694
Other Data:
Net cash provided by operating activities	$	926,924		$	951,896		$	851,583		$	798,780		$	662,799
Net cash used in investing activities		(1,759,193	)		(414,402	)		(1,079,793	)		(173,700	)		(417,050	)
Net cash provided by (used in) financing activities		850,223			(479,984	)		247,038			(706,736	)		(187,568	)
Provision for doubtful accounts		300,226			243,443			233,628			226,310			228,222
Rent expense		170,788			153,185			139,660			132,883			120,748
Capital expenditures		219,101			193,422			224,270			176,125			174,641
Depreciation and amortization		237,879			197,398			176,124			168,726			153,903

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(a)	On January 31, 2007, we completed the acquisition of POCT Holding AB, (“HemoCue”). On May 31, 2007, we completed the acquisition of AmeriPath Group Holdings, Inc., (“AmeriPath”). Consolidated operating results for 2007 include the results of operations of HemoCue and AmeriPath subsequent to the closing of the applicable acquisition. See Note 3 to the Consolidated Financial Statements.
(b)	On July 3, 2006, we completed the acquisition of Focus Technologies Holding Company, (“Focus Diagnostics”). On August 31, 2006, we completed the acquisition of Enterix Inc., (“Enterix”). Consolidated operating results for 2006 include the results of operations of Focus Diagnostics and Enterix subsequent to the closing of the applicable acquisition. See Note 3 to the Consolidated Financial Statements.
(c)	On November 1, 2005, we completed the acquisition of LabOne, Inc., (“LabOne”). Consolidated operating results for 2005 include the results of operations of LabOne subsequent to the closing of the acquisition. See Note 3 to the Consolidated Financial Statements.
(d)	On February 28, 2003, we completed the acquisition of Unilab Corporation, (“Unilab”). Consolidated operating results for 2003 include the results of operations of Unilab subsequent to the closing of the acquisition.
(e)	For 2007, operating income includes $57 million of stock-based compensation expense recorded in accordance with SFAS 123R.
(f)	For 2006, operating income includes $55 million of stock-based compensation expense recorded in accordance with SFAS 123R and $27 million of special charges, primarily associated with integration activities.
(g)	For 2005, operating income includes a $6.2 million charge primarily related to forgiveness of amounts owed by patients and physicians, and related property damage as a result of hurricanes in the Gulf Coast.
(h)	For 2004, operating income includes a $10.3 million charge associated with the acceleration of certain pension obligations in connection with the succession of our prior CEO.
(i)	Includes net charges of $10 million related to net investment losses recorded during 2006.
(j)	Includes a $7.1 million charge associated with the write-down of an investment during 2005.
(k)	Includes a $2.9 million charge during 2004 representing the write-off of deferred financing costs associated with the refinancing of our then existing bank debt and credit facility.
(l)	During 2007, we recorded charges of $241 million related to the government investigation of NID. See Note 15 and Note 16 to the Consolidated Financial Statements.
(m)	During 2006, we recorded $32 million in charges related to the wind down of NID’s operations. See Note 16 to the Consolidated Financial Statements.
(n)	During 2005, we recorded a $16 million charge to write-off certain assets in connection with a product hold at NID.
(o)	Previously reported basic and diluted earnings per share have been restated to give retroactive effect of our two-for-one stock split effected on June 20, 2005.
(p)	Potentially dilutive common shares primarily include the dilutive effect of our 1¾% contingent convertible debentures issued November 26, 2001, which were redeemed principally through a conversion into common shares as of January 18, 2005, and outstanding stock options, performance share units and restricted common shares granted under our Amended and Restated Employee Long-Term Incentive Plan and our Amended and Restated Director Long-Term Incentive Plan.

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QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

Overview

          The Clinical Testing Industry

          Clinical testing is an essential element in the delivery of healthcare services. Physicians use laboratory tests to assist in the detection, diagnosis, evaluation, monitoring and treatment of diseases and other medical conditions.

          Most laboratory tests are performed by one of three types of laboratories: commercial clinical laboratories; hospital-affiliated laboratories; and physician-office laboratories. In 2007, we estimate that hospital-affiliated laboratories accounted for approximately 60% of the market, commercial clinical laboratories approximately one-third and physician-office laboratories the balance.

          Orders for laboratory testing are generated from physician offices, hospitals and employers and can be affected by a number of factors. For example, changes in the United States economy can affect the number of unemployed and uninsured, and design changes in healthcare plans can affect the number of physician office and hospital visits, and can impact the utilization of laboratory testing.

          While the diagnostic testing industry in the United States may be impacted by a number of factors, we believe it will continue to grow over the long term as a result of the following:

• the growing and aging population;

• continuing research and development in the area of genomics (the study of DNA, genes and chromosomes) and proteomics (the analysis of individual proteins and collections of proteins), which is expected to yield new, more sophisticated and specialized diagnostic tests;

• increasing recognition by consumers and payers of the value of laboratory testing as a means to improve health and reduce the overall cost of healthcare through early detection and prevention; and

• increasing affordability of, and access to, tests due to advances in technology and cost efficiencies.

          The diagnostic testing industry is subject to seasonal fluctuations in operating results and cash flows. Typically, testing volume declines during the summer months, year-end holiday periods and other major holidays, reducing net revenues and operating cash flows below annual averages. Testing volume is also subject to declines due to inclement weather or other events, which can deter patients from having testing performed and which can vary in duration and severity from year to year.

          Reimbursement for Services

           Payments for clinical testing services are made by physicians, hospitals, employers, healthcare insurers, patients and the government. Physicians, hospitals and employers are typically billed on a fee-for-service basis based on negotiated fee schedules. Fees billed to healthcare insurers and patients are based on the laboratory’s patient fee schedule, subject to any limitations on fees negotiated with the healthcare insurers or with physicians on behalf of their patients. Medicare and Medicaid reimbursements are based on fee schedules set by governmental authorities.

          Government payers, such as Medicare and Medicaid, as well as healthcare insurers and larger employers, have taken steps and may continue to take steps to control the cost, utilization and delivery of healthcare services, including clinical testing services. Despite the added cost and complexity of participating in the Medicare and Medicaid programs, we continue to participate in such programs because we believe that our other business may depend, in part, on continued participation in these programs, since certain customers may want a single laboratory capable of performing all of their clinical testing services, regardless of who pays for such services.

          Healthcare insurers, which typically negotiate directly or indirectly with a number of clinical laboratories on behalf of their members, represent approximately one-half of our clinical testing volumes and one-half of our net revenues from our clinical testing business. Larger healthcare insurers typically prefer to use large commercial clinical laboratories because they can provide services to their members on a national or regional basis. In addition, larger laboratories are better able to achieve the low-cost structures necessary to profitably service the members of large healthcare plans and can provide test utilization data across various products in a consistent format. In certain markets, such as California, healthcare insurers may delegate their covered members to independent physician associations (“IPAs”), which in turn negotiate with laboratories for clinical testing services on behalf of their members.

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          The trend of consolidation among healthcare insurers has continued, resulting in fewer but larger insurers with significant bargaining power to negotiate fee arrangements with healthcare providers, including clinical laboratories. These healthcare insurers, as well as IPAs, often demand that clinical testing service providers accept discounted fee structures or assume all or a portion of the utilization risk associated with providing testing services to their members enrolled in highly-restricted plans through capitated payment arrangements. Under these capitated payment arrangements, we and healthcare insurers agree to a predetermined monthly reimbursement rate for each member enrolled in the healthcare insurer’s restricted plan, generally regardless of the number or cost of services provided by us. Our cost to perform work reimbursed under capitated payment arrangements is not materially different from our cost to perform work reimbursed under other arrangements with healthcare insurers. Since average reimbursement rates under capitated payment arrangements are typically less than our overall average reimbursement rate, the testing services reimbursed under capitated payment arrangements are generally less profitable. In 2007, we derived approximately 14% of our testing volume and 5% of our net revenues from capitated payment arrangements.

           Most healthcare plans also offer programs such as preferred provider organizations (“PPOs”) and consumer driven health plans that offer a greater choice of healthcare providers. Pricing for these programs is typically negotiated on a fee-for-service basis, which generally results in higher revenue per requisition than under capitation arrangements. Most of our agreements with major healthcare insurers are non-exclusive arrangements. As a result, under these non-exclusive arrangements, physicians and patients have more freedom of choice in selecting laboratories, and laboratories are likely to compete more on the basis of service and quality than they may otherwise. If consumer driven plans and PPO plans continue to increase in popularity, it will be increasingly important for healthcare providers to differentiate themselves based on quality, service and convenience to avoid competing on price alone.

           Despite the general trend of increased choice for patients in selecting a healthcare provider, recent experience indicates that some healthcare insurers may actively seek to limit the choice of patients and physicians if they feel it will give them increased leverage to negotiate lower fees, by consolidating services with a single or limited network of contracted providers. Historically, healthcare insurers, which had limited their network of laboratory service providers, encouraged their members, and sometimes offered incentives, to utilize only contracted providers. Patients who use a non-contracted provider may have a higher co-insurance responsibility, which may result in physicians referring testing to contracted providers to minimize the expense to their patients. In cases where members choose to use a non-contracted provider due to service quality or convenience, the non-contracted provider would be reimbursed at rates considered “reasonable and customary”. Contracted rates are generally lower than “reasonable and customary” rates because of the potential for greater volume as a contracted provider. A non-contracted laboratory service provider with quality and service preferred by physicians and patients to that of contracted providers, could potentially realize greater profits than if it was a contracted provider, provided that physicians and patients continue to have choice in selecting their provider, and any potential additional cost to the patient of using a non-contracted provider is not considered prohibitive. However, healthcare insurers could seek to impose penalties on physicians for referring patients to non-contracted laboratory service providers and could make it substantially more difficult for a laboratory service provider to sufficiently differentiate itself based on quality and service in order to profitably operate as a non-contracted provider, and could materially impact our financial condition, results of operations and cash flows. Physicians requiring testing for patients are the primary referral source of our clinical testing volume, and often refer work to us as a non-contracted provider.

          We expect that reimbursements for the diagnostic testing industry will continue to remain under pressure. Today, many federal and state governments face serious budget deficits and healthcare spending is subject to reductions, and efforts to reduce reimbursements and stringent cost controls by government and other payers for existing tests may continue. However, we believe that as new tests are developed which either improve on the effectiveness of existing tests or provide new diagnostic capabilities, government and other payers will add these tests as covered services, because of the importance of laboratory testing in assessing and managing the health of patients. We continue to emphasize the importance and the high value of laboratory testing with healthcare insurers and government payers at the federal and state level.

           Our Company

           Quest Diagnostics, as the largest clinical testing company with a leading position in most of its domestic geographic markets and service offerings, is well positioned to benefit from the long-term growth expected in the industry. Over 90% of our revenues are derived from clinical testing with the balance derived from insurer services, clinical trials testing, diagnostic products and healthcare information technology. Clinical testing is generally categorized as clinical pathology testing and anatomic pathology testing. Clinical pathology testing is performed on body fluids, such as blood and urine. Anatomic pathology testing is performed on tissues, including biopsies, and other samples, such as human cells.

          Over the last eighteen months, we have completed the acquisitions of AmeriPath Group Holdings, Inc. (“AmeriPath”), POCT Holding AB (“HemoCue”), Enterix Inc. (“Enterix”), and Focus Technologies Holding Company (“Focus Diagnostics”). With the acquisition of AmeriPath, we have become the world’s premier cancer diagnostics

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company, focused on dermatopathology, anatomic pathology and molecular diagnostics and are now able to provide interpretive consultation through the largest medical and scientific staff in the industry, with approximately 900 M.D.s and Ph.D.s around the country. In addition, we are the leading provider of: gene-based testing and other esoteric testing, risk assessment services for the life insurance industry, and testing for drugs-of-abuse. We are also a leading provider of testing for clinical trials. The Company’s diagnostics products business, which includes the operations of HemoCue, Enterix and certain of Focus Diagnostics’ operations, manufactures and markets diagnostic test kits and specialized point-of-care testing, including tests for hemoglobin, white blood cell counts, micro-albumin, colorectal cancer screening and infectious diseases. Through our MedPlus subsidiary, we empower healthcare organizations and clinicians with state-of-the-art information technology solutions that can improve patient care and medical practice.

          We have established operations in Gurgaon, India, where we will offer many of Quest Diagnostics’ services. The diagnostic testing business in India is poised for rapid expansion. We see significant opportunities for Quest Diagnostics to strengthen the delivery of healthcare services in India utilizing our quality diagnostics and technology expertise.

          Recent Changes in Payer-Relationships

          In October of 2006, we announced that effective January 1, 2007 we would cease to be a national contracted provider of laboratory services to United Healthcare Group Inc. (“UNH”) because we could not reach agreement on an appropriate reimbursement for our services and other key terms. We determined that in the long term, agreeing to the terms offered by UNH would not be in the best interest of our Company and our shareholders. While we expect to continue to service UNH’s members as a non-contracted provider, UNH has threatened physicians with penalties if they continue to send laboratory testing to non-contracted providers, and has aggressively communicated to its members that they may be faced with higher co-payments and deductibles if they use an out-of-network laboratory. We believe UNH’s actions are unprecedented. AmeriPath, which we acquired in May 2007, continues to service UNH members as a contracted provider under a long-term agreement which was entered into subsequent to our acquisition.

          UNH accounted for approximately 7% of our net revenues in 2006, with some of our regional laboratories having concentrations as high as 15% to 20%. We retained virtually all of our UNH business through December 31, 2006 and we estimate that as of December 31, 2007, we retained over 20% of our previously contracted UNH volume.

          We estimate that no longer being a contracted provider to UNH, reduced our clinical testing volume in 2007 by 7%, most of that resulting from the direct loss of previously contracted work, and some of it associated with the loss of other work from physicians who choose to consolidate their testing with a single laboratory. The impact of the change in status with UNH was the principal driver of lower earnings in 2007 compared to the prior year, due to the significant impact it had during the first half of the year. However, we successfully mitigated the ongoing impact during the third quarter of 2007 as a result of actions taken to reduce costs, and higher reimbursement for the work we continue to perform for UNH members. During the second half of the year, our profits, before considering the acquisition of AmeriPath, exceeded those of the prior year, when we were a contracted provider to UNH.

          We have remained committed to providing a superior service level to patients, physicians and other customers. As a result, during 2007 we were able to renew, and in some cases expand, our relationships with a number of important health plans, in each case on economic terms which satisfied both parties and at prices which recognized the differentiated level of service we provide. While there remain a number of managed care agreements to be renewed over the next six months, all of our largest agreements have been renewed or expanded with most of the newly contracted business extending into 2010 or beyond.

           Six Sigma and Standardization Initiatives/Efforts to Improve Operating Efficiency

           The diagnostic testing industry is labor intensive. Employee compensation and benefits constitute approximately one-half of our total costs and expenses. Cost of services consists principally of costs for obtaining, transporting and testing specimens. Selling, general and administrative expenses consist principally of the costs associated with our sales and marketing efforts, billing operations (including bad debt expense), and general management and administrative support. In addition, performing diagnostic testing involves significant fixed costs for facilities and other infrastructure required to obtain, transport and test specimens. Therefore, relatively small changes in volume can have a significant impact on profitability in the short-term.

          A large portion of our costs are fixed, making it more challenging to fully mitigate the profit impact of lost volume in the short term. In response to reduced volume levels, as a result of contract changes, we have taken actions to improve our operating efficiency and mitigate the profit impact of reduced volume levels and increased pricing pressure. During 2007, we took actions to adjust our cost structure while maintaining and, in some cases improving, service levels. These actions have enabled us to improve margins as a percentage of revenues over the course of the year and, as mentioned earlier, during the second half of 2007 achieve a level which exceeded that of the prior year. Many of these actions were part of a program we announced in July 2007 which we expect will result in $500 million of cost reductions

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over the next several years, beyond those realized through the first half of 2007.

          We intend to become recognized as the quality leader in the healthcare services industry through utilizing the Six Sigma approach and Lean Six Sigma principles. Six Sigma is a management approach that enhances quality and requires a thorough understanding of customer needs and experience, root cause analysis, process improvements and rigorous tracking and measuring of key metrics. Lean Six Sigma streamlines processes and eliminates waste. We utilize the Six Sigma approach and Lean Six Sigma principles to increase the efficiency of our operations and to reduce operating cost. We plan to utilize Six Sigma to implement the initiatives which are part of our cost reduction program and provide a better customer experience. These initiatives relate to standardizing our operations and processes, and adopting identified company best practices. One of these key initiatives is to deploy Lean Six Sigma in our laboratories to realize productivity gains. Additionally, we expect to realize efficiencies in other areas by better aligning our service capacity with patient and sample flows. We are driving more of our purchasing through master contracts to take better advantage of our scale. We are expanding the use of customer connectivity which reduces costs in specimen data entry and billing, and helps lower our bad debt. We are improving the efficiency of our logistics routes using advanced route optimization tools and we have streamlined our management structure and administrative functions to improve efficiency and increase focus. As additional detailed plans to implement these opportunities are approved and executed, some will result in charges to earnings associated with the implementation. These charges may be material to the results of operations and cash flows in the periods recorded or paid.

Recent Acquisitions

          The clinical testing industry in the United States remains fragmented. We expect to continue to selectively evaluate potential acquisitions of domestic clinical laboratories that can be integrated into our existing laboratories, thereby increasing access for patients and enabling us to reduce costs and improve efficiencies. While over the long term we believe positive industry factors in the United States diagnostic testing industry and the differentiated services we offer to our customers will enable us to grow organically, we believe there will continue to be opportunities to grow beyond our current principal business of operating clinical testing laboratories in the United States. Technology is enabling testing to be performed closer to the patient, whether in the physician’s office or at the hospital bedside, in the form of point-of-care testing. Given that physicians and hospitals are primary sources for both point-of-care testing and laboratory performed tests, we believe providing both services will strengthen our relationships with customers and accelerate our growth.

          Additionally, diagnostic testing in international markets, particularly developing countries, is highly fragmented and less mature. Continued expansion into point-of-care testing and international markets will diversify our revenue base, and add businesses in markets which are growing faster and are more profitable than our principal business of United States based clinical testing.

          Over the past eighteen months, we have completed the acquisitions of AmeriPath, HemoCue, Enterix, and Focus Diagnostics, and have in place major elements needed to drive future growth. Currently, our focus has turned to fully integrating and aligning the capabilities of these companies, as well as LabOne, Inc. (“LabOne”), acquired in 2005, to fully realize the synergy and growth opportunities they create. In addition, we will focus on reducing our outstanding debt that resulted from financing these acquisitions. As a result, over the next year we anticipate doing fewer significant acquisitions.

          Acquisition of AmeriPath

          On May 31, 2007, we completed the acquisition of AmeriPath, in an all-cash transaction valued at approximately $2 billion, including approximately $780 million of assumed debt and related accrued interest. AmeriPath is a leading provider of anatomic pathology, including dermatopathology, and esoteric testing which generates annual revenues of approximately $800 million.

          Through the acquisition, we acquired all of AmeriPath’s operations. AmeriPath, with its team of approximately 400 board certified pathologists, operates 40 outpatient anatomic pathology laboratories and provides inpatient anatomic pathology and medical director services for approximately 200 hospitals throughout the country. We financed the all-cash purchase price and related transaction costs, together with the repayment of approximately $780 million of principal and related accrued interest representing substantially all of AmeriPath’s debt, as well as the refinancing of the $450 million term loan used to finance the acquisition of HemoCue with $1.6 billion of borrowings under a new five-year term loan facility, $780 million of borrowings under a new one-year bridge loan, and cash on-hand. In June 2007, we completed an $800 million senior notes offering. The net proceeds of the senior notes offering were used to repay the $780 million borrowed under the bridge loan. The acquisition was accounted for under the purchase method of accounting.

          During the fourth quarter of 2007, we finalized major components of our plan for the integration of AmeriPath and recorded the related costs of the integration. These costs were not material to our results of operations or cash flows.

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          Acquisition of HemoCue

          On January 31, 2007, we acquired HemoCue, a Sweden-based company specializing in point-of-care testing, in an all-cash transaction valued at approximately $450 million, including $113 million of assumed debt of HemoCue. The transaction was financed through an interim credit facility, which was refinanced during the second quarter of 2007 in connection with the financing of the AmeriPath acquisition. This acquisition did not have a material impact on our 2007 financial results.

          HemoCue is the leading international provider in point-of-care testing for hemoglobin, with a growing share in professional glucose and microalbumin testing. HemoCue has recently received FDA clearance for a test to determine white blood cell counts and has applied to receive CLIA-waived status. This acquisition complements our point-of-care testing for infectious disease and cancer, including new tests for colorectal cancer screening and Herpes Simplex Type 2. The acquisition increases our presence in the growing point-of-care testing market and we plan to leverage HemoCue’s international presence to reach new markets around the world.

          Acquisition of Enterix

          On August 31, 2006, we completed the acquisition of Enterix, a privately held Australia-based company that developed and manufactures the InSure^TM Fecal Immunochemical Test, an FDA-cleared test for use in screening for colorectal cancer and other sources of lower gastrointestinal bleeding, for approximately $44 million in cash.

          Acquisition of Focus Diagnostics

          On July 3, 2006, we completed the acquisition of Focus Diagnostics in an all-cash transaction valued at $208 million, including approximately $3 million of assumed debt. We financed the acquisition and related transaction costs and the repayment of substantially all of Focus Diagnostics’ outstanding debt with $135 million of borrowings under our secured receivables credit facility and with cash on-hand.

          Focus Diagnostics is a leading provider of infectious and immunologic disease testing and develops and markets diagnostic products. It offers its reference testing services and diagnostic products to large academic medical centers, hospitals and commercial laboratories.

Critical Accounting Policies

          The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make estimates and assumptions and select accounting policies that affect our reported financial results and the disclosure of contingent assets and liabilities.

          While many operational aspects of our business are subject to complex federal, state and local regulations, the accounting for most of our business is generally straightforward with net revenues primarily recognized upon completion of the testing process. Our revenues are primarily comprised of a high volume of relatively low dollar transactions, and about one-half of our total costs and expenses consist of employee compensation and benefits. Due to the nature of our business, several of our accounting policies involve significant estimates and judgments:

• revenues and accounts receivable associated with clinical testing;

• reserves for general and professional liability claims;

• reserves for other legal proceedings;

• accounting for and recoverability of goodwill; and

• accounting for stock-based compensation expense.

          Revenues and accounts receivable associated with clinical testing

          The process for estimating the ultimate collection of receivables associated with our clinical testing business involves significant assumptions and judgments. Billings for services reimbursed by third-party payers, including Medicare and Medicaid, are recorded as revenues net of allowances for differences between amounts billed and the estimated receipts from such payers. Adjustments to the estimated receipts, based on final settlement with the third-party payers, are recorded upon settlement as an adjustment to net revenues.

          We have implemented a standardized approach to estimate and review the collectibility of our receivables based on a number of factors, including the period they have been outstanding. Historical collection and payer reimbursement experience is an integral part of the estimation process related to allowances for doubtful accounts. In addition, we regularly assess the state of our billing operations in order to identify issues, which may impact the collectibility of

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receivables or allowance estimates. We believe that the collectibility of our receivables is directly linked to the quality of our billing processes, most notably those related to obtaining the correct information in order to bill effectively for the services we provide. As such, we have implemented “best practices” to reduce the number of requisitions that we receive from healthcare providers with missing or incorrect billing information. Revisions to the allowances for doubtful accounts estimates are recorded as an adjustment to bad debt expense within selling, general and administrative expenses. We believe that our collection and allowance estimation processes, along with our close monitoring of our billing operations, help to reduce the risk associated with material revisions to reserve estimates. Less than 5% of our net accounts receivable as of December 31, 2007 were outstanding more than 150 days.

          Healthcare insurers

          Healthcare insurers reimburse us for approximately one-half of our net revenues. Reimbursements from healthcare insurers are based on negotiated fee-for-service schedules and on capitated payment rates.

          Receivables due from healthcare insurers represent approximately 31% of our net accounts receivable. Substantially all of the accounts receivable due from healthcare insurers represent amounts billed under negotiated fee-for-service arrangements. We utilize a standard approach to establish allowances for doubtful accounts for such receivables, which considers the aging of the receivables and results in increased allowance requirements as the aging of the related receivables increases. Our approach also considers historical collection experience and other factors. Collection of such receivables is normally a function of providing complete and correct billing information to the healthcare insurers within the various filing deadlines. For healthcare insurers, collection typically occurs within 30 to 60 days of billing. Provided healthcare insurers have been billed accurately with complete information prior to the established filing deadline, there has historically been little to no collection risk. If there has been a delay in billing, we determine if the amounts in question will likely go past the filing deadline, and if so, we will reserve accordingly for the billing.

          Approximately 5% of our net revenues are reimbursed under capitated payment arrangements in which case the healthcare insurers typically reimburse us in the same month services are performed, essentially giving rise to no outstanding accounts receivable at month-end. If any capitated payments are not received on a timely basis, we determine the cause and make a separate determination as to whether or not the collection of the amount from the healthcare insurer is at risk and if so, would reserve accordingly.

          Government payers

          Payments for clinical testing services made by the government are based on fee schedules set by governmental authorities. Receivables due from government payers under the Medicare and Medicaid programs represent approximately 14% of our net accounts receivable. Collection of such receivables is normally a function of providing the complete and correct billing information within the various filing deadlines. Collection typically occurs within 30 days of billing. Our processes for billing, collecting and estimating uncollectible amounts for receivables due from government payers, as well as the risk of non-collection, are substantially the same as those noted above for healthcare insurers under negotiated fee-for-service arrangements.

          Client payers

          Client payers include physicians, hospitals, employers and other commercial laboratories, and are billed based on a negotiated fee schedule. Receivables due from client payers represent approximately 33% of our net accounts receivable. Credit risk and ability to pay are more of a consideration for these payers than healthcare insurers and government payers. We utilize a standard approach to establish allowances for doubtful accounts for such receivables, which considers the aging of the receivables and results in increased allowance requirements as the aging of the related receivables increase. Our approach also considers specific account reviews, historical collection experience and other factors.

          Patient receivables

          Patients are billed based on established patient fee schedules, subject to any limitations on fees negotiated with healthcare insurers or physicians on behalf of the patient. Receivables due from patients represent approximately 22% of our net accounts receivable. Collection of receivables due from patients is subject to credit risk and ability of the patients to pay. We utilize a standard approach to establish allowances for doubtful accounts for such receivables, which considers the aging of the receivables and results in increased allowance requirements as the aging of the related receivables increases. Our approach also considers historical collection experience and other factors. Patient receivables are generally fully reserved for when the related billing reaches 210 days outstanding. Balances are automatically written off when they are sent to collection agencies. Reserves are adjusted for estimated recoveries of amounts sent to collection agencies based on historical collection experience, which is regularly monitored.

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          Reserves for general and professional liability claims

          As a general matter, providers of clinical testing services may be subject to lawsuits alleging negligence or other similar legal claims. These suits could involve claims for substantial damages. Any professional liability litigation could also have an adverse impact on our client base and reputation. We maintain various liability insurance coverages for claims that could result from providing or failing to provide clinical testing services including inaccurate testing results and other exposures. Our insurance coverage limits our maximum exposure on individual claims; however, we are essentially self-insured for a significant portion of these claims. While the basis for claims reserves considers actuarially determined losses based upon our historical and projected loss experience, the process of analyzing, assessing and establishing reserve estimates relative to these types of claims involves a high degree of judgment. Changes in the facts and circumstances associated with claims could have a material impact on our results of operations, principally costs of services, and cash flows in the period that reserve estimates are revised or paid. Although we believe that our present insurance coverage and reserves are sufficient to cover currently estimated exposures, it is possible that we may incur liabilities in excess of our insurance coverage or recorded reserves.

          Reserves for other legal proceedings

          Our business is subject to extensive and frequently changing federal, state and local laws and regulations. In addition, we are aware of certain pending lawsuits related to billing practices filed under the qui tam provisions of the False Claims Act and other federal and state statutes. See Notes 15 and 16 to the Consolidated Financial Statements for a discussion of the various legal proceedings that involve the Company. We have a comprehensive compliance program that is intended to ensure the strict implementation and observance of all applicable laws, regulations and Company policies. Management periodically reports to the Quality, Safety & Compliance Committee of the Board of Directors regarding compliance operations. As an integral part of our compliance program, we investigate all reported or suspected failures to comply with federal and state healthcare reimbursement requirements. Any non-compliance that results in Medicare or Medicaid overpayments is reported to the government and reimbursed by us. As a result of these efforts, we have periodically identified and reported overpayments. Upon becoming aware of potential overpayments, we will consider all available facts and circumstances to estimate and record the amounts to be reimbursed. While we have reimbursed these overpayments and have taken corrective action where appropriate, we cannot assure investors that in each instance the government will necessarily accept these actions as sufficient.

          The process of analyzing, assessing and establishing reserve estimates relative to legal proceedings involves a high degree of judgment. Management has established reserves for legal proceedings in accordance with generally accepted accounting principles. Changes in facts and circumstances related to such proceedings could lead to significant revisions to reserve estimates for such matters and could have a material impact on our results of operations, cash flows and financial condition in the period that reserve estimates are revised or paid.

          Accounting for and recoverability of goodwill

          Goodwill is our single largest asset. We evaluate the recoverability and measure the potential impairment of our goodwill under Statement of Financial Accounting Standards (“SFAS”) No. 142, “Goodwill and Other Intangible Assets”. The annual impairment test is a two-step process that begins with the estimation of the fair value of the reporting unit. The first step screens for potential impairment and the second step measures the amount of the impairment, if any. Our estimate of fair value considers publicly available information regarding the market capitalization of our Company, as well as (i) publicly available information regarding comparable publicly-traded companies in the clinical testing industry, (ii) the financial projections and future prospects of our business, including its growth opportunities and likely operational improvements, and (iii) comparable sales prices, if available. As part of the first step to assess potential impairment, we compare our estimate of fair value for the reporting unit to the book value of the reporting unit. If the book value is greater than our estimate of fair value, we would then proceed to the second step to measure the impairment, if any. The second step compares the implied fair value of goodwill with its carrying value. The implied fair value is determined by allocating the fair value of the reporting unit to all of the assets and liabilities of that unit as if the reporting unit had been acquired in a business combination and the fair value of the reporting unit was the purchase price paid to acquire the reporting unit. The excess of the fair value of the reporting unit over the amounts assigned to its assets and liabilities is the implied fair value of goodwill. If the carrying amount of the reporting unit’s goodwill is greater than its implied fair value, an impairment loss will be recognized in the amount of the excess. We believe our estimation methods are reasonable and reflect common valuation practices.

          On a quarterly basis, we perform a review of our business to determine if events or changes in circumstances have occurred which could have a material adverse effect on the fair value of the Company and its goodwill. If such events or changes in circumstances were deemed to have occurred, we would perform an impairment test of goodwill as of the end of the quarter, consistent with the annual impairment test performed at the end of our fiscal year on December 31st, and record any noted impairment loss.

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          Accounting for stock-based compensation expense

          Effective January 1, 2006, we adopted SFAS No. 123, revised 2004, “Share-Based Payment” (“SFAS 123R”), using the modified prospective approach and therefore have not restated results for prior periods. Pursuant to the provisions of SFAS 123R, we record stock-based compensation as a charge to earnings net of the estimated impact of forfeited awards. As such, we recognize stock-based compensation cost only for those stock-based awards that are estimated to ultimately vest over their requisite service period, based on the vesting provisions of the individual grants.

          Prior to the adoption of SFAS 123R, the Company accounted for stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”), and related interpretations and chose to adopt the disclosure-only provisions of SFAS 123, as amended by SFAS 148. Under this approach, the cost of restricted stock awards was expensed over their vesting period, while the imputed cost of stock option grants and discounts offered under the Company’s Employee Stock Purchase Plan was disclosed, based on the vesting provisions of the individual grants, but not charged to expense.

          The process of estimating the fair value of stock-based compensation awards and recognizing stock-based compensation cost over their requisite service period involves significant assumptions and judgments. We estimate the fair value of stock option awards on the date of grant using a lattice-based option-valuation model which requires management to make certain assumptions regarding: (i) the expected volatility in the market price of the Company’s common stock; (ii) dividend yield; (iii) risk-free interest rates; and (iv) the period of time employees are expected to hold the award prior to exercise (referred to as the expected holding period). The expected volatility under the lattice-based option-valuation model is based on the current and historical implied volatilities from traded options of our common stock. The dividend yield is based on the approved annual dividend rate in effect and current market price of the underlying common stock at the time of grant. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for bonds with maturities ranging from one month to seven years. The expected holding period of the awards granted is estimated using the historical exercise behavior of employees. In addition, SFAS 123R requires us to estimate the expected impact of forfeited awards and recognize stock-based compensation cost only for those awards expected to vest. We use historical experience to estimate projected forfeitures. If actual forfeiture rates are materially different from our estimates, stock-based compensation expense could be significantly different from what we have recorded in the current period. We periodically review actual forfeiture experience and revise our estimates, as considered necessary. The cumulative effect on current and prior periods of a change in the estimated forfeiture rate is recognized as compensation cost in earnings in the period of the revision.

          Finally, the terms of our performance share unit grants allow the recipients of such awards to earn a variable number of shares based on the achievement of the performance goals specified in the awards. The actual amount of any stock award is based on the Company’s earnings per share growth as measured in accordance with its Amended and Restated Employee Long-Term Incentive Plan for the performance period compared to that of a peer group of companies. Stock-based compensation expense associated with performance share units is recognized based on management’s best estimates of the achievement of the performance goals specified in such awards and the resulting number of shares that will be earned. If the actual number of performance share units earned is different from our estimates, stock-based compensation could be significantly different from what we have recorded in the current period. We periodically obtain and review publicly available financial information for the members of the peer group and compare that to actual and estimated future performance of the Company, including historical earnings per share growth as well as published estimates of projected earnings per share growth. This information is used to evaluate our progress towards achieving the performance criteria and our estimate of the number of performance share units expected to be earned at the end of the performance period. The cumulative effect on current and prior periods of a change in the estimated number of performance share units expected to be earned is recognized as compensation cost in earnings in the period of the revision. While the assumptions used to calculate and account for stock-based compensation awards represent management’s best estimates, these estimates involve inherent uncertainties and the application of management’s judgment. As a result, if revisions are made to our assumptions and estimates, our stock-based compensation expense could vary significantly from period to period. In addition, the number of awards made under our equity compensation plans, changes in the design of those plans, the price of our shares and the performance of our Company can all cause stock-based compensation expense to vary from period to period.

Results of Operations

          Our clinical testing business currently represents our one reportable business segment. The clinical testing business for each of the three years in the period ended December 31, 2007 accounted for more than 90% of net revenues from continuing operations. Our other operating segments consist of our risk assessment services business, our clinical trials testing business, our healthcare information technology business, MedPlus, and our diagnostic products business. On April 19, 2006, we decided to discontinue the operations of a test kit manufacturing subsidiary, NID. During the third quarter of 2006, we completed the wind down of NID and classified the operations of NID as discontinued operations for all periods presented. Our business segment information is disclosed in Note 17 to the Consolidated

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Financial Statements.

          Year Ended December 31, 2007 Compared with Year Ended December 31, 2006

          Continuing Operations

          Income from continuing operations for the year ended December 31, 2007 was $554 million, or $2.84 per diluted share, compared to $626 million, or $3.14 per diluted share in 2006. The decrease in income from continuing operations is principally due to the impact of the change in contract status with UNH, discussed earlier under “Recent Changes in Payer Relationships”. However, we successfully mitigated the ongoing impact during the third quarter of 2007 as a result of actions taken to reduce costs, and higher reimbursement for the testing we continue to perform for UNH members. During the second half of the year our profits, before considering the acquisition of AmeriPath, exceeded those of the prior year, when we were a contracted provider to UNH. The acquisition of AmeriPath, which was completed in May 2007, also served to reduce income from continuing operations compared to the prior year. We expect the acquisition of AmeriPath to improve our revenue growth and earnings once the anticipated growth opportunities and cost synergies associated with the acquisition are realized. Results for the year ended December 31, 2007 include first quarter pre-tax charges of $10.7 million, or $0.03 per diluted share, associated with workforce reductions in response to reduced volume levels and $4.0 million, or $0.01 per diluted share, related to in-process research and development expense associated with the HemoCue acquisition.

          Net Revenues

          Net revenues for the year ended December 31, 2007 grew by 7.0% over the prior year level to $6.7 billion. The acquisition of AmeriPath contributed approximately 8% to revenue growth. Our acquisitions of Focus Diagnostics, Enterix and HemoCue contributed approximately 1.7% to revenue growth. We estimate the impact of our change in status with UNH reduced revenue growth by approximately 5%.

          Our clinical testing business, which accounted for over 90% of our 2007 net revenues, grew approximately 5.6% for the year, with AmeriPath contributing 8.3% growth and the change in status with UNH reducing revenues by approximately 5%. Volume, measured by the number of requisitions, declined 4.1% for the year ended December 31, 2007, primarily due to our change in status with UNH, which reduced volume by an estimated 7%, partially offset by the impact of the AmeriPath acquisition, which increased volume by about 3%. Revenue per requisition increased 10.2% for the year ended December 31, 2007 and was impacted by the results of AmeriPath, which contributed 5.1% to the improvement, and a 2% increase due to higher reimbursement on the retained businesss from UNH, which is being reimbursed at a higher rate as a non-contractor provider, with the balance of the increase primarily driven by a positive test mix.

          Our businesses other than clinical testing accounted for approximately 9% of net revenues in 2007. These businesses include our risk assessment services business, our clinical trials testing business, our healthcare information technology business, MedPlus, and our diagnostics products business. The revenues for these businesses as a group grew 23% for the year ended December 31, 2007 as compared to the prior year period, with the increase primarily driven by our acquisitions of HemoCue, Focus Diagnostics and Enterix.

          Operating Costs and Expenses

          Total operating costs and expenses for the year ended December 31, 2007 increased $473 million from the prior year period. Costs associated with the acquired operations of AmeriPath, Focus Diagnostics, Enterix and HemoCue increased costs by approximately $552 million for the year ended December 31, 2007. This increase was offset in part by actions taken to improve our operating efficiency and reduce the size of our workforce. Results for the year ended December 31, 2007 include first quarter charges of $10.7 million associated with workforce reductions ($3.9 million included in costs of services and $6.8 million in selling, general and administrative) and $4.0 million of in-process research and development costs associated with the acquisition of HemoCue, which was recorded in other operating expense, net.

          Cost of services, which includes the costs of obtaining, transporting and testing specimens, was 59.2% of net revenues for the year ended December 31, 2007, compared to 59.0% of net revenues in 2006. The increase in cost of services as a percentage of revenues is primarily due to lower volumes in our clinical testing business and costs associated with workforce reductions. Partially offsetting these increases were improvements related to the increase in average revenue per requisition and actions taken to reduce costs.

          Selling, general and administrative expenses, which include the costs of the sales force, billing operations, bad debt expense and general management and administrative support, were 24.1% of net revenues during the year ended

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December 31, 2007, compared to 22.5% in the prior year period. This increase was primarily due to lower volume levels in our clinical testing business; costs associated with workforce reductions; costs associated with efforts to retain business and clarify for patients, physicians and employers misinformation regarding the UNH contract change; and the impact of the acquired operations of AmeriPath and HemoCue. For the year ended December 31, 2007, bad debt expense was 4.5% of net revenues, compared to 3.9% in the prior year period. The increase was principally driven by the inclusion of AmeriPath, which carries a higher bad debt rate than the rest of our business, primarily due to its revenue and customer mix, and by higher bad debt expense associated with billing patients directly for a portion of the UNH volume.

          Other operating expense, net represents miscellaneous income and expense items related to operating activities, including gains and losses associated with the disposal of operating assets and provisions for restructurings and other special charges. For the year ended December 31, 2007, other operating expense, net included a $4.0 million charge related to in-process research and development expense recorded in connection with the acquisition of HemoCue.

          For the year ended December 31, 2006, other operating expense, net included pre-tax charges of $27 million principally associated with integration activities related to LabOne and our operations in California.

          Operating Income

          Operating income for the year ended December 31, 2007 was $1.1 billion, or 16.3% of net revenues, compared to $1.1 billion, or 18.0% of net revenues, in the prior year period. The decrease in operating income as a percentage of net revenues was principally due to lower volume levels in our clinical testing business, the various items which served to increase cost of services and selling, general and administrative expenses as a percentage of revenues, and the impact of the acquired operations of AmeriPath and HemoCue. These decreases were offset in part by actions we have taken to reduce our cost structure and higher revenue per requisition.

          Other Income (Expense)

          Interest expense, net for the year ended December 31, 2007 increased $87 million over the prior year. The increase in interest expense, net was primarily due to additional interest expense associated with borrowings to fund acquisitions, as described more fully in Note 10 to the Consolidated Financial Statements.

          Other expense, net represents miscellaneous income and expense items related to non-operating activities such as gains and losses associated with investments and other non-operating assets. For the year ended December 31, 2007, other expense, net includes a $4 million charge related to the write-down of an investment. For the year ended December 31, 2006, other expense, net includes $26 million of charges related to the write-downs of investments partially offset by a gain of $16 million on the sale of an investment.

          Discontinued Operations

          NID and the Company each received a subpoena from the United States Attorney’s Office for the Eastern District of New York during the fourth quarter of 2004. The subpoenas requested a wide range of business records, including documents regarding parathyroid hormone (“PTH”) test kits manufactured by NID and PTH testing performed by the Company. The Company has voluntarily and actively cooperated with the investigation, providing information, witnesses and business records of NID and the Company, including documents related to PTH tests and test kits, as well as other tests and test kits. In the second and third quarters of 2005, the FDA conducted an inspection of NID and issued a Form 483 listing the observations made by the FDA during the course of the inspection. NID responded to the Form 483.

          During the fourth quarter of 2005, NID instituted its second voluntary product hold within a six-month period, due to quality issues, which adversely impacted the operating performance of NID. As a result, the Company evaluated a number of strategic options for NID, and on April 19, 2006, decided to cease operations at NID. Upon completion of the wind down of operations in the third quarter of 2006, the operations of NID were classified as discontinued operations. During the third quarter of 2006, the government issued two additional subpoenas, one to NID and one to the Company. The subpoenas covered various records, including records related to tests and test kits in addition to PTH.

          During the third quarter of 2007, the government and the Company began settlement discussions. In the course of those discussions, the government disclosed to the Company certain of the government’s legal theories regarding the amount of damages allegedly incurred by the government, which include alleged violations of civil and criminal statutes including the False Claims Act and the Food, Drug and Cosmetics Act. Violations of these statutes and related regulations could lead to a warning letter, injunction, fines or penalties, exclusion from federal healthcare programs and/or criminal prosecution, as well as claims by third parties. The Company analyzed the government’s position and presented its own analysis which argued against many of the government’s claims. In light of that analysis and based on the status of settlement discussions, the Company has established a reserve, in accordance with generally accepted accounting principles, reflected in discontinued operations, of $241 million in connection with these claims. Of the total reserve, $51 million and $190

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million were recorded in the third and fourth quarters, respectively, of 2007. The Company estimates that the amount reserved represents the minimum expected probable loss with respect to this matter. The Company does not believe that a reasonable estimate for these losses in excess of the established reserve can be made at this time. The Company has recorded a deferred tax benefit associated with that portion of the reserve that it expects will be tax deductible. Eventual losses related to these matters may substantially exceed the reserve, and the impact could be material to the Company’s results of operations, cash flows and financial condition in the period that such matters are determined or paid.

          The Company continues to engage in discussions with the United States Attorney’s Office and those discussions potentially could lead to an agreement in principle to resolve some or all of the matters in the near future. There can be no assurance, however, when or whether a settlement may be reached, or as to its terms. If the Company cannot reach an acceptable settlement agreement with the United States Attorney’s Office, the Company would defend itself and NID and could incur significant costs in doing so. See Note 15 to the Consolidated Financial Statements for a further description of these matters.

          Loss from discontinued operations, net of tax, for the year ended December 31, 2007 was $214 million, or $1.10 per diluted share, compared to $39 million, or $0.20 per diluted share in 2006. Results for the year ended December 31, 2007 reflect a charge of $241 million to establish a reserve as described above. Results for the year ended December 31, 2006 reflect pre-tax charges of $32 million, primarily related to the wind down of NID’s operations.

          Year Ended December 31, 2006 Compared with Year Ended December 31, 2005

          Continuing Operations

          Income from continuing operations for the year ended December 31, 2006 increased to $626 million, or $3.14 per diluted share, compared to $573 million, or $2.79 per diluted share in 2005. The increase in income from continuing operations was principally associated with improved performance in our clinical testing business, driven by organic revenue growth and increases in operating efficiencies resulting from our Six Sigma, standardization and consolidation efforts. Results for the year ended December 31, 2006 include pre-tax charges of $27 million, or $0.08 per diluted share, associated with integration activities related to LabOne and our operations in California, and $10 million pre-tax, or $0.03 per diluted share, related to net investment losses. Also, results for the year ended December 31, 2006, included pre-tax expenses of $55 million, or $0.17 per share, associated with stock-based compensation recorded in accordance with SFAS 123R.

          Net Revenues

          Net revenues for the year ended December 31, 2006 grew by 15% over the prior year level to $6.3 billion. The acquisition of LabOne contributed 8% to revenue growth. Approximately 55% of LabOne’s net revenues are generated from risk assessment services provided to life insurance companies, with the remainder classified as clinical testing. The acquisition of Focus Diagnostics, which was completed on July 3, 2006, contributed approximately half a percent to revenue growth.

          Our clinical testing business, which accounted for more than 90% of our 2006 net revenues, grew approximately 10% for the year. The acquisition of LabOne contributed approximately 4% to the growth in clinical testing net revenues, principally reflected in volume. The increase in clinical testing revenues was driven by improvements in both testing volumes, measured by the number of requisitions, and increases in average revenue per requisition.

          For the year ended December 31, 2006, clinical testing volume increased 5% compared to the prior year period, principally driven by the acquisition of LabOne.

          For the year ended December 31, 2006, average revenue per requisition improved 5%. This improvement was primarily attributable to a continuing shift to a more esoteric test mix, and increases in the number of tests ordered per requisition. Gene-based and esoteric testing net revenues were over $1 billion for 2006, and grew greater than 10% compared to the prior year. LabOne’s clinical testing business carries a lower revenue per requisition than our average, principally due to a higher concentration of lower priced drugs-of-abuse testing; and modestly reduced our average revenue per requisition.

          Our businesses other than clinical testing accounted for approximately 8% of net revenues in 2006. These businesses include our risk assessment services business, our clinical trials testing business, our healthcare information technology business (MedPlus), and our diagnostics products business whose combined growth rates did not significantly affect our consolidated growth rate. The risk assessment services business represented approximately 5% of our net revenues in 2006 with a growth rate of approximately 1% to 2% per year. The growth in risk assessment services was sluggish during 2006, and was adversely impacted by an overall decline in the life insurance market, resulting in a decline in the number of life insurance applicants being tested, partially offset by growth in paramedical exams and various risk assessment activities outsourced by life insurance companies.

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          Operating Costs and Expenses

          Total operating costs and expenses for the year ended December 31, 2006 increased $691 million from the prior year period primarily due to the LabOne acquisition and, to a lesser degree, organic growth in our clinical testing business. The increased costs were primarily in the areas of employee compensation and benefits and testing supplies. Employee compensation and benefits included $55 million of stock-based compensation recorded in accordance with SFAS 123R. While our cost structure had been favorably impacted by efficiencies generated from our Six Sigma, standardization and consolidation initiatives, we continued to make investments in sales, service, science and information technology to further differentiate our Company. These investments included:

• increased focus in high-growth specialty testing areas, and improved sales training and sales tools;

• continuously improving service levels and their consistency using Six Sigma;

• making specimen collection more convenient for patients by adding phlebotomists and expanding hours of operation in our patient service centers;

• continuing to strengthen our medical and scientific capabilities by adding leading experts in various disease states and emerging diagnostic areas; and

• enhancing our information technology infrastructure and development capabilities supporting our products which enable healthcare providers to order and receive laboratory test results, order prescriptions electronically, and create, collect, manage and exchange healthcare information.

          Additionally, during the first quarter of 2006, we recorded $27 million of pre-tax charges in “other operating expense, net” primarily associated with integration activities related to LabOne and our operations in California.

          Cost of services, which includes the costs of obtaining, transporting and testing specimens, was 59% of net revenues for the year ended December 31, 2006, consistent with the prior year.

          Selling, general and administrative expenses, which include the costs of the sales force, billing operations, bad debt expense and general management and administrative support, were 22.5% of net revenues during the year ended December 31, 2006, compared to 22.3% in the prior year period. This increase was primarily due to stock-based compensation expense recorded in accordance with SFAS 123R, which increased selling, general and administrative expenses, as a percentage of net revenues by approximately 1%, offset by revenue growth, which has allowed us to leverage our expense base, as well as continued benefits from our Six Sigma, standardization and consolidation efforts. For the year ended December 31, 2006, bad debt expense was 3.9% of net revenues, compared to 4.3% in the prior year period. This decrease primarily relates to the improved collection of diagnosis, patient and insurance information necessary to more effectively bill for services performed. We believe that our Six Sigma and standardization initiatives and the increased use of electronic ordering by our customers will provide additional opportunities to further improve our overall collection experience and cost structure.

          Other operating expense, net represents miscellaneous income and expense items related to operating activities, including gains and losses associated with the disposal of operating assets and provisions for restructurings and other special charges. For the year ended December 31, 2006, other operating expense, net included pre-tax charges of $27 million principally associated with integration activities related to LabOne and our operations in California.

          For the year ended December 31, 2005, other operating expense, net included a $6.2 million charge primarily related to forgiving amounts owed by patients and physicians, and related property damage as a result of hurricanes in the Gulf Coast.

          Operating Income

          Operating income for the year ended December 31, 2006 improved to $1.1 billion, or 18.0% of net revenues, from $1.0 billion, or 18.5% of net revenues, in the prior year period. The increase in operating income for the year ended December 31, 2006 was principally driven by the performance of our clinical testing business. Partially offsetting these improvements was $27 million of special charges recorded in the first quarter of 2006, primarily related to integration activities and increased investments in MedPlus. Additionally, operating income for the year ended December 31, 2006 included $55 million of stock-based compensation expense recorded pursuant to SFAS 123R.

          Operating income as a percentage of net revenues for the year ended December 31, 2006 compared to the prior year’s period was reduced by approximately 1% due to stock-based compensation expense, and by 0.6% due to the results of the LabOne business, which we expect to continue to carry lower margins than the rest of our operations until it is fully integrated and we have realized the expected synergies from the acquisition. Operating income as a percentage of net revenues for the year ended December 31, 2006 was also reduced by approximately 0.4% due to special charges, primarily related to integration activities.

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          Other Income (Expense)

          Interest expense, net for the year ended December 31, 2006 increased $34 million over the prior year. The increase in interest expense, net was primarily due to additional interest expense associated with our $900 million senior notes offering in October 2005 used to fund the LabOne acquisition, as described more fully in Note 10 to the Consolidated Financial Statements.

          Other expense, net represents miscellaneous income and expense items related to non-operating activities such as gains and losses associated with investments and other non-operating assets. For the year ended December 31, 2006, other expense, net includes $26 million of charges related to the write-downs of investments offset by a gain of $16 million on the sale of an investment.

          For the year ended December 31, 2005, other expense, net includes a $7.1 million charge associated with the write-down of an investment.

          Discontinued Operations

          Our discontinued operations are comprised of NID, a test kit manufacturing subsidiary. During the fourth quarter of 2005, NID instituted its second voluntary product hold within a six-month period, due to quality issues, which adversely impacted the operating performance of NID. As a result, we evaluated a number of strategic options for NID, and on April 19, 2006, we decided to cease operations at NID. During the third quarter of 2006, we completed the wind down of NID’s operations. Results of NID are reported as discontinued operations for all periods presented.

          Loss from discontinued operations, net of tax, for the year ended December 31, 2006 increased to $39 million, or $0.20 per diluted share, compared to $27 million, or $0.13 per diluted share in 2005. Results for the year ended December 31, 2006 reflect pre-tax charges of $32 million, primarily related to the wind down of NID’s operations. These charges included: inventory write-offs of $7 million; asset impairment charges of $6 million; employee severance costs of $6 million; contract termination costs of $6 million; facility closure costs of $2 million; and costs to support activities to wind-down the business, comprised primarily of employee costs and professional fees, of $5 million.

Quantitative and Qualitative Disclosures About Market Risk

          We address our exposure to market risks, principally the market risk of changes in interest rates, through a controlled program of risk management that may include the use of derivative financial instruments. We do not hold or issue derivative financial instruments for trading purposes. We believe that our foreign exchange exposure is not material to our consolidated financial condition or results of operations. See Note 11 to the Consolidated Financial Statements for additional discussion of our financial instruments and hedging activities.

          At December 31, 2007 and 2006, the fair value of our debt was estimated at approximately $3.6 billion and $1.6 billion, respectively, using quoted market prices and yields for the same or similar types of borrowings, taking into account the underlying terms of the debt instruments. At December 31, 2007 and 2006, the estimated fair value exceeded the carrying value of the debt by approximately $59.1 million and $0.4 million, respectively. A hypothetical 10% increase in interest rates on our total debt portfolio (representing approximately 61 and 59 basis points at December 31, 2007 and 2006, respectively) would potentially reduce the estimated fair value of our debt by approximately $78 million and $33 million at December 31, 2007 and 2006, respectively.

          Borrowings under our senior unsecured revolving credit facility, our secured receivables credit facility, our term loan due December 2008, and our term loan due May 2012 are subject to variable interest rates. Interest on our secured receivables credit facility is based on rates that are intended to approximate commercial paper rates for highly-rated issuers. Interest rates on our senior unsecured revolving credit facility, term loan due December 2008 and term loan due May 2012 are subject to a pricing schedule that can fluctuate based on changes in our credit ratings. As such, our borrowing cost under these credit arrangements will be subject to both fluctuations in interest rates and changes in our credit ratings. As of December 31, 2007, the borrowing rates under these credit facilities were: for our senior unsecured credit facility, LIBOR plus 0.40%; for our term loan due December 2008, LIBOR plus 0.55%; and for our term loan due May 2012, LIBOR plus 0.50%. At December 31, 2007, the LIBOR rate was 4.60%. At December 31, 2007, there was $1.4 billion outstanding under our term loan due May 2012, $60 million outstanding under our term loan due December 2008; $100 million outstanding under our secured receivables credit facility and no borrowings outstanding under our $750 million senior unsecured revolving credit facility.

          During the third quarter ended September 30, 2007, we entered into various variable-to-fixed interest rate swap agreements, whereby we fixed the interest rates on $500 million of our term loan due May 2012 for periods ranging from October 2007 through October 2009. The fixed interest rates range from 5.095% to 5.267%. Based on our net exposure to interest rate changes, a hypothetical 10% change in interest rates on our variable rate indebtedness (representing approximately 51 basis points) would impact annual net interest expense by approximately $5 million, assuming no changes to the debt outstanding at December 31, 2007.

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          The fair value of the interest rate swap agreements at December 31, 2007 was not material. A hypothetical 10% decrease in interest rates on our term loan (representing approximately 43 basis points) would potentially decrease the fair value of these instruments by approximately $3 million. A hypothetical 10% increase in interest rates would potentially increase the fair value of these instruments by approximately $3 million. For details regarding our outstanding debt and our financial instruments, see Notes 10 and 11 to the Consolidated Financial Statements.

          Risk Associated with Investment Portfolio

          Our investment portfolio includes equity investments in publicly held companies that are classified as available-for-sale securities and other strategic equity holdings in privately held companies. These securities are exposed to price fluctuations and are generally concentrated in the life sciences industry. The carrying values of our available-for-sale equity securities and privately held securities were $26.2 million at December 31, 2007.

          We do not hedge our equity price risk. The impact of an adverse movement in equity prices on our holdings in privately held companies cannot be easily quantified, as our ability to realize returns on investments depends on, among other things, the enterprises’ ability to raise additional capital or derive cash inflows from continuing operations or through liquidity events such as initial public offerings, mergers or private sales.

Liquidity and Capital Resources

          Cash and Cash Equivalents

          Cash and cash equivalents at December 31, 2007 totaled $168 million, compared to $150 million at December 31, 2006. Cash flows from operating activities in 2007 were $927 million which, together with $850 million of cash flows from financing activities, were used to fund investing activities of $1.8 billion. Cash and cash equivalents at December 31, 2006 totaled $150 million, compared to $92 million at December 31, 2005. Cash flows from operating activities in 2006 were $952 million which were used to fund financing activities of $480 million, and investing activities of $414 million.

          Cash Flows from Operating Activities

          Net cash provided by operating activities for 2007 was $927 million compared to $952 million in the prior year period. This decrease was primarily due to lower earnings in the current year and increased payments associated with variable compensation earned in the prior year, coupled with the payment of $57 million of fees and other expenses associated with the acquisition of AmeriPath. Partially offsetting these items was a net source of funds from reductions in net accounts receivable in the current year compared to a net use of funds in the prior year. Days sales outstanding, a measure of billing and collection efficiency, were 48 days at December 31, 2007 unchanged from December 31, 2006, despite a two day increase due to the impact of AmeriPath. We expect AmeriPath’s impact on our days sales outstanding to decrease over time.

          Net cash provided by operating activities for 2006 was $952 million compared to $852 million in the prior year period. This increase was primarily due to improved operating performance and the timing of various payments for taxes and accrued expenses partially offset by an increase in accounts receivable. Days sales outstanding were 48 days at December 31, 2006 compared to 46 days at December 31, 2005.

          Cash Flows from Investing Activities

          Net cash used in investing activities in 2007 was $1.8 billion, consisting primarily of $1.2 billion related to the acquisition of AmeriPath, $309 million related to the acquisition of HemoCue and capital expenditures of $219 million.

          Net cash used in investing activities in 2006 was $414 million, consisting primarily of $231 million related to the acquisitions of Focus Diagnostics and Enterix, and capital expenditures of $193 million. These amounts were partially offset by $16 million of proceeds from the sale of an investment. The decrease in capital expenditures compared to the prior year is principally due to the completion of a new facility in California, for which there were substantial expenditures in the prior year.

          Cash Flows from Financing Activities

          Net cash provided by financing activities in 2007 was $850 million, primarily associated with new borrowings and repayments related to the acquisitions of AmeriPath and HemoCue.

          During the first quarter of 2007, we entered into an interim credit facility (the “Interim Credit Facility”) and borrowed $450 million to finance the acquisition of HemoCue and to repay substantially all of HemoCue’s outstanding debt.

          During the second quarter of 2007, we borrowed $1.6 billion under a new five-year term loan facility and $780 million under a new bridge loan facility to finance the acquisition of AmeriPath and repay the Interim Credit Facility used

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to finance the HemoCue acquisition.

          In connection with the acquisition of AmeriPath, we repaid substantially all of AmeriPath’s outstanding debt and related accrued interest. On May 21, 2007, we commenced a cash tender offer and consent solicitation for the $350 million 10.5% Senior Subordinated Notes of AmeriPath, Inc. due 2013 (“the AmeriPath subordinated senior notes”). In conjunction with the cash tender offer, approximately $348 million in aggregate principal amount, or 99.4% of the $350 million of outstanding senior subordinated notes, was tendered. We made payments of $386 million to holders with respect to the cash tender offer and consent solicitation, including tender premium and related solicitation fees and accrued interest.

          We completed an $800 million senior notes offering in June 2007 (the “2007 Senior Notes”). The 2007 Senior Notes were sold in two tranches: (a) $375 million of 6.40% senior notes due 2017; and (b) $425 million of 6.95% senior notes due 2037. We used the net proceeds from the 2007 Senior Notes offering to repay the $780 million of borrowings under the bridge loan facility. The 2007 Senior Notes, term loans and the bridge loan are further described in Note 10 to the Consolidated Financial Statements.

          Since the completion of the AmeriPath acquisition in May 2007, the point during the year at which our total debt balance was at its highest level, we have reduced our total debt by $417 million.

          Net cash provided by financing activities for the year ended December 31, 2007, also included $95 million in proceeds from the exercise of stock options, including related tax benefits, offset by purchases of treasury stock totaling $146 million and dividend payments of $77 million. The $146 million of treasury stock purchases represents 2.8 million shares of our common stock purchased at an average price of $52.14 per share.

          Net cash used in financing activities in 2006 was $480 million. During 2006, we repaid $275 million outstanding under our 6¾% senior notes, $60 million of principal outstanding under our secured receivables credit facility and $75 million under our senior unsecured revolving credit facility. Debt repayments and acquisitions were funded with cash-on hand and borrowings of $75 million under our senior unsecured revolving credit facility and $300 million under our secured receivables credit facility. In addition, we purchased $472 million of treasury stock, which represents 8.9 million shares of our common stock purchased at an average price of $53.23 per share, partially offset by $135 million in proceeds from the exercise of stock options, including related tax benefits. We also paid dividends of $77 million.

          Dividend Program

          During each of the quarters of 2007 and 2006, our Board of Directors declared a quarterly cash dividend of $0.10 per common share. We expect to fund future dividend payments with cash flows from operations, and do not expect the dividend to have a material impact on our ability to finance future growth.

          Share Repurchase Plan

          For the year ended December 31, 2007, we repurchased approximately 2.8 million shares of our common stock at an average price of $52.14 per share for $146 million. Through December 31, 2007, we have repurchased approximately 44.1 million shares of our common stock at an average price of $45.35 for $2.0 billion under our share repurchase program. At December 31, 2007, the total available for repurchases under the remaining authorization was $104 million.

          Contractual Obligations and Commitments

          The following table summarizes certain of our contractual obligations as of December 31, 2007. See Notes 10 and 15 to the Consolidated Financial Statements for further details.

	Payments due by period
	(in thousands)
Contractual Obligations	Total		Less than 1 year		1–3 years		3–5 years		After 5 years
Long-term debt	$	3,421,095	$	61,800	$	586,359	$	1,474,613	$	1,298,323
Capital lease obligations		19,698		1,781		1,896		1,889		14,132
Interest payments on outstanding debt		1,766,373		205,816		394,371		246,904		919,282
Operating leases		701,642		177,527		262,503		132,598		129,014
Purchase obligations		87,447		39,311		35,627		12,000		509
Total contractual obligations	$	5,996,255	$	486,235	$	1,280,756	$	1,868,004	$	2,361,260

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          On January 1, 2007, we adopted FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes”. As of December 31, 2007, our total liabilities for unrecognized tax benefits were approximately $108 million, which were excluded from the table above. Based upon the expiration of statutes of limitations, settlements and/or the conclusion of tax examinations, we believe it is reasonably possible that this amount may decrease by up to $33 million within the next twelve months. For the remainder, we cannot make reasonably reliable estimates of the timing of the future payments of these liabilities. See Note 5 to the Consolidated Financial Statements for information regarding our contingent tax liability reserves.

          Our credit agreements relating to our senior unsecured revolving credit facility, our term loan due December 2008 and our term loan due May 2012 contain various covenants and conditions, including the maintenance of certain financial ratios, that could impact our ability to, among other things, incur additional indebtedness. We do not expect these covenants to adversely impact our ability to execute our growth strategy or conduct normal business operations.

          Unconsolidated Joint Ventures

          We have investments in unconsolidated joint ventures in Phoenix, Arizona; Indianapolis, Indiana; and Dayton, Ohio, which are accounted for under the equity method of accounting. We believe that our transactions with our joint ventures are conducted at arm’s length, reflecting current market conditions and pricing. Total net revenues of our unconsolidated joint ventures equal less than 6% of our consolidated net revenues. Total assets associated with our unconsolidated joint ventures are less than 2% of our consolidated total assets. We have no material unconditional obligations or guarantees to, or in support of, our unconsolidated joint ventures and their operations.

          Requirements and Capital Resources

          We estimate that we will invest between $280 million and $300 million during 2008 for capital expenditures to support and expand our existing operations, principally related to investments in information technology, equipment, and facility upgrades.

          As of December 31, 2007, $1 billion of borrowing capacity was available under our existing credit facilities.

          We believe that cash from operations and our borrowing capacity under our credit facilities will provide sufficient financial flexibility to meet seasonal working capital requirements and to fund capital expenditures, debt service requirements, cash dividends on common shares, share repurchases and additional growth opportunities for the foreseeable future. Our investment grade credit ratings have had a favorable impact on our cost of and access to capital, and we believe that our financial performance should provide us with access to additional financing, if necessary, to fund growth opportunities and any obligations that cannot be funded from existing sources.

Outlook

          As discussed in the Overview, despite the continued consolidation among healthcare insurers, and their continued efforts to reduce reimbursement for providers of diagnostic testing, we believe that the underlying fundamentals of the diagnostic testing industry will continue to improve and that over the long term the industry will continue to grow. As the leading provider of diagnostic testing, information and services with the most extensive network of laboratories and patient service centers throughout the United States and the broadest menu of diagnostic tests, we believe we are well positioned to benefit from the growth expected in our industry.

          We believe our focus on delivering a superior patient experience and Six Sigma quality as well as the investments we are continuing to make in our distribution network, our industry leading test menu and our information technology solutions will further differentiate us over the long-term and strengthen our industry leadership position. In addition, we plan to leverage our knowledge and expertise in diagnostic testing to further expand into international markets and point-of-care testing.

          Our strong cash generation, balance sheet and credit profile position us well to take advantage of these growth opportunities.

Inflation

          We believe that inflation generally does not have a material adverse effect on our results of operations or financial condition because the majority of our contracts are short term.

Impact of New Accounting Standards

          In December 2007, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) SFAS No. 141(R) “Business Combinations” and SFAS No. 160 “Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51”. In September 2007, the FASB ratified Emerging Issues Task Force Issue No. 07-1, “Accounting for Collaborative Agreements”. In February 2007, the FASB

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issued SFAS No. 159 “The Fair Value Option for Financial Assets and Financial Liabilities”. In September 2006, the FASB issued SFAS No. 157 “Fair Value Measurements”. In February 2008, the FASB issued FASB Staff Position No. FAS 157-2 “Effective Date of FASB Statement No. 157”.

          The impact of these accounting standards is discussed in Note 2 to the Consolidated Financial Statements.

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REPORT OF MANAGEMENT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

          The management of Quest Diagnostics Incorporated (the “Company”), including its Chief Executive Officer and Chief Financial Officer, is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934. Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2007 based on criteria for effective internal control over financial reporting described in “Internal Control – Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, management has determined that the Company’s internal control over financial reporting as of December 31, 2007 is effective.

          The Company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America. Internal control over financial reporting includes policies and procedures that: (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America and that receipts and expenditures of the Company are being made only in accordance with authorization of management and directors of the Company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of assets that could have a material effect on the consolidated financial statements.

          Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

          Management has excluded from the scope of its assessment the business of AmeriPath Group Holdings, Inc. (“AmeriPath”) and POCT Holding AB (“HemoCue”). Both companies were acquired by the Company in purchase business combinations during 2007. AmeriPath and HemoCue are wholly owned subsidiaries whose total excluded assets represent 4.6% and 0.9%, respectively, and total excluded revenues represent 7.1% and 1.2%, respectively, of the related consolidated financial statement amounts as of and for the year ended December 31, 2007.

          PricewaterhouseCoopers LLP, the independent registered public accounting firm that audited the financial statements included in this annual report, audited the Company’s internal control over financial reporting as of December 31, 2007 and issued their audit report expressing an unqualified opinion on the Company’s internal control over financial reporting.

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Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders
of Quest Diagnostics Incorporated

          In our opinion, the consolidated financial statements listed in the index appearing under Item 15(a)(1) present fairly, in all material respects, the financial position of Quest Diagnostics Incorporated and its subsidiaries at December 31, 2007 and 2006, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2007 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the index appearing under Item 15(a)(2) presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2007, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for these financial statements and the financial statement schedule, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Report of Management on Internal Control over Financial Reporting. Our responsibility is to express opinions on these financial statements, on the financial statement schedule, and on the Company’s internal control over financial reporting based on our integrated audits which were integrated audits in 2007 and 2006. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

          As discussed in Note 2 to the consolidated financial statements, the Company changed the manner in which it accounts for share-based compensation in 2006 and the manner in which it accounts for uncertain tax positions in 2007, respectively.

          A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

          Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

          As described in the Report of Management on Internal Control over Financial Reporting, management has excluded AmeriPath Group Holdings, Inc. (“AmeriPath”) and POCT Holding AB (“HemoCue”) from its assessment of internal control over financial reporting as of December 31, 2007 because each company was acquired by the Company in a purchase business combination during 2007. We have also excluded AmeriPath and HemoCue from our audit of internal control over financial reporting. AmeriPath and HemoCue are wholly-owned subsidiaries whose total excluded assets represent 4.6% and 0.9%, respectively, and total excluded revenues represent 7.1% and 1.2%, respectively, of the related consolidated financial statement amounts as of and for the year ended December 31, 2007.

/s/	PricewaterhouseCoopers LLP
	PricewaterhouseCoopers LLP
	Florham Park, New Jersey
	February 22, 2008

F-1

QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2007 AND 2006
(in thousands, except per share data)

	2007			2006
Assets
Current assets:
Cash and cash equivalents	$	167,594		$	149,640
Accounts receivable, net of allowance for doubtful accounts of $250,067 and $205,086 at December 31, 2007 and 2006, respectively		881,967			774,414
Inventories		95,234			78,564
Deferred income taxes		149,841			120,540
Prepaid expenses and other current assets		79,721			67,860
Total current assets		1,374,357			1,191,018
Property, plant and equipment, net		911,998			752,357
Goodwill, net		5,220,104			3,391,046
Intangible assets, net		886,733			193,346
Other assets		172,501			133,715
Total assets	$	8,565,693		$	5,661,482
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable and accrued expenses	$	1,124,716		$	833,996
Short-term borrowings and current portion of long-term debt		163,581			316,874
Total current liabilities		1,288,297			1,150,870
Long-term debt		3,377,212			1,239,105
Other liabilities		575,942			252,336
Commitments and contingencies
Stockholders’ equity:
Common stock, par value $0.01 per share; 600,000 shares authorized at both December 31, 2007 and 2006; 213,745 and 213,755 shares issued at December 31, 2007 and 2006, respectively		2,137			2,138
Additional paid-in capital		2,210,825			2,185,073
Retained earnings		2,057,744			1,800,255
Accumulated other comprehensive income (loss)		25,279			(65	)
Treasury stock, at cost; 19,705 and 19,806 shares at December 31, 2007 and 2006, respectively		(971,743	)		(968,230	)
Total stockholders’ equity		3,324,242			3,019,171
Total liabilities and stockholders’ equity	$	8,565,693		$	5,661,482

The accompanying notes are an integral part of these statements.

F-2

QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2007, 2006 AND 2005
(in thousands, except per share data)

	2007			2006			2005
Net revenues	$	6,704,907		$	6,268,659		$	5,456,726
Operating costs and expenses:
Cost of services		3,969,848			3,696,006			3,220,713
Selling, general and administrative		1,612,858			1,410,716			1,215,862
Amortization of intangible assets		27,904			10,843			4,637
Other operating expense, net		2,961			23,017			7,966
Total operating costs and expenses		5,613,571			5,140,582			4,449,178
Operating income		1,091,336			1,128,077			1,007,548
Other income (expense):
Interest expense, net		(178,314	)		(91,425	)		(57,354	)
Minority share of income		(26,510	)		(23,900	)		(19,495	)
Equity earnings in unconsolidated joint ventures		26,969			28,469			26,185
Other expense, net		(1,079	)		(7,948	)		(6,876	)
Total non-operating expenses, net		(178,934	)		(94,804	)		(57,540	)
Income from continuing operations before taxes		912,402			1,033,273			950,008
Income tax expense		358,574			407,581			376,812
Income from continuing operations		553,828			625,692			573,196
Loss from discontinued operations, net of taxes		(213,889	)		(39,271	)		(26,919	)
Net income	$	339,939		$	586,421		$	546,277
Earnings per common share - basic:
Income from continuing operations	$	2.87		$	3.18		$	2.84
Loss from discontinued operations		(1.11	)		(0.20	)		(0.13	)
Net income	$	1.76		$	2.98		$	2.71
Earnings per common share - diluted:
Income from continuing operations	$	2.84		$	3.14		$	2.79
Loss from discontinued operations		(1.10	)		(0.20	)		(0.13	)
Net income	$	1.74		$	2.94		$	2.66
Dividends per common share	$	0.40		$	0.40		$	0.36

The accompanying notes are an integral part of these statements.

F-3

QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2007, 2006 AND 2005
(in thousands)

	2007			2006			2005
Cash flows from operating activities:
Net income	$	339,939		$	586,421		$	546,277
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		237,879			197,398			176,124
Provision for doubtful accounts		300,226			243,443			233,628
Provision for restructuring and other special charges		238,781			55,788			—
Deferred income tax provision (benefit)		(1,575	)		(46,280	)		661
Minority share of income		26,510			23,900			19,495
Stock compensation expense		56,853			55,478			2,037
Tax benefits associated with stock-based compensation plans		—			—			33,823
Excess tax benefits from stock-based compensation arrangements		(13,981	)		(32,693	)		—
Other, net		8,310			20,172			21,673
Changes in operating assets and liabilities:
Accounts receivable		(265,347	)		(273,232	)		(238,421	)
Accounts payable and accrued expenses		(5,431	)		81,347			36,038
Integration, settlement and other special charges		(14,013	)		(4,247	)		(5,400	)
Income taxes payable		3,213			45,330			15,382
Other assets and liabilities, net		15,560			(929	)		10,266
Net cash provided by operating activities		926,924			951,896			851,583
Cash flows from investing activities:
Business acquisitions, net of cash acquired		(1,535,826	)		(236,543	)		(814,219	)
Capital expenditures		(219,101	)		(193,422	)		(224,270	)
(Increase) decrease in investments and other assets		(4,266	)		15,563			(41,304	)
Net cash used in investing activities		(1,759,193	)		(414,402	)		(1,079,793	)
Cash flows from financing activities:
Proceeds from borrowings		3,754,490			375,000			1,100,186
Repayments of debt		(2,705,369	)		(416,208	)		(497,276	)
(Decrease) increase in book overdrafts		(24,950	)		(1,705	)		33,384
Purchases of treasury stock		(145,660	)		(472,325	)		(390,163	)
Exercise of stock options		80,928			102,324			98,335
Excess tax benefits from stock-based compensation arrangements		13,981			32,693			—
Dividends paid		(77,327	)		(77,135	)		(69,673	)
Distributions to minority partners		(24,678	)		(21,900	)		(21,477	)
Financing costs paid		(21,192	)		(728	)		(6,278	)
Net cash provided by (used in) financing activities		850,223			(479,984	)		247,038
Net change in cash and cash equivalents		17,954			57,510			18,828
Cash and cash equivalents, beginning of year		149,640			92,130			73,302
Cash and cash equivalents, end of year	$	167,594		$	149,640		$	92,130

The accompanying notes are an integral part of these statements.

F-4

QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2007, 2006 AND 2005
(in thousands)

	Shares of Common Stock Outstanding			Common Stock			Additional Paid-In Capital			Retained Earnings			Unearned Compen- sation			Accumulated Other Compre- hensive (Loss) Income			Treasury Stock			Compre- hensive Income
Balance, December 31, 2004		196,220		$	1,068		$	2,195,346		$	818,734		$	(11	)	$	3,866		$	(730,352	)
Net income											546,277											$	546,277
Currency translation																	(3,287	)					(3,287	)
Market valuation, net of tax benefit of $6,057																	(9,238	)					(9,238	)
Deferred gain, less reclassifications																	2,454						2,454
Comprehensive income																						$	536,206
Adjustment for 2-for-1 stock split					1,068			(1,068	)
Dividends declared											(72,501	)
Issuance of common stock under benefit plans		516			1			4,620						(5,347	)					17,683
Exercise of stock options		3,893						(69,691	)											168,026
Shares to cover employee payroll tax withholdings on stock issued under benefit plans								(7	)
Tax benefits associated with stock-based compensation plans								33,823
Conversion of contingent convertible debentures		5,632						12,510												237,136
Amortization of unearned compensation														2,037
Purchases of treasury stock		(7,806	)																	(390,163	)
Balance, December 31, 2005		198,455			2,137			2,175,533			1,292,510			(3,321	)		(6,205	)		(697,670	)
Net income											586,421											$	586,421
Currency translation																	2,460						2,460
Market valuation, net of tax benefit of $2,501																	(3,815	)					(3,815	)
Reversal of market adjustment, net of tax expense of $(5,053)																	7,707						7,707
Deferred gain reclassifications																	(212	)					(212	)
Comprehensive income																						$	592,561
Dividends declared											(78,676	)
Reclassification upon adoption of SFAS123R								(3,321	)					3,321
Issuance of common stock under benefit plans		598			1			(2,158	)											23,838
Stock-based compensation expense								55,478
Exercise of stock options		3,782						(75,603	)											177,927
Shares to cover employee payroll tax withholdings on stock issued under benefit plans		(13	)					(672	)
Tax benefits associated with stock-based compensation plans								35,816
Purchases of treasury stock		(8,873	)																	(472,325	)
Balance, December 31, 2006		193,949			2,138			2,185,073			1,800,255			—			(65	)		(968,230	)
Net income											339,939											$	339,939
Currency translation																	30,820						30,820
Market valuation, net of tax benefit of $24																	(36	)					(36	)
Reversal of market adjustment, net of tax expense of $(510)																	802						802
Deferred loss, less reclassifications																	(6,242	)					(6,242	)
Comprehensive income																						$	365,283
Dividends declared											(77,304	)
Issuance of common stock under benefit plans		462						(1,974	)											21,989
Stock-based compensation expense								56,853
Exercise of stock options		2,447						(39,230	)											120,158
Shares to cover employee payroll tax withholdings on stock issued under benefit plans		(24	)		(1	)		(1,229	)
Tax benefits associated with stock-based compensation plans								16,703
Purchases of treasury stock		(2,794	)																	(145,660	)
Adjustments upon adoption of FASB Interpretation No. 48								(10,441	)		(5,146	)
Reimbursement from Corning Incorporated								2,345
Other								2,725
Balance, December 31, 2007		194,040		$	2,137		$	2,210,825		$	2,057,744		$	—		$	25,279		$	(971,743	)

The accompanying notes are an integral part of these statements.

F-5

QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands unless otherwise indicated)

1. DESCRIPTION OF BUSINESS

          Quest Diagnostics Incorporated and its subsidiaries (“Quest Diagnostics” or the “Company”) is the largest provider of diagnostic testing, information and services in the United States, providing insights that enable physicians and other healthcare professionals to make decisions to improve health. Quest Diagnostics offers patients and physicians the broadest access to diagnostic laboratory services through the Company’s nationwide network of laboratories and owned patient service centers. The Company provides interpretive consultation through the largest medical and scientific staff in the industry, with approximately 900 M.D.s and Ph.D.s around the country. Quest Diagnostics is the leading provider of gene-based testing and other esoteric testing, the leading provider of anatomic pathology services, including dermatopathology, and the leading provider of testing for drugs-of-abuse. The Company is also a leading provider of testing for clinical trials, and risk assessment services for the life insurance industry. The Company’s diagnostics products business manufactures and markets diagnostic test kits and specialized point-of-care testing. Quest Diagnostics empowers healthcare organizations and clinicians with state-of-the-art information technology solutions that can improve patient care and medical practice.

          During 2007, Quest Diagnostics processed approximately 145 million requisitions through its extensive network of laboratories and patient service centers in virtually every major metropolitan area throughout the United States.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

          Principles of Consolidation

          The consolidated financial statements include the accounts of all entities controlled by the Company through its direct or indirect ownership of a majority voting interest and the accounts of any variable interest entities, as defined in Financial Accounting Standards Board (“FASB”) Interpretation No. 46 “Consolidation of Variable Interest Entities”, where the Company is subject to a majority of the risk of loss from the variable interest entity’s activities, or entitled to receive a majority of the entity’s residual returns or both. The Company’s relationships with variable interest entities were not material at both December 31, 2007 and 2006. Investments in entities which the Company does not control, but in which it has a substantial ownership interest (generally between 20% and 49%) and can exercise significant influence, are accounted for using the equity method of accounting. As of December 31, 2007 and 2006, the Company’s investments in affiliates accounted for under the equity method of accounting totaled $37.5 million and $38.5 million, respectively. The Company’s share of equity earnings from investments in affiliates, accounted for under the equity method, totaled $27.0 million, $28.5 million and $26.2 million, respectively, for 2007, 2006 and 2005. All significant intercompany accounts and transactions are eliminated in consolidation.

          Basis of Presentation

          During the third quarter of 2006, the Company completed its wind-down of NID, a test kit manufacturing subsidiary, and classified the operations of NID as discontinued operations. The accompanying consolidated statements of operations and related disclosures have been prepared to report the results of NID as discontinued operations for all periods presented. See Note 16 for a further discussion of discontinued operations.

          Use of Estimates

          The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

F-6

QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
(dollars in thousands unless otherwise indicated)

          Revenue Recognition

          The Company primarily recognizes revenue for services rendered upon completion of the testing process. Billings for services reimbursed by third-party payers, including Medicare and Medicaid, are recorded as revenues net of allowances for differences between amounts billed and the estimated receipts from such payers. Adjustments to the estimated receipts, based on final settlement with the third-party payers, are recorded upon settlement. In 2007, 2006 and 2005, approximately 17%, 17% and 18%, respectively, of net revenues were generated by Medicare and Medicaid programs. Under capitated arrangements with healthcare insurers, the Company recognizes revenue based on a predetermined monthly reimbursement rate for each member of an insurer’s health plan regardless of the number or cost of services provided by the Company.

          Taxes on Income

          The Company uses the asset and liability approach to account for income taxes. Under this method, deferred tax assets and liabilities are recognized for the expected future tax consequences of differences between the carrying amounts of assets and liabilities and their respective tax bases using tax rates in effect for the year in which the differences are expected to reverse. A valuation allowance is provided when it is more likely than not that some portion or all of the deferred tax assets will not be realized. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period when the change is enacted.

          On January 1, 2007, the Company adopted FASB Interpretation No. 48 “Accounting for Uncertainty in Income Taxes” (“FIN 48”). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in financial statements in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 109 “Accounting for Income Taxes.” FIN 48 provides guidance on recognizing, measuring, presenting and disclosing in the financial statements uncertain tax positions that a company has taken or expects to take on a tax return. See Note 5 for further information related to FIN 48.

          Earnings Per Share

          Basic earnings per common share is calculated by dividing net income by the weighted average common shares outstanding. Diluted earnings per common share is calculated by dividing net income, adjusted for the after-tax impact of the interest expense associated with the Company’s 1¾% contingent convertible debentures due 2021 (the “Debentures”), by the weighted average common shares outstanding after giving effect to all potentially dilutive common shares outstanding during the period. Potentially dilutive common shares include the dilutive effect of outstanding stock options, performance share units and restricted common shares granted under the Company’s Amended and Restated Employee Long-Term Incentive Plan and its Amended and Restated Director Long-Term Incentive Plan and the Debentures. The Debentures were called for redemption by the Company in December 2004 and redeemed as of January 18, 2005.

F-7

QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
(dollars in thousands unless otherwise indicated)

          The computation of basic and diluted earnings per common share (using the if-converted method) was as follows (in thousands, except per share data):

	2007			2006			2005
Income from continuing operations – basic	$	553,828		$	625,692		$	573,196
Loss from discontinued operations – basic		(213,889	)		(39,271	)		(26,919	)
Net income available to common stockholders – basic		339,939			586,421			546,277
Add: Interest expense associated with the Debentures, net of related tax effects		—			—			82
Net income available to common stockholders – diluted	$	339,939		$	586,421		$	546,359
Weighted average common shares outstanding – basic		193,241			196,985			201,833
Effect of dilutive securities:
Stock options		2,019			2,535			3,533
Restricted common shares and performance share units		2			22			11
Debentures		—			—			153
Weighted average common shares outstanding – diluted		195,262			199,542			205,530
Earnings per common share – basic:
Income from continuing operations	$	2.87		$	3.18		$	2.84
Loss from discontinued operations		(1.11	)		(0.20	)		(0.13	)
Net income	$	1.76		$	2.98		$	2.71
Earnings per common share – diluted:
Income from continuing operations	$	2.84		$	3.14		$	2.79
Loss from discontinued operations		(1.10	)		(0.20	)		(0.13	)
Net income	$	1.74		$	2.94		$	2.66

          The following securities were not included in the diluted earnings per share calculation due to their antidilutive effect (in thousands):

	2007		2006		2005
Stock options		3,114		2,443		337
Restricted common shares and performance share units		731		786		—

          Stock-Based Compensation

          SFAS No. 123, “Accounting for Stock-Based Compensation” (“SFAS 123”), as amended by SFAS No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure – an amendment of FASB Statement No. 123” (“SFAS 148”) encouraged, but did not require, companies to record compensation cost for stock-based compensation plans at fair value. In addition, SFAS 148 provided alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation, and amended the disclosure requirements of SFAS 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results.

          In December 2004, the FASB issued SFAS No. 123, revised 2004, “Share-Based Payment” (“SFAS 123R”). SFAS 123R requires that companies recognize compensation cost relating to share-based payment transactions based

F-8

QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
(dollars in thousands unless otherwise indicated)

on the fair value of the equity or liability instruments issued. SFAS 123R is effective for annual periods beginning after January 1, 2006. The Company adopted SFAS 123R effective January 1, 2006 using the modified prospective approach and therefore has not restated results for prior periods. Under this approach, awards that are granted, modified or settled after January 1, 2006 will be measured and accounted for in accordance with SFAS 123R. Unvested awards that were granted prior to January 1, 2006 will continue to be accounted for in accordance with SFAS 123, as amended by SFAS 148, except that compensation cost will be recognized in the Company’s results of operations.

          Pursuant to the provisions of SFAS 123R, the Company records stock-based compensation as a charge to earnings net of the estimated impact of forfeited awards. As such, the Company recognizes stock-based compensation cost only for those stock-based awards that are estimated to ultimately vest over their requisite service period, based on the vesting provisions of the individual grants. The cumulative effect on current and prior periods of a change in the estimated forfeiture rate is recognized as compensation cost in earnings in the period of the revision. The terms of the Company’s performance share unit grants allow the recipients of such awards to earn a variable number of shares based on the achievement of the performance goals specified in the awards. The actual amount of any stock award is based on the Company’s earnings per share growth as measured in accordance with its Amended and Restated Employee Long-Term Incentive Plan (“ELTIP”) for the performance period compared to that of a peer group of companies. Stock-based compensation expense associated with performance share units is recognized based on management’s best estimates of the achievement of the performance goals specified in such awards and the resulting number of shares that will be earned. The cumulative effect on current and prior periods of a change in the estimated number of performance share units expected to be earned is recognized as compensation cost in earnings in the period of the revision. The Company recognizes stock-based compensation expense related to the Company’s Amended Employee Stock Purchase Plan (“ESPP”) based on the 15% discount at purchase. See Note 13 for a further discussion of stock-based compensation.

          Prior to the adoption of SFAS 123R, the Company accounted for stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”), and related interpretations and chose to adopt the disclosure-only provisions of SFAS 123, as amended by SFAS 148. Under this approach, the cost of restricted stock awards was expensed over their vesting period, while the imputed cost of stock option grants and discounts offered under the Company’s ESPP was disclosed, based on the vesting provisions of the individual grants, but not charged to expense. Stock-based compensation expense recorded in accordance with APB 25, relating to restricted stock awards, was $2.0 million in 2005.

          The Company has several stock ownership and compensation plans, which are described more fully in Note 13. The following pro forma information is presented for comparative purposes and illustrates the pro forma effect on net income and earnings per share for the period presented, as if the Company had elected to recognize compensation cost associated with stock option awards and employee stock purchases under the Company’s ESPP, consistent with the method prescribed by SFAS 123, as amended by SFAS 148 (in thousands, except per share data):

	2005
Net income:
Net income, as reported	$	546,277
Add: Stock-based compensation under APB 25		2,037
Deduct: Total stock-based compensation expense determined under fair value method for all awards, net of related tax effects		(32,623	)
Pro forma net income	$	515,691
Earnings per common share:
Basic – as reported	$	2.71
Basic – pro forma	$	2.56
Diluted – as reported	$	2.66
Diluted – pro forma	$	2.50

F-9

QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
(dollars in thousands unless otherwise indicated)

          Foreign Currency

          The Company predominately uses the U.S. dollar as its functional currency. The functional currency of the Company’s foreign subsidiaries is the applicable local currency. Assets and liabilities denominated in non-U.S. dollars are translated into U.S. dollars at exchange rates as of the end of the reporting period. Income and expense items are translated at average exchange rates prevailing during the year. The translation adjustments are recorded as a component of “accumulated other comprehensive income (loss)” within stockholders’ equity. Gains and losses from foreign currency transactions are included within “other operating expense, net” in the consolidated statements of operations. Transaction gains and losses have not been material.

          Cash and Cash Equivalents

          Cash and cash equivalents include all highly-liquid investments with original maturities, at the time acquired by the Company, of three months or less.

          Concentration of Credit Risk

          Financial instruments that potentially subject the Company to concentrations of credit risk are principally cash, cash equivalents, short-term investments and accounts receivable. The Company’s policy is to place its cash, cash equivalents and short-term investments in highly rated financial instruments and institutions. Concentration of credit risk with respect to accounts receivable is mitigated by the diversity of the Company’s payers and their dispersion across many different geographic regions, and is limited to certain payers who are large buyers of the Company’s services. To reduce risk, the Company routinely assesses the financial strength of these payers and, consequently, believes that its accounts receivable credit risk exposure, with respect to these payers, is limited. While the Company has receivables due from federal and state governmental agencies, the Company does not believe that such receivables represent a credit risk since the related healthcare programs are funded by federal and state governments, and payment is primarily dependent on submitting appropriate documentation.

          Accounts Receivable and Allowance for Doubtful Accounts

          Accounts receivable are reported at realizable value, net of allowances for doubtful accounts, which is estimated and recorded in the period the related revenue is recorded. The Company has implemented a standardized approach to estimate and review the collectibility of its receivables based on a number of factors, including the period they have been outstanding. Historical collection and payer reimbursement experience is an integral part of the estimation process related to allowances for doubtful accounts. In addition, the Company regularly assesses the state of its billing operations in order to identify issues which may impact the collectibility of receivables or reserve estimates. Revisions to the allowances for doubtful accounts estimates are recorded as an adjustment to bad debt expense within selling, general and administrative expenses. Receivables deemed to be uncollectible are charged against the allowance for doubtful accounts at the time such receivables are written-off. Recoveries of receivables previously written-off are recorded as credits to the allowance for doubtful accounts.

          Inventories

          Inventories, which consist principally of testing supplies and reagents, are valued at the lower of cost (first in, first out method) or market.

          Property, Plant and Equipment

          Property, plant and equipment is recorded at cost. Major renewals and improvements are capitalized, while maintenance and repairs are expensed as incurred. Costs incurred for computer software developed or obtained for internal use are capitalized for application development activities and expensed as incurred for preliminary project activities and post-implementation activities. Capitalized costs include external direct costs of materials and services consumed in developing or obtaining internal-use software, payroll and payroll-related costs for employees who are directly associated with and who devote time to the internal-use software project, and interest costs incurred, when material, while developing internal-use software. Capitalization of such costs ceases when the project is substantially complete and ready for its intended purpose. Certain costs, such as maintenance and training, are expensed as incurred. The Company capitalizes interest on borrowings during the active construction period of major capital

F-10

QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
(dollars in thousands unless otherwise indicated)

projects. Capitalized interest is added to the cost of the underlying assets and is amortized over the expected useful lives of the assets. Depreciation and amortization are provided on the straight-line method over expected useful asset lives as follows: buildings and improvements, ranging from ten to thirty years; laboratory equipment and furniture and fixtures, ranging from three to seven years; leasehold improvements, the lesser of the useful life of the improvement or the remaining life of the building or lease, as applicable; and computer software developed or obtained for internal use, ranging from three to seven years.

          Goodwill

          Goodwill represents the cost of acquired businesses in excess of the fair value of assets acquired, including separately recognized intangible assets, less the fair value of liabilities assumed in a business combination. The Company uses a nonamortization approach to account for purchased goodwill. Under a nonamortization approach, goodwill is not amortized, but instead is periodically reviewed for impairment.

          Intangible Assets

          Intangible assets are recognized as an asset apart from goodwill if the asset arises from contractual or other legal rights, or if it is separable. Intangible assets, principally representing the cost of customer relationships, customer lists and non-competition agreements acquired, are capitalized and amortized on the straight-line method over their expected useful life, which generally ranges from five to twenty years. Intangible assets with indefinite useful lives, consisting principally of acquired tradenames, are not amortized, but instead are periodically reviewed for impairment.

          Recoverability and Impairment of Goodwill

          Under the nonamortization provisions of SFAS No. 142, “Goodwill and Other Intangible Assets” (“SFAS 142”), goodwill and certain intangibles are periodically reviewed for impairment and an impairment charge is recorded in the periods in which the recorded carrying value of goodwill and certain intangibles is more than its estimated fair value. The provisions of SFAS 142 require that a goodwill impairment test be performed annually or in the case of other events that indicate a potential impairment. The annual impairment tests of goodwill were performed at the end of each of the Company’s fiscal years on December 31^st and indicated that there was no impairment of goodwill as of December 31, 2007 or 2006.

          The Company evaluates the recoverability and measures the potential impairment of its goodwill under SFAS 142. The annual impairment test is a two-step process that begins with the estimation of the fair value of the reporting unit. The first step screens for potential impairment and the second step measures the amount of the impairment, if any. Management’s estimate of fair value considers publicly available information regarding the market capitalization of the Company as well as (i) publicly available information regarding comparable publicly-traded companies in the clinical testing industry, (ii) the financial projections and future prospects of the Company’s business, including its growth opportunities and likely operational improvements, and (iii) comparable sales prices, if available. As part of the first step to assess potential impairment, management compares the estimate of fair value for the reporting unit to the book value of the reporting unit. If the book value is greater than the estimate of fair value, the Company would then proceed to the second step to measure the impairment, if any. The second step compares the implied fair value of goodwill with its carrying value. The implied fair value is determined by allocating the fair value of the reporting unit to all of the assets and liabilities of that unit as if the reporting unit had been acquired in a business combination and the fair value of the reporting unit was the purchase price paid to acquire the reporting unit. The excess of the fair value of the reporting unit over the amounts assigned to its assets and liabilities is the implied fair value of goodwill. If the carrying amount of the reporting unit’s goodwill is greater than its implied fair value, an impairment loss will be recognized in the amount of the excess. Management believes its estimation methods are reasonable and reflective of common valuation practices.

          On a quarterly basis, management performs a review of the Company’s business to determine if events or changes in circumstances have occurred which could have a material adverse effect on the fair value of the Company and its goodwill. If such events or changes in circumstances were deemed to have occurred, the Company would perform an impairment test of goodwill as of the end of the quarter, consistent with the annual impairment test, and record any noted impairment loss.

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QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
(dollars in thousands unless otherwise indicated)

          Recoverability and Impairment of Intangible Assets and Other Long-Lived Assets

          The Company evaluates the possible impairment of its long-lived assets, including intangible assets which are amortized pursuant to the provisions of SFAS 142, under SFAS No. 144, “Accounting for Impairment or Disposal of Long-Lived Assets”. The Company reviews the recoverability of its long-lived assets when events or changes in circumstances occur that indicate that the carrying value of the asset may not be recoverable. Evaluation of possible impairment is based on the Company’s ability to recover the asset from the expected future pretax cash flows (undiscounted and without interest charges) of the related operations. If the expected undiscounted pretax cash flows are less than the carrying amount of such asset, an impairment loss is recognized for the difference between the estimated fair value and carrying amount of the asset.

          Investments

          The Company accounts for investments in equity securities, which are included in “other assets” in the consolidated balance sheet, in conformity with SFAS No. 115, “Accounting for Certain Investments in Debt and Equity Securities”, which requires the use of fair value accounting for trading or available-for-sale securities. Both realized and unrealized gains and losses for trading securities are recorded currently in earnings as a component of non-operating expenses within “other expense, net” in the consolidated statements of operations. Unrealized gains and losses, net of tax, for available-for-sale securities are recorded as a component of “accumulated other comprehensive income (loss)” within stockholders’ equity. Recognized gains and losses for available-for-sale securities are recorded in “other expense, net” in the consolidated statements of operations. Gains and losses on securities sold are based on the average cost method.

          The Company periodically reviews its investments to determine whether a decline in fair value below the cost basis is other than temporary. The primary factors considered in the determination are: the length of time that the fair value of the investment is below carrying value; the financial condition, operating performance and near term prospects of the investee; and the Company’s intent and ability to hold the investment for a period of time sufficient to allow for a recovery in fair value. If the decline in fair value is deemed to be other than temporary, the cost basis of the security is written down to fair value.

          Investments at December 31, 2007 and 2006 consisted of the following:

	2007		2006
Available-for-sale equity securities	$	9,690	$	10,106
Trading equity securities		33,903		29,969
Other investments		16,460		13,290
Total	$	60,053	$	53,365

          Investments in available-for-sale equity securities consist of equity securities in public corporations. Investments in trading equity securities represent participant directed investments of deferred employee compensation and related Company matching contributions held in a trust pursuant to the Company’s supplemental deferred compensation plan (see Note 13). Other investments do not have readily determinable fair values and consist of investments in preferred and common shares of privately held companies and are accounted for under the cost method.

          As of December 31, 2007 and 2006, the Company had gross unrealized losses from available-for-sale equity securities of $3.5 million and $4.7 million, respectively. For the year ended December 31, 2007, “other expense, net”, within the consolidated statements of operations, includes a $4.0 million charge associated with the write-down of an available-for-sale equity security. For the year ended December 31, 2006, “other expense, net”, within the consolidated statements of operations, includes $16.2 million of charges associated with the write-down of available-for-sale equity securities, $10.0 million of charges associated with the write-down of other investments and a $15.8 million gain associated with the sale of an investment. For the year ended December 31, 2005, “other expense, net” includes a $7.1 million charge associated with the write-down of other investments. For the years ended December 31, 2007, 2006 and 2005, gains from trading equity securities totaled $2.7 million, $3.2 million and $1.6 million, respectively, and are included in “other expense, net”.

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QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
(dollars in thousands unless otherwise indicated)

          Derivative Financial Instruments

          The Company uses derivative financial instruments to manage its market risks. This includes the use of interest rate swap agreements to manage its exposure to movements in interest rates. The Company has established policies and procedures for risk assessment and the approval, reporting and monitoring of derivative financial instrument activities. These policies prohibit holding or issuing derivative financial instruments for speculative purposes.

          Interest rate swaps involve the periodic exchange of payments without the exchange of underlying principal or notional amounts. Net payments are recognized as an adjustment to interest expense. When the swaps are terminated, unrealized gains or losses are deferred in stockholders’ equity, as a component of “accumulated other comprehensive income (loss)”, and are amortized as an adjustment to interest expense over the shorter of the remaining original term of the hedging instrument or the remaining life of the underlying debt instrument.

          The Company formally documents its hedge relationships, including identifying the hedging instruments and the hedged items, as well as its risk management objectives and strategies for undertaking the hedge transaction. On the date the derivative is entered into, the Company designates the type of derivative as a fair value hedge or cash flow hedge, and accounts for the derivative in accordance with its designation as prescribed by SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” (“SFAS 133”), as amended. The Company currently holds only cash flow hedges, designated as a hedge of the variability of cash outflows related to the Company’s long-term debt due to changes in interest rates. Both at inception and at least quarterly thereafter, the Company also formally assesses whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in the cash flows of the hedged item. All components of each derivative financial instrument’s gain or loss are included in the assessment of hedge effectiveness.

          The Company accounts for derivatives in conformity with SFAS No. 133, as amended, and records derivatives as either an asset or liability measured at its fair value. The fair value is based upon quoted market prices obtained from third-party institutions. For derivatives that have been formally designated as a cash flow hedge (interest rate swap agreements), the effective portion of changes in the fair value of the derivatives is recorded in “accumulated other comprehensive income (loss)”. Changes in the fair value of derivatives are recorded each period in current earnings or other comprehensive income, depending on whether a derivative is designated as part of a hedge transaction and, if it is, the type of hedge transaction based on the specific qualifying conditions in SFAS 133. Amounts in “accumulated other comprehensive income (loss)” are reclassified into earnings in “interest expense, net” during the same period in which the hedged item affects earnings. If it is determined that a derivative ceases to be a highly effective hedge, the Company discontinues hedge accounting, and any deferred gains or losses are recorded in the consolidated statement of operations.

          Comprehensive Income (Loss)

          Comprehensive income (loss) encompasses all changes in stockholders’ equity (except those arising from transactions with stockholders) and includes net income, net unrealized capital gains or losses on available-for-sale securities, foreign currency translation adjustments and deferred gains related to the settlement of certain treasury lock agreements (see Note 11).

          New Accounting Standards

          In September 2006, the FASB issued SFAS No. 157 “Fair Value Measurements” (“SFAS 157”). SFAS 157 provides a new single authoritative definition of fair value and provides enhanced guidance for measuring the fair value of assets and liabilities and requires additional disclosures related to the extent to which companies measure assets and liabilities at fair value, the information used to measure fair value, and the effect of fair value measurements on earnings. SFAS 157 is effective for the Company as of January 1, 2008 for financial assets and financial liabilities within its scope and it is not expected to have a material impact on its consolidated financial statements. In February 2008, the FASB issued FASB Staff Position No. FAS 157-2 “Effective Date of FASB Statement No. 157” (“FSP FAS 157-2”), which defers the effective date of SFAS 157 for all non-financial assets and non-financial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually), for fiscal years beginning after November 15, 2008 and interim periods within those fiscal years for items within the

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QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
(dollars in thousands unless otherwise indicated)

scope of FSP FAS 157-2. The Company is currently assessing the impact, if any, of SFAS 157 and FSP FAS 157-2 for non-financial assets and non-financial liabilities on its consolidated financial statements.

          In February 2007, the FASB issued SFAS No. 159 “The Fair Value Option for Financial Assets and Financial Liabilities” (“SFAS 159”). SFAS 159 provides companies with an option to irrevocably elect to measure certain financial assets and financial liabilities at fair value on an instrument-by-instrument basis with the resulting changes in fair value recorded in earnings. The objective of SFAS 159 is to reduce both the complexity in accounting for financial instruments and the volatility in earnings caused by using different measurement attributes for financial assets and financial liabilities. SFAS 159 is effective for the Company as of January 1, 2008 and as of this effective date, the Company has elected not to apply the fair value option to any of its financial assets or financial liabilities.

          In September 2007, the FASB ratified Emerging Issues Task Force Issue No. 07-1 “Accounting for Collaborative Agreements”, (“EITF 07-1”). EITF 07-1 defines collaborative agreements as contractual arrangements that involve a joint operating activity. These arrangements involve two (or more) parties who are both active participants in the activity and that are exposed to significant risks and rewards dependent on the commercial success of the activity. EITF 07-1 provides that a company should report the effects of adoption as a change in accounting principle through retrospective application to all periods and requires additional disclosures about a company’s collaborative arrangements. EITF 07-1 is effective for the Company as of January 1, 2009. The adoption of EITF 07-1 is not expected to have a material impact on the Company’s consolidated financial statements.

          In December 2007, the FASB issued SFAS No. 141(R) “Business Combinations” (“SFAS 141(R)”). SFAS 141(R) changes several underlying principles in applying the purchase method of accounting. Among the significant changes, SFAS 141(R) requires a redefining of the measurement date of a business combination, expensing direct transaction costs as incurred, capitalizing in-process research and development costs as an intangible asset and recording a liability for contingent consideration at the measurement date with subsequent re-measurements recorded in the results of operations. SFAS 141(R) also requires that costs for business restructuring and exit activities related to the acquired company will be included in the post-combination financial results of operations and also provides new guidance for the recognition and measurement of contingent assets and liabilities in a business combination. In addition, SFAS 141(R) requires several new disclosures, including the reasons for the business combination, the factors that contribute to the recognition of goodwill, the amount of acquisition related third-party expenses incurred, the nature and amount of contingent consideration, and a discussion of pre-existing relationships between the parties. SFAS 141(R) is effective for the Company as of January 1, 2009. While the Company is currently assessing the impact of SFAS 141(R) on its consolidated financial statements, the Company expects that upon adoption of SFAS 141(R), the application of the new standard is likely to have a significant impact on how the Company allocates the purchase price of an acquired business, including the expensing of direct transaction costs and costs to integrate the acquired business.

          In December 2007, the FASB issued SFAS No. 160 “Noncontrolling Interests in Consolidated Financial Statements, an Amendment of ARB No. 51”, (“SFAS 160”). SFAS 160 establishes accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. SFAS 160 requires noncontrolling interests in subsidiaries initially to be measured at fair value and classified as a separate component of equity. SFAS 160 also requires a new presentation on the face of the consolidated financial statements to separately report the amounts attributable to controlling and non-controlling interests. SFAS 160 is effective for the Company as of January 1, 2009. The Company is currently assessing the impact of SFAS 160 on its consolidated financial statements.

3. BUSINESS ACQUISITIONS

          2007 Acquisitions

          Acquisition of HemoCue

          On January 31, 2007, the Company completed its acquisition of POCT Holding AB (“HemoCue”), a Sweden-based company specializing in point-of-care testing, in an all-cash transaction valued at approximately $450 million, including $113 million of assumed debt. HemoCue is the leading international provider in point-of-care for hemoglobin, with a growing share in professional glucose and microalbumin testing. In October 2007, HemoCue

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QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
(dollars in thousands unless otherwise indicated)

received FDA 510(k) clearance for its White Blood Cell Analyzer, a whole-blood test performed on finger-stick samples that assist physicians diagnosing infection, inflammation, bone marrow failure, autoimmune diseases and many other medical conditions now routinely tested by reference laboratories.

          In conjunction with the acquisition of HemoCue, the Company repaid approximately $113 million of debt, representing substantially all of HemoCue’s existing outstanding debt as of January 31, 2007.

          The Company financed the aggregate purchase price of $344 million, which includes transaction costs of approximately $7 million, of which $2 million was paid in 2006, and the repayment of substantially all of HemoCue’s outstanding debt with the proceeds from a new $450 million term loan and cash on-hand. On May 31, 2007, the Company refinanced this term loan (see Note 10). In January 2008, the Company received a payment of approximately $24 million from an escrow fund established at the time of the acquisition, which reduces the aggregate purchase price to $320 million.

          The acquisition of HemoCue was accounted for under the purchase method of accounting. As such, the cost to acquire HemoCue was allocated to the respective assets and liabilities acquired based on their estimated fair values as of the closing date. During 2007, the Company finalized its fair value estimates of the assets and liabilities acquired. The consolidated financial statements include the results of operations of HemoCue subsequent to the closing of the acquisition.

          The following table summarizes the Company’s purchase price allocation of the cost to acquire HemoCue:

	Fair Values as of January 31, 2007
Current assets	$	59,323
Property, plant and equipment		21,045
Intangible assets		134,668
Goodwill		319,166
Other assets		633
Total assets acquired		534,835
Current liabilities		21,245
Long-term liabilities		45,850
Long-term debt		123,910
Total liabilities assumed		191,005
Net assets acquired	$	343,830

          The acquired amortizable intangibles are being amortized over their estimated useful lives as follows:

	Estimated Fair Value		Weighted Average Useful Life
Customer relationships	$	38,046		20 years
Technology		38,764		14 years

          In addition to the amortizable intangibles noted above, $53.8 million was allocated to tradenames, which is not subject to amortization, and $4.0 million was allocated to in-process research and development (“IPR&D”). The IPR&D was expensed in the Company’s results of operations during the first quarter of 2007, in accordance with FASB Interpretation No. 4, “Applicability of FASB Statement No. 2 to Business Combinations Accounted for by the Purchase Method”, and is included in “other operating expense, net” within the consolidated statements of operations.

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QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
(dollars in thousands unless otherwise indicated)

          Supplemental pro forma combined financial information has not been presented as the acquisition is not material to the Company’s consolidated results of operations.

          Acquisition of AmeriPath

          On May 31, 2007, the Company completed its acquisition of AmeriPath Group Holdings, Inc. (“AmeriPath”), in an all-cash transaction valued at approximately $2.0 billion, including approximately $780 million of assumed debt and related accrued interest. AmeriPath is a leading provider of anatomic pathology, including dermatopathology, and esoteric testing and generates annual revenues of approximately $800 million.

          Through the acquisition, the Company acquired all of AmeriPath’s operations. AmeriPath, with its team of approximately 400 board certified pathologists, operates 40 outpatient anatomic pathology laboratories and provides inpatient anatomic pathology and medical director services for approximately 200 hospitals throughout the United States. The Company financed the all-cash purchase price and related transaction costs, together with the repayment of approximately $780 million of principal and related accrued interest representing substantially all of AmeriPath’s debt as well as the refinancing of the term loan used to finance the acquisition of HemoCue with: $1.6 billion of borrowings under a new five-year term loan facility, $780 million of borrowings under a new one-year bridge loan, and cash on-hand. In June 2007, the Company completed an $800 million senior notes offering. The net proceeds of the senior notes offering were used to repay the $780 million borrowed under the bridge loan. See Note 10 for further descriptions of the Company’s debt outstanding.

          The acquisition of AmeriPath was accounted for under the purchase method of accounting. As such, the cost to acquire AmeriPath was allocated to the respective assets and liabilities acquired based on their estimated fair values as of the closing date. A preliminary allocation of the cost to acquire AmeriPath has been made to certain assets and liabilities of AmeriPath based on preliminary estimates. The Company is continuing to assess the estimated fair values of certain of the assets and liabilities acquired. The consolidated financial statements include the results of operations of AmeriPath subsequent to the closing of the acquisition.

          The following table summarizes the Company’s preliminary purchase price allocation of the cost to acquire AmeriPath:

	Estimated Fair Values as of May 31, 2007
Current assets	$	199,218
Property and equipment		127,503
Intangible assets		564,800
Goodwill		1,460,687
Other assets		67,685
Total assets acquired		2,419,893
Current liabilities		142,845
Long-term liabilities		260,593
Long-term debt		801,424
Total liabilities assumed		1,204,862
Net assets acquired	$	1,215,031

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QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
(dollars in thousands unless otherwise indicated)

          The acquired amortizable intangibles are being amortized over their estimated useful lives as follows:

	Estimated Fair Value		Weighted Average Useful Life
Customer relationships	$	327,500		20 years
Tradename		6,000		5 years
Non-compete agreement		5,800		5 years

          In addition to the amortizable intangibles noted above, $226 million was allocated to certain tradenames, which are not subject to amortization.

          Of the amount allocated to goodwill and intangible assets, approximately $100 million is expected to be deductible for tax purposes.

          2006 Acquisitions

          Acquisition of Focus Diagnostics

          On July 3, 2006, the Company completed its acquisition of Focus Technologies Holding Company (“Focus Diagnostics”) in an all-cash transaction valued at $208 million, including approximately $3 million of assumed debt. Focus Diagnostics is a leading provider of infectious and immunologic disease testing and develops and markets diagnostic products. It offers its reference testing services and diagnostic products to large academic medical centers, hospitals and commercial laboratories. The Company financed the aggregate purchase price of $205 million, which included $0.5 million of related transaction costs, and the repayment of substantially all of Focus Diagnostics’ outstanding debt with $135 million of borrowings under its secured receivables credit facility and with cash on-hand.

          The acquisition of Focus Diagnostics was accounted for under the purchase method of accounting. As such, the cost to acquire Focus Diagnostics was allocated to the respective assets and liabilities acquired based on their estimated fair values as of the closing date. The consolidated financial statements include the results of operations of Focus Diagnostics subsequent to the closing of the acquisition.

          Of the aggregate purchase price of $205 million, $142 million was allocated to goodwill, $33 million was allocated to customer relationships that are being amortized over 10-15 years and $9.1 million was allocated to trade names that are not subject to amortization. Substantially all of the goodwill is not expected to be deductible for tax purposes.

          Supplemental pro forma combined financial information has not been presented as the acquisition is not material to the Company’s consolidated financial statements.

          Acquisition of Enterix

          On August 31, 2006, the Company completed its acquisition of Enterix Inc. (“Enterix”), a privately held Australia-based company that developed and manufactures the InSure™ Fecal Immunochemical Test, a Food and Drug Administration (“FDA”)-cleared test for use in screening for colorectal cancer and other sources of lower gastrointestinal bleeding, for approximately $44 million in cash. The acquisition is not material to the Company’s consolidated financial statements.

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QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
(dollars in thousands unless otherwise indicated)

          2005 Acquisition

          Acquisition of LabOne, Inc.

          On November 1, 2005, the Company completed its acquisition of LabOne, Inc. (“LabOne”) in a transaction valued at approximately $947 million, including approximately $138 million of assumed debt of LabOne. LabOne provides health screening and risk assessment services to life insurance companies, as well as clinical diagnostic testing services to healthcare providers and drugs-of-abuse testing to employers.

          Under the terms of the merger agreement, the Company paid $43.90 per common share in cash or $768 million in total to acquire all of the outstanding common shares of LabOne. In addition, the Company paid $33 million in cash for outstanding stock options of LabOne. Pursuant to the terms of the merger agreement, upon the change in control of LabOne, LabOne’s outstanding stock options became fully vested and exercisable and were cancelled in exchange for the right to receive an amount, for each share subject to the stock option, equal to the excess of $43.90 per share over the exercise price per share of such option. The aggregate purchase price of $810 million includes transaction costs of approximately $9 million.

          In conjunction with the acquisition of LabOne, the Company repaid approximately $127 million of debt, representing substantially all of LabOne’s existing outstanding debt as of November 1, 2005.

          The Company financed the all cash purchase price and related transaction costs associated with the LabOne acquisition, and the repayment of substantially all of LabOne’s outstanding debt with the net proceeds from a $900 million private placement of senior notes (see Note 10) and cash on-hand.

          Through the acquisition of LabOne, the Company acquired all of LabOne’s operations, including its health screening and risk assessment services for life insurance companies, its clinical diagnostic testing services, and its drugs-of-abuse testing for employers.

          Pro Forma Combined Financial Information

          The following unaudited pro forma combined financial information for the years ended December 31, 2007 and 2006 assumes that the AmeriPath acquisition and related financing, including the Company’s June 2007 senior notes offering, were completed on January 1, 2006. The unaudited pro forma combined financial information for the year ended December 31, 2005 assumes that the LabOne acquisition was completed on January 1, 2005. Supplemental pro forma combined financial information for HemoCue, Focus and Enterix has not been presented as the acquisitions are not material to the Company’s consolidated results of operations (in thousands, except per share data).

	2007		2006		2005
Net revenues	$	7,038,781	$	7,020,980	$	5,889,615
Net income		263,255		593,677		547,643
Basic earnings per common share:
Net income	$	1.36	$	3.01	$	2.71
Weighted average common shares outstanding – basic		193,241		196,985		201,833
Diluted earnings per common share:
Net income	$	1.35	$	2.98	$	2.66
Weighted average common shares outstanding – diluted		195,262		199,542		205,530

          The unaudited pro forma combined financial information presented above reflects certain reclassifications to the historical financial statements of AmeriPath and LabOne to conform the acquired companies’ accounting policies and classification of certain costs and expenses to that of Quest Diagnostics. These adjustments had no impact on pro forma net income. Pro forma results for the year ended December 31, 2007 exclude transaction related

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QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
(dollars in thousands unless otherwise indicated)

costs of $44 million, which were incurred and expensed by AmeriPath in conjunction with its acquisition by Quest Diagnostics. Pro forma results for the year ended December 31, 2005 exclude $14.3 million of transaction related costs, which were incurred and expensed by LabOne in conjunction with its acquisition by Quest Diagnostics.

4. INTEGRATION OF ACQUIRED BUSINESSES

          Integration of AmeriPath

          During the fourth quarter of 2007, the Company finalized major components of its plan for the integration of AmeriPath and recorded the related costs of the integration. These costs were not material to the Company’s results of operations or cash flows.

          Integration of LabOne

          During the first quarter of 2006, the Company finalized its plan related to the integration of LabOne. The plan focuses on rationalizing the Company’s testing capacity, infrastructure and support services in markets which are served by both LabOne and Quest Diagnostics.

          In conjunction with finalizing the LabOne integration, the Company recorded $23 million of costs during the first quarter of 2006. The majority of these costs relate to employee severance. Employee groups affected as a result of this plan included those involved in the testing of specimens, as well as administrative and other support functions. Of the total costs indicated above, $21 million related to actions that impact Quest Diagnostics’ employees and its operations and were comprised principally of employee severance benefits for approximately 600 employees. These costs were accounted for as a charge to earnings and included in “other operating expense, net” within the consolidated statements of operations.

          In addition, $2.6 million of integration costs, related to actions that impact the employees and operations of LabOne, were accounted for as a cost of the LabOne acquisition and included in goodwill during the first quarter of 2006. Of the $2.6 million, $1.2 million related to asset write-offs with the remainder primarily associated with employee severance benefits for approximately 95 employees.

          As of December 31, 2007, accruals remaining related to the LabOne integration totaled $5.8 million.

5. TAXES ON INCOME

          The Company’s pretax income (loss) from continuing operations consisted of $920 million, $1.02 billion and $943 million from U.S. operations and approximately $(7.1) million, $8.6 million and $7.2 million from foreign operations for the years ended December 31, 2007, 2006 and 2005, respectively.

          The components of income tax expense (benefit) for 2007, 2006 and 2005 were as follows:

	2007			2006			2005
Current:
Federal	$	267,138		$	360,806		$	304,117
State and local		59,625			93,292			63,652
Foreign		1,093			4,586			2,081
Deferred:
Federal		23,787			(26,897	)		2,614
State and local		10,774			(24,206	)		4,348
Foreign		(3,843	)		—			—
Total	$	358,574		$	407,581		$	376,812

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QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
(dollars in thousands unless otherwise indicated)

          A reconciliation of the federal statutory rate to the Company’s effective tax rate for 2007, 2006 and 2005 was as follows:

	2007			2006			2005
Tax provision at statutory rate		35.0	%		35.0	%		35.0	%
State and local income taxes, net of federal benefit		4.6			4.3			4.6
Impact of foreign operations		(0.8	)		0.3			—
Non-deductible expenses, primarily meals and entertainment expenses		0.3			0.3			0.2
Other, net		0.2			(0.5	)		(0.1	)
Effective tax rate		39.3	%		39.4	%		39.7	%

          The tax effects of temporary differences that give rise to significant portions of the deferred tax assets (liabilities) at December 31, 2007 and 2006 were as follows:

	2007			2006
Current deferred tax assets:
Accounts receivable reserve	$	54,226		$	36,888
Liabilities not currently deductible		95,615			83,652
Total current deferred tax assets	$	149,841		$	120,540
Non-current deferred tax assets (liabilities):
Liabilities not currently deductible	$	117,647		$	85,821
Stock-based compensation		36,664			19,896
Net operating loss carryforwards		29,131			18,229
Depreciation and amortization		(393,134	)		(128,814	)
Total non-current deferred tax liabilities	$	(209,692	)	$	(4,868	)

          At December 31, 2006, non-current deferred tax assets of $16 million are included in other long-term assets in the consolidated balance sheet. At December 31, 2007 and 2006, non-current deferred tax liabilities of $210 million and $21 million, respectively, are included in other long-term liabilities in the consolidated balance sheet.

          As of December 31, 2007, the Company had estimated net operating loss carryforwards for federal, state and foreign income tax purposes of $98 million, $508 million and $33 million, respectively, which expire at various dates through 2027. As of December 31, 2007 and 2006, deferred tax assets associated with net operating loss carryforwards of $71 million and $29 million, respectively, have each been reduced by a valuation allowance of $42 million and $11 million, respectively.

          Income taxes payable including those classified in other long-term liabilities in the consolidated balance sheets at December 31, 2007 and 2006, were $83 million and $36 million, respectively.

          The Company has identified and categorized its tax positions and these positions have been evaluated and assessed for recognition and measurement under the guidelines of FIN 48. The adoption of FIN 48 resulted in an increase to our contingent tax liability reserves of $30 million with corresponding charges to retained earnings, goodwill and additional paid-in capital. The contingent liabilities for tax positions under FIN 48 primarily relate to uncertainties associated with the realization of tax benefits derived from certain state net operating loss carry forwards, the allocation of income and expense among state jurisdictions, the characterization and timing of certain tax deductions associated with business combinations and employee compensation, and income and expenses associated with certain intercompany licensing arrangements. As of January 1, 2007, the amount of unrecognized tax benefits was $92 million which, if recognized, $46 million would affect the effective tax rate. Included in the balance of unrecognized tax benefits is approximately $43 million related to tax positions associated with the intercompany licensing arrangements and the allocation of income and expenses among state jurisdictions.

          The recognition and measurement of certain tax benefits includes estimates and judgment by management and inherently includes subjectivity. Changes in estimates may create volatility in the Company’s effective tax rate in

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QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
(dollars in thousands unless otherwise indicated)

future periods and may be due to settlements with various tax authorities (either favorable or unfavorable), the expiration of the statute of limitations on some tax positions and obtaining new information about particular tax positions that may cause management to change its estimates.

          The total amount of unrecognized tax benefits as of and for the year ended December 31, 2007 consists of the following (in thousands):

	December 31, 2007
Balance at January 1, 2007	$	91,856
Additions:
for tax positions of current year		14,341
for tax positions of prior years		14,698
Reductions:
Changes in judgment		(1,494	)
Expirations of statutes of limitations		(4,423	)
Settlements		(7,035	)
Balance at December 31, 2007	$	107,943

          The total amount of unrecognized tax benefits as of December 31, 2007, that, if recognized, would affect the effective tax rate is $45 million. Based upon the expiration of statutes of limitations, settlements and/or the conclusion of tax examinations, the Company believes it is reasonably possible that the total amount of unrecognized tax benefits for the items previously discussed may decrease by up to $33 million within the next twelve months.

          Accruals for interest expense on contingent tax liabilities are classified in income tax expense in the consolidated statements of operations. Accruals for penalties have historically been immaterial. The total amount of interest charged to earnings for the year ended December 31, 2007 was approximately $6 million. As of December 31, 2007, the Company has approximately $23 million accrued, net of the benefit of a federal and state deduction, for the payment of interest on uncertain tax positions. The Company does not consider this interest part of its fixed charges.

          In the regular course of business, various federal, state and local and foreign tax authorities conduct examinations of the Company’s income tax filings and the Company generally remains subject to examination until the statute of limitations expires for the respective jurisdiction. After reaching an agreement at the appeals level of the Internal Revenue Service (“IRS”), the Company settled the 2000 and 2001 tax year audits in April 2007. The IRS has recently completed their examination of the 2002 and 2003 income tax returns. The Company has prepared protests for several of the 2002 and 2003 proposed tax adjustments and anticipates that the appeals process will be completed over the next two years. Certain state tax authorities are conducting audits for various years between 2000 and 2004. At this time, the Company does not believe that there will be any material additional payments beyond its recorded contingent liability reserves that may be required as a result of these tax audits. As of December 31, 2007, a summary of the tax years that remain subject to examination for the Company’s major jurisdictions are:

United States – federal	2002 – 2006
United States – various states	2000 – 2006

          In conjunction with its acquisition of SmithKline Beecham Clinical Laboratories, Inc. (“SBCL”), which operated the clinical testing business of SmithKline Beecham plc (“SmithKline Beecham”), the Company entered into a tax indemnification arrangement with SmithKline Beecham that provides the parties with certain rights of indemnification against each other.

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QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
(dollars in thousands unless otherwise indicated)

6. SUPPLEMENTAL CASH FLOW AND OTHER DATA

	2007			2006			2005
Depreciation expense	$	209,975		$	184,844		$	166,546
Interest expense		(186,329	)		(96,454	)		(61,443	)
Interest income		8,015			5,029			4,089
Interest, net		(178,314	)		(91,425	)		(57,354	)
Interest paid		157,502			102,055			49,976
Income taxes paid		315,745			381,348			314,534
Businesses acquired:
Fair value of assets acquired	$	2,954,728		$	278,078		$	1,039,300
Fair value of liabilities assumed		1,395,867			28,453			230,235
Non-cash financing activities:
Conversion of contingent convertible debentures	$	—		$	—		$	244,338

7. PROPERTY, PLANT AND EQUIPMENT

          Property, plant and equipment at December 31, 2007 and 2006 consisted of the following:

	2007			2006
Land	$	36,272		$	36,272
Buildings and improvements		360,442			332,610
Laboratory equipment, furniture and fixtures		1,042,890			886,065
Leasehold improvements		318,552			264,096
Computer software developed or obtained for internal use		255,408			189,083
Construction-in-progress		92,918			58,273
		2,106,482			1,766,399
Less: accumulated depreciation and amortization		(1,194,484	)		(1,014,042	)
Total	$	911,998		$	752,357

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QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
(dollars in thousands unless otherwise indicated)

8. GOODWILL AND INTANGIBLE ASSETS

          Goodwill at December 31, 2007 and 2006 consisted of the following:

	2007			2006
Goodwill	$	5,401,216		$	3,572,238
Less: accumulated amortization		(181,112	)		(181,192	)
Goodwill, net	$	5,220,104		$	3,391,046

          The changes in the gross carrying amount of goodwill for the years ended December 31, 2007 and 2006 are as follows:

	2007		2006
Balance as of January 1	$	3,572,238	$	3,385,280
Goodwill acquired during the year		1,789,732		196,222
Other		39,246		(9,264	)
Balance as of December 31	$	5,401,216	$	3,572,238

          For the year ended December 31, 2007, the increase in goodwill was primarily related to the acquisitions of AmeriPath and HemoCue, and the impact on goodwill as a result of the adoption of FIN 48. (See Notes 3 and 5 for further discussions). Approximately 90% of the Company’s goodwill as of December 31, 2007 was included in its clinical testing business.

          For the year ended December 31, 2006, the increase in goodwill was primarily related to the acquisitions of Focus Diagnostics and Enterix, and adjustments associated with the LabOne purchase price allocation and the LabOne integration plan. These additions were $142 million, $40 million and $10 million, respectively. In connection with the Company’s decision to discontinue the operations of NID in the second quarter of 2006, the Company eliminated the goodwill and related accumulated amortization associated with NID, which had no impact on goodwill, net. In addition, goodwill was reduced $2.4 million primarily related to the favorable resolution of certain pre-acquisition tax contingencies associated with businesses acquired.

          Intangible assets at December 31, 2007 and 2006 consisted of the following:

	Weighted Average Amortization Period		December 31, 2007							December 31, 2006
			Cost		Accumulated Amortization			Net		Cost		Accumulated Amortization			Net
Amortizing intangible assets:
Customer-related intangibles		19 years	$	589,418	$	(70,036	)	$	519,382	$	206,880	$	(48,010	)	$	158,870
Non-compete agreements		5 years		53,832		(46,476	)		7,356		47,165		(45,261	)		1,904
Other		12 years		64,214		(8,394	)		55,820		15,372		(3,500	)		11,872
Total		18 years		707,464		(124,906	)		582,558		269,417		(96,771	)		172,646
Intangible assets not subject to amortization:
Tradenames				304,175		—			304,175		20,700		—			20,700
Total intangible assets			$	1,011,639	$	(124,906	)	$	886,733	$	290,117	$	(96,771	)	$	193,346

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QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
(dollars in thousands unless otherwise indicated)

          Amortization expense related to intangible assets was $27.9 million, $10.8 million and $4.6 million for the years ended December 31, 2007, 2006 and 2005, respectively.

          The estimated amortization expense related to amortizable intangible assets for each of the five succeeding fiscal years and thereafter as of December 31, 2007 is as follows:

Fiscal Year Ending December 31,
2008	$	36,015
2009		35,601
2010		35,343
2011		35,121
2012		33,880
Thereafter		406,598
Total	$	582,558

          For the year ended December 31, 2007, the increase in intangible assets not subject to amortization was due to tradenames resulting from the acquisitions of AmeriPath, $226 million, and HemoCue, $53.8 million (see Note 3).

          For the year ended December 31, 2006, the increase in intangible assets not subject to amortization was due to tradenames resulting from the acquisitions of Focus Diagnostics, $9.1 million, and Enterix, $2.2 million (see Note 3).

9. ACCOUNTS PAYABLE AND ACCRUED EXPENSES

          Accounts payable and accrued expenses at December 31, 2007 and 2006 consisted of the following:

	2007		2006
Trade accounts payable	$	205,067	$	215,721
Accrued wages and benefits		318,285		321,539
Accrued expenses		359,355		295,476
Accrued settlement reserves		242,009		1,260
Total	$	1,124,716	$	833,996

10. DEBT

          Short-term borrowings and current portion of long-term debt at December 31, 2007 and 2006 consisted of the following:

	2007		2006
Borrowings under Secured Receivables Credit Facility	$	100,000	$	300,000
Current portion of long-term debt		63,581		16,874
Total short-term borrowings and current portion of long-term debt	$	163,581	$	316,874

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QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
(dollars in thousands unless otherwise indicated)

          Long-term debt at December 31, 2007 and 2006 consisted of the following:

	2007		2006
Industrial Revenue Bonds due September 2009	$	3,585	$	5,376
Term Loan due December 2008		60,000		75,000
Senior Notes due November 2010		399,574		399,423
Senior Notes due July 2011		274,613		274,503
Term Loan due May 2012		1,385,000		—
Senior Notes due November 2015		498,747		498,587
Senior Notes due July 2017		374,240		—
Senior Notes due July 2037		420,369		—
Debentures due June 2034		3,013		2,957
Other		21,652		133
Total		3,440,793		1,255,979
Less: current portion		63,581		16,874
Total long-term debt	$	3,377,212	$	1,239,105

          Senior Unsecured Revolving Credit Facility

          In May 2007, the Company entered into a new $750 million senior unsecured revolving credit facility (the “Credit Facility”) which replaced the Company’s $500 million senior unsecured revolving credit facility. The Credit Facility matures in May 2012. Interest on the Credit Facility is based on certain published rates plus an applicable margin that will vary over a range from 40 basis points to 125 basis points based on changes in the Company’s public debt ratings. At the option of the Company, it may elect to enter into LIBOR-based interest rate contracts for periods up to six months. Interest on any outstanding amounts not covered under LIBOR-based interest rate contracts is based on an alternate base rate, which is calculated by reference to the prime rate or federal funds rate. As of December 31, 2007 and 2006, the Company’s borrowing rate for LIBOR-based loans was LIBOR (4.6% at December 31, 2007) plus 0.40%. The Credit Facility is guaranteed by certain of the Company’s domestic, wholly owned subsidiaries (the “Subsidiary Guarantors”). The Credit Facility contains various covenants, including the maintenance of certain financial ratios, which could impact the Company’s ability to, among other things, incur additional indebtedness. At December 31, 2007 and 2006, there were no outstanding borrowings under the Company’s unsecured revolving credit facilities.

          The Company incurred $3.1 million of costs associated with the Credit Facility, which is being amortized over the term of the related debt.

          Secured Receivables Credit Facility

          In May 2007, the Company increased its existing receivables securitization facility (the “Secured Receivables Credit Facility”) from $300 million to $375 million. The Secured Receivables Credit Facility is supported by one-year back-up facilities provided by two banks on a committed basis and matures on May 23, 2008. Interest on the Secured Receivables Credit Facility is based on rates that are intended to approximate commercial paper rates for highly rated issuers. At December 31, 2007 and 2006, the Company’s borrowing rate under the Secured Receivables Credit Facility was 5.4% and 5.6%, respectively. Borrowings outstanding under the Secured Receivables Credit Facility are classified as a current liability on the Company’s consolidated balance sheet. At December 31, 2007 and 2006, borrowings under the facility totaled $100 million and $300 million, respectively.

          Interim Credit Facility

          On January 31, 2007, the Company entered into an interim credit facility (“Interim Credit Facility”) and borrowed $450 million to finance the acquisition of HemoCue and to repay substantially all of HemoCue’s outstanding debt.

F-25

QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
(dollars in thousands unless otherwise indicated)

          Term and Bridge Loan Credit Facilities

          On May 31, 2007, the Company entered into a new five-year term loan facility (the “Term Loan due 2012”), pursuant to which it borrowed $1.6 billion, and a $1.0 billion bridge loan facility (the “Bridge Loan”), pursuant to which it borrowed $780 million. The Company used the proceeds to finance the acquisition of AmeriPath, and related transaction costs, to repay substantially all of AmeriPath’s outstanding debt and to repay the $450 million outstanding under the Interim Credit Facility used to finance the acquisition of HemoCue, as described above.

          The Term Loan due 2012 matures on May 31, 2012 and requires principal repayments of 1.25% of the amount borrowed on the last day of each calendar quarter starting on September 30, 2007, with the quarterly payments increasing on September 30, 2009 to 2.5% of the amount borrowed and on September 30, 2011 to 17.5% of the amount borrowed, with the remainder of the outstanding balance due on May 31, 2012. The Term Loan due 2012 is guaranteed by the Subsidiary Guarantors. Interest under the Term Loan due 2012 is based on certain published rates plus an applicable margin that will vary over a range from 40 basis points to 125 basis points based on changes in the Company’s public debt ratings. At the Company’s option, it may elect to enter into LIBOR-based interest rate contracts for periods up to six months. Interest on any outstanding amounts not covered under LIBOR-based interest rate contracts is based on an alternate base rate, which is calculated by reference to the prime rate or federal funds rate. As of December 31, 2007, the Company’s borrowing rate for LIBOR-based loans was LIBOR plus 0.50%.

          The Company incurred $7 million of costs associated with the Term Loan due 2012, which is being amortized over the term of the related debt.

          AmeriPath Debt

          In connection with the acquisition of AmeriPath, the Company repaid substantially all of AmeriPath’s outstanding debt and related accrued interest, which approximated $780 million, as well as approximately $31 million representing the tender premium and solicitation fees related to the Company’s tender offer and consent solicitation for $350 million aggregate principal amount of 10.5% Senior Subordinated Notes of AmeriPath, Inc. due 2013 (“the AmeriPath subordinated senior notes”), which commenced on May 21, 2007.

          In conjunction with the cash tender offer, approximately $348 million in aggregate principal amount, or 99.4% of the $350 million of outstanding AmeriPath subordinated senior notes, was tendered. The Company made payments totaling $386 million to holders of such notes with respect to the cash tender offer and consent solicitation including tender premium and related solicitation fees and accrued interest.

          Industrial Revenue Bonds

          In connection with the acquisition of LabOne in November 2005, the Company assumed $7.2 million of Industrial Revenue Bonds. Principal is payable annually in equal installments through September 1, 2009. Interest is payable monthly at a rate adjusted weekly based on LIBOR plus approximately 0.08%. At December 31, 2007 and 2006, the rate was 4.9% and 5.4%, respectively. At December 31, 2007 and 2006, the remaining principal outstanding was $3.6 million and $5.4 million, respectively. The bonds are secured by the Lenexa, Kansas laboratory facility and an irrevocable bank letter of credit.

          Term Loan due December 2008

          On December 19, 2003, the Company entered into a $75 million amortizing term loan facility (the “Term Loan due December 2008”), which was funded on January 12, 2004. Interest under the Term Loan due December 2008 is based on LIBOR plus an applicable margin that can fluctuate over a range of up to 119 basis points, based on changes in the Company’s public debt rating. At the option of the Company, it may elect to enter into LIBOR-based interest rate contracts for periods up to 180 days. Interest on any outstanding amounts not covered under the LIBOR-based interest rate contracts is based on an alternate base rate, which is calculated by reference to the prime rate or federal funds rate. As of December 31, 2007 and 2006, the Company’s borrowing rate for LIBOR-based loans was LIBOR plus 0.55% and 0.50%, respectively. The Term Loan due December 2008 requires principal repayments of the initial amount borrowed equal to 20% on each of the third and fourth anniversary dates of the funding and the

F-26

QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
(dollars in thousands unless otherwise indicated)

remainder of the outstanding balance on December 31, 2008. The Term Loan due December 2008 is guaranteed by the Subsidiary Guarantors and contains various covenants similar to those under the Credit Facility.

          Senior Notes

          In conjunction with its 2001 debt refinancing, the Company completed a $550 million senior notes offering in June 2001 (the “2001 Senior Notes”). The 2001 Senior Notes were issued in two tranches: (a) $275 million aggregate principal amount of 6¾% senior notes due 2006 (“Senior Notes due 2006”), issued at a discount of approximately $1.6 million and (b) $275 million aggregate principal amount of 7½% senior notes due 2011 (“Senior Notes due 2011”), issued at a discount of approximately $1.1 million. On July 12, 2006, the Company repaid the $275 million outstanding under the Senior Notes due 2006. After considering the discount, the effective interest rate on the Senior Notes due 2011 is 7.6%. The Senior Notes due 2011 require semiannual interest payments. The Senior Notes due 2011 are unsecured obligations of the Company and rank equally with the Company’s other unsecured senior obligations. The Senior Notes due 2011 are guaranteed by the Subsidiary Guarantors and do not have a sinking fund requirement.

          On October 31, 2005, the Company completed its $900 million private placement of senior notes (the “2005 Senior Notes”). The 2005 Senior Notes were priced in two tranches: (a) $400 million aggregate principal amount of 5.125% senior notes due November 2010 (“Senior Notes due 2010”); and (b) $500 million aggregate principal amount of 5.45% senior notes due November 2015 (“Senior Notes due 2015”). The Company used the net proceeds from the 2005 Senior Notes, together with cash on-hand, to pay the cash purchase price and transaction costs of the LabOne acquisition and to repay $127 million of LabOne’s debt. The Senior Notes due 2010 and 2015 were issued at a discount of $0.8 million and $1.6 million, respectively. After considering the discounts, the effective interest rates on the Senior Notes due 2010 and 2015 are approximately 5.3% and 5.6%, respectively. The 2005 Senior Notes require semiannual interest payments, which commenced on May 1, 2006. The 2005 Senior Notes are unsecured obligations of the Company and rank equally with the Company’s other unsecured senior obligations. The 2005 Senior Notes are guaranteed by the Subsidiary Guarantors. Under a registration rights agreement executed in connection with the offering and sale of the 2005 Senior Notes and related guarantees, the Company filed a registration statement which was declared effective on February 16, 2006, to enable the holders of the 2005 Senior Notes to exchange the notes and guarantees for publicly registered notes and guarantees and all the holders exchanged the notes and guarantees for publicly registered notes and guarantees.

          On June 22, 2007, the Company completed an $800 million senior notes offering (the “2007 Senior Notes”). The 2007 Senior Notes were priced in two tranches: (a) $375 million aggregate principal amount of 6.40% senior notes due July 2017 (the “Senior Notes due 2017”), issued at a discount of approximately $0.8 million and (b) $425 million aggregate principal amount of 6.95% senior notes due July 2037 (the “Senior Notes due 2037”), issued at a discount of approximately $4.7 million. After considering the discounts, the effective interest rates on the Senior Notes due 2017 and the Senior Notes due 2037 are approximately 6.4% and 7.0%, respectively. The 2007 Senior Notes require semiannual interest payments, which will commence on January 1, 2008. The 2007 Senior Notes are unsecured obligations of the Company and rank equally with the Company’s other unsecured obligations. The 2007 Senior Notes do not have a sinking fund requirement and are guaranteed by the Subsidiary Guarantors.

          The Company incurred $6.3 million of costs associated with the 2007 Senior Notes, which is being amortized over the term of the related debt.

          The Company used the net proceeds from the 2007 Senior Notes to repay the $780 million of borrowings under the Bridge Loan, discussed above.

          Debentures due June 2034

          In connection with the acquisition of LabOne in November 2005, the Company assumed $103.5 million of 3.50% convertible senior debentures of LabOne due June 15, 2034 (the “Debentures due June 2034”). As a result of the change in control of LabOne, the holders of the debentures had the right from November 1, 2005 to December 1, 2005 to: (i) have their debentures repurchased by LabOne for 100% of the principal amount of the debentures, plus accrued and unpaid interest thereon through November 30, 2005; or (ii) have their debentures converted into the amount the respective holder would have received if the holder had converted the debentures prior to November 1, 2005, plus an additional premium. As a result of the change in control of LabOne, and as provided in the indenture to

F-27

QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
(dollars in thousands unless otherwise indicated)

the debentures, the conversion rate increased so that each $1,000 principal amount of the debentures was convertible into cash in the amount of $1,280.88 if converted by December 1, 2005. As a result of the change in control of LabOne, of the total outstanding principal balance of the Debentures due June 2034 of $103.5 million, $99 million of principal was converted for $126.8 million in cash, reflecting a premium of $27.8 million. The remaining outstanding principal of the Debentures due June 2034 totaling $4.5 million was adjusted to its estimated fair value of $2.9 million, reflecting a discount of $1.6 million based on the net present value of the estimated remaining obligations, at then current interest rates. The Debentures due June 2034 require semi-annual interest payments in June and December.

          As of December 31, 2007, long-term debt maturing in each of the years subsequent to December 31, 2008 is as follows:

Year ending December 31,
2009	$	27,710
2010		560,545
2011		915,683
2012		560,819
2013		315
Thereafter		1,312,140
Total long-term debt	$	3,377,212

11. FINANCIAL INSTRUMENTS

          Treasury Lock Agreements

          In October 2005, the Company entered into interest rate lock agreements with two financial institutions for a total notional amount of $300 million to lock the U.S. treasury rate component of a portion of the Company’s offering of its debt securities in the fourth quarter of 2005 (the “Treasury Lock Agreements”). The Treasury Lock Agreements, which had an original maturity date of November 9, 2005, were entered into to hedge part of the Company’s interest rate exposure associated with the minimum amount of debt securities that were issued in the fourth quarter of 2005. In connection with the Company’s private placement of its Senior Notes due 2015 on October 25, 2005, the Treasury Lock Agreements were settled and the Company received $2.5 million, representing the gain on the settlement of the Treasury Lock Agreements. These gains are deferred in stockholders’ equity, as a component of “accumulated other comprehensive income (loss)”, and amortized as an adjustment to interest expense over the term of the Senior Notes due 2015.

          Treasury Forward Agreements

          In June 2007, the Company entered into forward starting interest rate swap agreements with three financial institutions for a total notional amount of $300 million to lock the interest rate of a portion of the Company’s offering of its debt securities in the second quarter of 2007 (the “Treasury Forward Agreements”). The Treasury Forward Agreements were entered into to hedge a portion of the Company’s interest rate exposure associated with the debt securities that were issued in the second quarter of 2007. In connection with the Company’s 2007 Senior Notes issued in June 2007, the Treasury Forward Agreements were settled and the Company paid $3.5 million, representing the loss on the settlement of the Treasury Forward Agreements. These losses are deferred in stockholders’ equity, as a component of “accumulated other comprehensive income (loss)”, and are amortized as an adjustment to interest expense over the term of the Senior Notes due 2017.

          Interest Rate Swap Agreements

          In August 2007, the Company entered into four separate variable-to-fixed interest rate swap agreements (“the Interest Rate Swap Agreements”), whereby the Company fixed the interest rates on $500 million of its Term Loan due May 2012 for periods ranging from October 2007 through October 2009. The fixed interest rates range from 5.095% to 5.267%.

          The Interest Rate Swap Agreements qualify as cash flow hedges under the requirements of SFAS 133. As such, gains and losses on the Interest Rate Swap Agreements are deferred into “accumulated other comprehensive income (loss)” until the hedged transaction impacts the Company’s earnings. During the year ended December 31,

F-28

QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
(dollars in thousands unless otherwise indicated)

2007, the Company deferred losses of $2.7 million into “accumulated other comprehensive income (loss)”. The cash flow hedges were effective during 2007.

          Fair Value of Financial Instruments

          The carrying amounts of cash and cash equivalents, accounts receivable and accounts payable and accrued expenses approximate fair value based on the short maturity of these instruments. At December 31, 2007, the fair value of the interest rate swap agreements was not material. At December 31, 2007 and 2006, the fair value of the Company’s debt was estimated at $3.6 billion and $1.6 billion, respectively, using quoted market prices and yields for the same or similar types of borrowings, taking into account the underlying terms of the debt instruments. At December 31, 2007 and 2006, the estimated fair value exceeded the carrying value of the debt by $59.1 million and $0.4 million, respectively.

12. PREFERRED STOCK AND COMMON STOCKHOLDERS’ EQUITY

          Series Preferred Stock

          Quest Diagnostics is authorized to issue up to 10 million shares of Series Preferred Stock, par value $1.00 per share. The Company’s Board of Directors has the authority to issue such shares without stockholder approval and to determine the designations, preferences, rights and restrictions of such shares. Of the authorized shares, 1,300,000 shares have been designated Series A Preferred Stock and 1,000 shares have been designated Voting Cumulative Preferred Stock. No shares are currently outstanding.

          Common Stock

          On May 4, 2006, the Company’s Restated Certificate of Incorporation was amended to increase the number of shares of common stock, par value $0.01 per share, from 300 million shares to 600 million shares.

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QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
(dollars in thousands unless otherwise indicated)

          Accumulated Other Comprehensive Income (Loss)

          The components of accumulated other comprehensive income (loss) for 2007, 2006 and 2005 were as follows:

	Foreign Currency Translation Adjustment				Market Value Adjustment				Deferred Gain (Loss)				Accumulated Other Comprehensive Income (Loss)
Balance, December 31, 2004		$	1,339			$	2,527			$	—			$	3,866
Translation adjustment			(3,287	)			—				—				(3,287	)
Market value adjustment, net of tax benefit of $6,057			—				(9,238	)			—				(9,238	)
Deferred gain, less reclassifications			—				—				2,454				2,454
Balance, December 31, 2005			(1,948	)			(6,711	)			2,454				(6,205	)
Translation adjustment			2,460				—				—				2,460
Market value adjustment, net of tax benefit of $2,501			—				(3,815	)			—				(3,815	)
Reversal of market value adjustment, net of tax expense of $(5,053)			—				7,707				—				7,707
Deferred gain reclassifications			—				—				(212	)			(212	)
Balance, December 31, 2006			512				(2,819	)			2,242				(65	)
Translation adjustment			30,820				—				—				30,820
Market value adjustment, net of tax benefit of $24			—				(36	)			—				(36	)
Reversal of market value adjustment, net of tax expense of $(510)			—				802				—				802
Deferred loss, less reclassifications			—				—				(6,242	)			(6,242	)
Balance, December 31, 2007		$	31,332			$	(2,053	)		$	(4,000	)		$	25,279

          The market value adjustments for 2007, 2006 and 2005 represented unrealized holding gains (losses), net of taxes. The reversal of market value adjustments for 2007 and 2006 represents prior periods unrealized holding losses for investments where the decline in fair value was deemed to be other than temporary in 2007 and 2006 and the resulting loss was recognized in the consolidated statements of operations (see Note 2). The deferred gain for 2005 represented the $2.5 million the Company received upon the settlement of its Treasury Lock Agreements, net of amounts reclassified as a reduction to interest expense. The deferred loss for 2007 represented the $3.5 million the Company paid upon the settlement of its Treasury Forward Agreements, net of amounts reclassified as an increase to interest expense, and $2.7 million in deferred losses on its Interest Rate Swap Agreements (see Note 11). Foreign currency translation adjustments are not adjusted for income taxes since they relate to indefinite investments in non- U.S. subsidiaries.

          Dividend Program

          During each of the quarters of 2007, 2006 and 2005, the Company’s Board of Directors has declared a quarterly cash dividend of $0.10, $0.10 and $0.09 per common share, respectively.

          Share Repurchase Plan

          In 2003, the Company’s Board of Directors authorized a share repurchase program, which permitted the Company to purchase up to $600 million of its common stock. In July 2004, January 2005 and January 2006, the Company’s Board of Directors authorized the Company to purchase up to an additional $300 million, $350 million and $600 million, respectively, of its common stock. Under a separate authorization from the Board of Directors, in December 2004 the Company repurchased 5.4 million shares of its common stock for approximately $254 million from GlaxoSmithKline plc. For the year ended December 31, 2007, the Company repurchased 2.8 million shares of

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QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
(dollars in thousands unless otherwise indicated)

its common stock at an average price of $52.14 per share for $146 million, and reissued 2.9 million shares in connection with employee benefit plans. For the year ended December 31, 2006, the Company repurchased 8.9 million shares of its common stock at an average price of $53.23 per share for $472 million, and reissued 4.2 million shares in connection with employee benefit plans. For the year ended December 31, 2005, the Company repurchased 7.8 million shares of its common stock at an average price of $49.98 per share for $390 million, and reissued 5.6 million shares and 4.3 million shares, respectively, in connection with the conversion of its Debentures and for employee benefit plans. At December 31, 2007, $104 million of the share repurchase authorization remained available.

13. STOCK OWNERSHIP AND COMPENSATION PLANS

          Employee and Non-employee Directors Stock Ownership Programs

          In 2005, the Company established the ELTIP to replace the Company’s prior Employee Equity Participation Programs established in 1999 (the “1999 EEPP”) and 1996, as amended (the “1996 EEPP”). The ELTIP provides for three types of awards: (a) stock options, (b) stock appreciation rights and (c) stock awards. The ELTIP provides for the grant to eligible employees of either non-qualified or incentive stock options, or both, to purchase shares of Quest Diagnostics common stock at a price of no less than the fair market value on the date of grant. The stock options are subject to forfeiture if employment terminates prior to the end of the prescribed vesting period, as determined by the Board of Directors. The stock options expire on the date designated by the Board of Directors but in no event more than seven years from date of grant for those granted subsequent to January 1, 2005. Grants of stock appreciation rights allow eligible employees to receive a payment based on the appreciation of Quest Diagnostics common stock in cash, shares of Quest Diagnostics common stock or a combination thereof. The stock appreciation rights are granted at an exercise price at no less than the fair market value of Quest Diagnostics common stock on the date of grant. Stock appreciation rights expire on the date designated by the Board of Directors but in no event more than seven years from date of grant. No stock appreciation rights have been granted under the ELTIP or the 1999 EEPP. Under the stock provisions of the plan, the ELTIP allows eligible employees to receive awards of shares, or the right to receive shares, of Quest Diagnostics common stock, the equivalent value in cash or a combination thereof. These shares are generally earned on achievement of financial performance goals and are subject to forfeiture if employment terminates prior to the end of the prescribed vesting period, as determined by the Board of Directors. The actual amount of performance share awards is based on the Company’s earnings per share growth for the performance period compared to that of a peer group of companies. Key executive, managerial and technical employees are eligible to participate in the ELTIP. The provisions of the 1999 EEPP and the 1996 EEPP were similar to those outlined above for the ELTIP. Certain options granted under the 1999 EEPP and the 1996 EEPP remain outstanding.

          The ELTIP increased the maximum number of shares of Quest Diagnostics common stock that may be optioned or granted to 48 million shares. In addition, any remaining shares under the 1996 EEPP are available for issuance under the ELTIP.

          In 2005, the Company established the Amended and Restated Director Long-Term Incentive Plan (the “DLTIP”), to replace the Company’s prior plan established in 1998. The DLTIP provides for the grant to non-employee directors of non-qualified stock options to purchase shares of Quest Diagnostics common stock at no less than the fair market value on the date of grant and stock awards. The stock awards are generally earned on achievement of certain performance goals specified in the awards. The maximum number of shares that may be issued under the DLTIP is 2 million shares. The stock options expire seven years from date of grant and generally become exercisable in three equal annual installments beginning on the first anniversary date of the grant of the option regardless of whether the optionee remains a director of the Company. During 2007, 2006 and 2005, grants under the DLTIP totaled 81, 95 and 110 thousand shares, respectively.

          In general, the Company’s practice has been to issue shares related to its stock-based compensation program from shares of its common stock held in treasury. See Note 12 for further information regarding the Company’s share repurchase program.

          The fair value of each stock option award granted was estimated on the date of grant using a lattice-based option valuation model. The expected volatility under the lattice-based option-valuation model was based on the current and the historical implied volatilities from traded options of the Company’s stock. The dividend yield was

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QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
(dollars in thousands unless otherwise indicated)

based on the approved annual dividend rate in effect and current market price of the underlying common stock at the time of grant. The risk-free interest rate of each stock option granted was based on the U.S. Treasury yield curve in effect at the time of grant for bonds with maturities ranging from one month to seven years. The expected holding period of the options granted was estimated using the historical exercise behavior of employees. The weighted average assumptions used in valuing options granted in the periods presented are:

	2007	2006	2005
Weighted average fair value of options at grant date	$18.05	$13.91	$14.17
Expected volatility	21.5%	18.2%	23.0%
Dividend yield	0.7%	0.7%	0.7%
Risk-free interest rate	4.7% - 4.8%	4.6%	3.9% - 4.0%
Expected holding period, in years	5.3 – 6.2	5.6 – 6.2	5.4 – 5.9

          The fair value of restricted stock awards and performance share units is the average market price of the Company’s common stock at the date of grant.

          Transactions under the stock option plans for 2007 were as follows:

	Shares (in thousands)			Weighted Average Exercise Price			Weighted Average Remaining Contractual Term (in years)		Aggregate Intrinsic Value (in millions)
Options outstanding, beginning of year		13,249			$	39.44
Options granted		3,765				45.99
Options exercised		(2,450	)			33.11
Options forfeited and cancelled		(626	)			48.62
Options outstanding, end of year		13,938			$	41.91		5.2		$	154
Exercisable, end of year		8,740			$	37.82		4.9		$	132
Vested and expected to vest, end of year		13,302			$	41.44		5.2		$	153

          The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (the difference between the Company’s closing common stock price on the last trading day of 2007 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on December 31, 2007. This amount changes based on the fair market value of the Company’s common stock. Total intrinsic value of options exercised in 2007, 2006 and 2005 was $52 million, $106 million and $98 million, respectively.

          As of December 31, 2007, there was $29 million of unrecognized stock-based compensation cost related to stock options which is expected to be recognized over a weighted average period of 1.3 years.

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QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
(dollars in thousands unless otherwise indicated)

          The following summarizes the activity relative to stock awards, including restricted stock awards and performance share units, for 2007, 2006 and 2005:

	2007					2006					2005
	Shares (in thousands)			Weighted Average Grant Date Fair Value		Shares (in thousands)			Weighted Average Grant Date Fair Value		Shares (in thousands)
Shares outstanding, beginning of year		450		$	52.41		107		$	49.71		—
Shares granted		538			52.05		1,020			52.32		113
Shares vested		(74	)		52.30		(39	)		50.26		(1	)
Shares forfeited and canceled		(100	)		52.38		(56	)		51.92		(5	)
Adjustment to estimate of performance share units to be earned		(137	)		51.94		(582	)		51.94		—
Shares outstanding, end of year		677		$	52.24		450		$	52.41		107

          In the fourth quarter of 2007 and 2006, the Company revised its estimate of the number of performance share units expected to be earned at the end of the performance periods as a result of revising its estimates of projected performance and reduced the number of performance share units by 0.1 million and 0.6 million, respectively.

          As of December 31, 2007, there was $15 million of unrecognized stock-based compensation cost related to nonvested stock awards, which is expected to be recognized over a weighted average period of 1.8 years. Total fair value of shares vested was $3.8 million, $2.1 million and less than $0.1 million for the year ended December 31, 2007, 2006 and 2005, respectively. The amount of unrecognized stock-based compensation cost is subject to change based on revisions, if any, to management’s best estimates of the achievement of the performance goals specified in such awards and the resulting number of shares that will be earned at the end of the performance periods.

          For the years ended December 31, 2007, 2006 and 2005, stock-based compensation expense totaled $57 million, $55 million and $2.0 million, respectively. Income tax benefits related to stock-based compensation expense totaled $23 million and $22 million for the year ended December 31, 2007 and 2006, respectively. Income tax benefits related to stock-based compensation for 2005 were not material.

          Employee Stock Purchase Plan

          Under the Company’s Employee Stock Purchase Plan (“ESPP”), which was approved by the Company’s shareholders at the 2006 Annual Meeting of Shareholders, substantially all employees can elect to have up to 10% of their annual wages withheld to purchase Quest Diagnostics common stock. The purchase price of the stock is 85% of the market price of the Company’s common stock on the last business day of each calendar month. Under the ESPP, the maximum number of shares of Quest Diagnostics common stock which may be purchased by eligible employees is 5 million. Approximately 448, 474 and 409 thousand shares of common stock were purchased by eligible employees in 2007, 2006 and 2005, respectively.

          Defined Contribution Plans

          The Company maintains qualified defined contribution plans covering substantially all of its employees, and matches employee contributions up to a maximum of 6%. The Company’s expense for contributions to its defined contribution plans aggregated $76 million, $69 million and $64 million for 2007, 2006 and 2005, respectively.

          Supplemental Deferred Compensation Plan

          The Company’s supplemental deferred compensation plan is an unfunded, non-qualified plan that provides for certain management and highly compensated employees to defer up to 50% of their eligible compensation in excess of their defined contribution plan limits. In addition, certain members of senior management have an additional opportunity to defer up to 95% of their variable incentive compensation. The compensation deferred under this plan, together with Company matching amounts, are credited with earnings or losses measured by the mirrored rate of return on investments elected by plan participants. Each plan participant is fully vested in all deferred compensation, Company match and earnings credited to their account. Although the Company is currently contributing all participant deferrals and matching amounts to a trust, the funds in the trust, totaling $34 million and

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QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
(dollars in thousands unless otherwise indicated)

$30 million at December 31, 2007 and 2006, respectively, are general assets of the Company and are subject to any claims of the Company’s creditors. The Company’s expense for matching contributions to this plan were approximately $1 million for 2007, 2006 and 2005.

14. RELATED PARTY TRANSACTIONS

          At December 31, 2007, GlaxoSmithKline plc (“GSK”), the result of the merger of Glaxo Wellcome and SmithKline Beecham in December 2000, beneficially owned approximately 19% of the outstanding shares of Quest Diagnostics common stock.

          Quest Diagnostics is the primary provider of testing to support GSK’s clinical trials testing requirements worldwide (as amended, the “Clinical Trials Agreements”). Net revenues, primarily derived under the Clinical Trials Agreements were $79 million, $87 million and $69 million for 2007, 2006 and 2005, respectively.

          In addition, under the SBCL acquisition agreements, SmithKline Beecham has agreed to indemnify Quest Diagnostics, on an after tax basis, against certain matters primarily related to taxes and billing and professional liability claims.

          At December 31, 2007 and 2006, liabilities included $27 million due to SmithKline Beecham, primarily related to tax benefits associated with indemnifiable matters.

15. COMMITMENTS AND CONTINGENCIES

          Letter of Credit Lines and Contractual Obligations

          The Company has lines of credit with two financial institutions totaling $95 million for the issuance of letters of credit (the “letter of credit lines”). The letter of credit lines, which are renewed annually, mature on November 30, 2008 and December 31, 2008 and are guaranteed by the Subsidiary Guarantors.

          In support of its risk management program, to ensure the Company’s performance or payment to third parties, $83 million were outstanding on the letter of credit lines at December 31, 2007. The letters of credit primarily represent collateral for current and future automobile liability and workers’ compensation loss payments.

          Minimum rental commitments under noncancelable operating leases, primarily real estate, in effect at December 31, 2007 are as follows:

Year ending December 31,
2008	$	177,527
2009		148,342
2010		114,161
2011		81,421
2012		51,177
2013 and thereafter		129,014
Minimum lease payments		701,642
Noncancelable sub-lease income		(6,361	)
Net minimum lease payments	$	695,281

          Operating lease rental expense for 2007, 2006 and 2005 aggregated $171 million, $153 million and $140 million, respectively. Rent expense associated with operating leases that include scheduled rent increases and tenant incentives, such as rent holidays, is recorded on a straight-line basis over the term of the lease.

          The Company has certain noncancelable commitments to purchase products or services from various suppliers, mainly for telecommunications and standing orders to purchase reagents and other laboratory supplies. At December 31, 2007, the approximate total future purchase commitments are $87 million, of which $39 million are expected to be incurred in 2008.

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QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
(dollars in thousands unless otherwise indicated)

          Contingent Lease Obligations

          The Company is subject to contingent obligations under certain leases and other instruments incurred in connection with real estate activities and other operations associated with LabOne and certain of its predecessor companies. The contingent obligations arise out of certain land leases with two Hawaiian trusts relating to land in Waikiki upon which a hotel was built and a land lease for a parking garage in Reno, Nevada. While its title and interest to the subject leases have been transferred to third parties, the land owners have not released the original obligors, including predecessors of LabOne, from their obligations under the leases. In December 2007, the subtenant of the hotel in Waikiki emerged from Chapter 11 bankruptcy which it had entered in February 2006. The rent payments under the Hawaiian land leases are subject to market value adjustments every ten years beginning in 2007. Given that the Hawaiian land leases are subject to market value adjustments, the total contingent obligations under such leases cannot be precisely estimated, but are likely to total several hundred million dollars. The contingent obligation of the Nevada lease is estimated to be approximately $5.3 million. The Company believes that the leasehold improvements on the leased properties are significantly more valuable than the related lease obligations. Based on the circumstances above, no liability has been recorded for any potential contingent obligations related to the land leases.

          The Company is involved in various legal proceedings. Some of the proceedings against the Company involve claims that are substantial in amount.

          NID Investigation

          NID and the Company each received a subpoena from the United States Attorney’s Office for the Eastern District of New York during the fourth quarter of 2004. The subpoenas requested a wide range of business records, including documents regarding parathyroid hormone (“PTH”) test kits manufactured by NID and PTH testing performed by the Company. The Company has voluntarily and actively cooperated with the investigation, providing information, witnesses and business records of NID and the Company, including documents related to PTH tests and test kits, as well as other tests and test kits. In the second and third quarters of 2005, the FDA conducted an inspection of NID and issued a Form 483 listing the observations made by the FDA during the course of the inspection. NID responded to the Form 483.

          During the fourth quarter of 2005, NID instituted its second voluntary product hold within a six-month period, due to quality issues, which adversely impacted the operating performance of NID. As a result, the Company evaluated a number of strategic options for NID, and on April 19, 2006, decided to cease operations at NID. Upon completion of the wind-down of operations in the third quarter of 2006, the operations of NID were classified as discontinued operations. During the third quarter of 2006, the government issued two additional subpoenas, one to NID and one to the Company. The subpoenas covered various records, including records related to tests and test kits in addition to PTH.

          During the third quarter of 2007, the government and the Company began settlement discussions. In the course of those discussions, the government disclosed to the Company certain of the government’s legal theories regarding the amount of damages allegedly incurred by the government, which include alleged violations of civil and criminal statutes including the False Claims Act and the Food, Drug and Cosmetics Act. Violations of these statutes and related regulations could lead to a warning letter, injunction, fines or penalties, exclusion from federal healthcare programs and/or criminal prosecution, as well as claims by third parties. The Company analyzed the government’s position and presented its own analysis which argued against many of the government’s claims. In light of that analysis and based on the status of settlement discussions, the Company has established a reserve, in accordance with generally accepted accounting principles, reflected in discontinued operations, of $241 million in connection with these claims. Of the total reserve, $51 million and $190 million were recorded in the third and fourth quarters, respectively, of 2007. The Company estimates that the amount reserved represents the minimum expected probable loss with respect to this matter. The Company does not believe that a reasonable estimate for these losses in excess of the established reserve can be made at this time. The Company has recorded a deferred tax benefit associated with that portion of the reserve that it expects will be tax deductible. Eventual losses related to these matters may substantially exceed the reserve, and the impact could be material to the Company’s results of operations, cash flows and financial condition in the period that such matters are determined or paid.

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QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
(dollars in thousands unless otherwise indicated)

          The Company continues to engage in discussions with the United States Attorney’s Office and those discussions potentially could lead to an agreement in principle to resolve some or all of the matters in the near future. There can be no assurance, however, when or whether a settlement may be reached, or as to its terms. If the Company cannot reach an acceptable settlement agreement with the United States Attorney’s Office, the Company would defend itself and NID and could incur significant costs in doing so.

          Other Matters

          The Company has in the past entered into several settlement agreements with various government and private payers relating to industry-wide billing and marketing practices that had been substantially discontinued. The federal or state governments may bring additional claims based on new theories as to the Company’s practices which management believes to be in compliance with law. In addition, certain federal and state statutes, including the qui tam provisions of the federal False Claims Act, allow private individuals to bring lawsuits against healthcare companies on behalf of government or private payers alleging inappropriate billing practices. The Company is aware of certain pending lawsuits, including a class action lawsuit, and has received several subpoenas related to billing practices.

          During the second quarter of 2005, the Company received a subpoena from the United States Attorney’s Office for the District of New Jersey. The subpoena seeks the production of business and financial records regarding capitation and risk sharing arrangements with government and private payers for the years 1993 through 1999. Also, during the third quarter of 2005, the Company received a subpoena from the U.S. Department of Health and Human Services, Office of the Inspector General. The subpoena seeks the production of various business records including records regarding our relationship with health maintenance organizations, independent physician associations, group purchasing organizations, and preferred provider organizations relating back to as early as 1995. The Company is cooperating with the United States Attorney’s Office and the Office of the Inspector General.

          During the second quarter of 2006, each of the Company and its subsidiary, Specialty Laboratories, Inc. (“Specialty”), received a subpoena from the California Attorney General’s Office. The subpoenas seek various documents including documents relating to billings to MediCal, the California Medicaid program. The subpoenas seek documents from various time frames ranging from three to ten years. The Company and Specialty are cooperating with the California Attorney General’s Office. The Company understands that there may be pending qui tam claims brought by former employees or other “whistle blowers” as to which the Company cannot determine the extent of any potential liability. The Company also is aware of certain pending individual or class action lawsuits related to billing practices filed under the qui tam provisions of the civil False Claims Act and/or other federal and state statutes, regulations or other laws.

          Several of these other matters are in their early stages of development and involve responding to and cooperating with various government investigations and related subpoenas. While the Company believes that at least a reasonable possibility exists that losses may have been incurred, based on the nature and status of the investigations, the losses are either currently not probable or cannot be reasonably estimated.

          Management has established reserves in accordance with generally accepted accounting principles for the other matters discussed above. Such reserves totaled less than $5 million as of December 31, 2007. Although management cannot predict the outcome of such matters, management does not anticipate that the ultimate outcome of such matters will have a material adverse effect on the Company’s financial condition but may be material to the Company’s results of operations or cash flows in the period in which the impact of such matters is determined or paid. However, there may be pending qui tam claims brought by former employees or other “whistle blowers”, or other pending claims as to which the Company has not been provided with a copy of the complaint and accordingly cannot determine the extent of any potential liability.

          As a general matter, providers of clinical testing services may be subject to lawsuits alleging negligence or other similar legal claims. These suits could involve claims for substantial damages. Any professional liability litigation could also have an adverse impact on the Company’s client base and reputation. The Company maintains various liability insurance coverage for claims that could result from providing or failing to provide clinical testing services, including inaccurate testing results and other exposures. The Company’s insurance

F-36

QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
(dollars in thousands unless otherwise indicated)

coverage limits its maximum exposure on individual claims; however, the Company is essentially self-insured for a significant portion of these claims. Reserves for such matters are established by considering actuarially determined losses based upon the Company’s historical and projected loss experience. Management believes that present insurance coverage and reserves are sufficient to cover currently estimated exposures. Although management cannot predict the outcome of any claims made against the Company, management does not anticipate that the ultimate outcome of any such proceedings or claims will have a material adverse effect on the Company’s financial condition but may be material to the Company’s results of operations or cash flows in the period in which the impact of such claims is determined or paid.

16. DISCONTINUED OPERATIONS

          During the fourth quarter of 2005, NID instituted its second voluntary product hold within a six-month period due to quality issues, which adversely impacted the operating performance of NID. As a result, the Company evaluated a number of strategic options for NID. On April 19, 2006, the Company decided to discontinue NID’s operations. During the third quarter of 2006, the Company completed its wind down of NID and classified the operations of NID as discontinued operations. Results of operations for NID have been reported as discontinued operations in the accompanying consolidated statements of operations and related disclosures for all periods presented.

          Summarized financial information for the discontinued operations of NID is set forth below:

	2007			2006			2005
Net revenues	$	—		$	3,610		$	46,985
Loss from discontinued operations before income taxes		(250,278	)		(59,169	)		(39,554	)
Income tax benefit		(36,389	)		(19,898	)		(12,635	)
Loss from discontinued operations, net of taxes	$	(213,889	)	$	(39,271	)	$	(26,919	)

          Results for 2007 reflect charges of $241 million to establish a reserve in connection with various government claims (see Note 15). The Company estimates that this amount represents the minimum expected probable loss with respect to this matter. The Company does not believe that a reasonable estimate for these losses in excess of the established reserve can be made at this time. The Company has recorded a deferred tax benefit associated with that portion of the reserve that it expects will be tax deductible. Eventual losses related to these matters may substantially exceed the reserve, and the impact could be material to the Company’s results of operations, cash flows and financial condition in the period that such matters are determined or paid.

          Results for 2006 reflect losses from NID’s operations, due to its voluntary product hold instituted late in the second quarter of 2005 in connection with a quality review of all its products. In addition, results for 2006 also reflect pre-tax charges of $32 million, primarily related to the wind down of NID’s operations. These charges included: inventory write-offs of $7 million; asset impairment charges of $6 million; employee severance costs of $6 million; contract termination costs of $6 million; facility closure costs of $2 million; and costs to support activities to wind-down the business comprised primarily of employee costs and professional fees of $5 million.

          Results for 2005 reflect losses from NID’s operations, due to its voluntary product hold instituted late in the second quarter of 2005 in connection with a quality review of all its products.

          The $241 million reserve established in 2007 in connection with various government claims is included in “accounts payable and accrued expenses” in the consolidated balance sheet at December 31, 2007. The deferred tax asset recorded in connection with establishing the reserve is included in “deferred income taxes” in the consolidated balance sheet at December 31, 2007. The remaining balance sheet information related to NID was not material at December 31, 2007 and 2006.

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QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
(dollars in thousands unless otherwise indicated)

17. BUSINESS SEGMENT INFORMATION

          Clinical testing is an essential element in the delivery of healthcare services. Physicians use laboratory tests to assist in the detection, diagnosis, evaluation, monitoring and treatment of diseases and other medical conditions. Clinical testing is generally categorized as clinical testing and anatomic pathology testing. Clinical testing is performed on body fluids, such as blood and urine. Anatomic pathology testing is performed on tissues, including biopsies, and other samples, such as human cells. Customers of the clinical testing business include patients, physicians, hospitals, employers, governmental institutions and other commercial clinical laboratories. The clinical testing business accounted for greater than 90% of net revenues from continuing operations in 2007, 2006 and 2005.

          All other operating segments include the Company’s non-clinical testing businesses and consist of its risk assessment services business, its clinical trials testing business, its healthcare information technology business, MedPlus and its diagnostics products businesses. The Company’s risk assessment business provides underwriting support services to the life insurance industry including teleunderwriting, paramedical examinations, laboratory testing and medical record retrieval. The Company’s clinical trials testing business provides clinical testing performed in connection with clinical research trials on new drugs and vaccines. MedPlus is a developer and integrator of clinical connectivity and data management solutions for healthcare organizations, physicians and clinicians. The Company’s diagnostics products business manufactures and markets diagnostic test kits.

          On April 19, 2006, the Company decided to discontinue NID’s operations and results of operations for NID have been classified as discontinued operations for all years presented (see Note 16).

          During the third quarter of 2006, the Company acquired Focus Diagnostics and Enterix, in the first quarter of 2007, it acquired Hemocue, and in the second quarter of 2007, it acquired AmeriPath (see Note 3). Enterix and Hemocue are included in the Company’s other operating segments. The majority of Focus Diagnostics’ operations are included in the Company’s clinical testing business, with the remainder in other operating segments. AmeriPath’s operations are included in the Company’s clinical testing business.

          At December 31, 2007, substantially all of the Company’s services are provided within the United States, and substantially all of the Company’s assets are located within the United States.

          In the fourth quarter of 2006, the Company announced that it would not be a national contracted provider of laboratory services to United Healthcare Group Inc. (“UNH”) beginning January 1, 2007. UNH accounted for approximately 7% of the Company’s net revenues in 2006, with some of its regional laboratories having concentrations as high as 15% to 20%. The Company retained virtually all of its UNH business through December 31, 2006 and it estimates that as of December 31, 2007, it retained over 20% of its previously contracted UNH volume. The Company estimates that no longer being a contracted provider to UNH reduced its clinical testing volume in 2007 by 7%, most of that resulting from the direct loss of previously contracted work, and some of it associated with the loss of other work from physicians who choose to consolidate their testing with a single laboratory. The impact of the change in status with UNH was the principal driver of lower earnings in 2007 compared to the prior year, due to the significant impact it had during the first half of the year. However, the Company successfully mitigated the ongoing impact during the third quarter of 2007 as a result of actions taken to reduce costs, and higher reimbursement for the work the Company continues to perform for UNH members.

          The following table is a summary of segment information for the three years ended December 31, 2007, 2006 and 2005. Segment asset information is not presented since it is not reported to or used by the chief operating decision maker at the operating segment level. Operating earnings (loss) of each segment represents net revenues less directly identifiable expenses to arrive at operating income for the segment. General management and administrative corporate expenses, including amortization of intangible assets, are included in general corporate expenses below. Certain of the segment information for 2006 presented below has been reclassified to conform to the 2007 presentation. The accounting policies of the segments are the same as those of the Company as set forth in Note 2.

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QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
(dollars in thousands unless otherwise indicated)

	2007				2006				2005
Net revenues:
Clinical testing business	$	6,108,746			$	5,782,926			$	5,247,465
All other operating segments		596,161				485,733				209,261
Total net revenues	$	6,704,907			$	6,268,659			$	5,456,726
Operating earnings (loss):
Clinical testing business	$	1,191,139		(a)	$	1,230,383		(b)	$	1,083,395		(c)
All other operating segments		45,285		(d)		16,484		(e)		8,594
General corporate expenses		(145,088	)	(f)		(118,790	)	(g)		(84,441	)
Total operating income		1,091,336				1,128,077				1,007,548
Non-operating expenses, net		(178,934	)			(94,804	)			(57,540	)
Income from continuing operations before income taxes		912,402				1,033,273				950,008
Income tax expense		358,574				407,581				376,812
Income from continuing operations		553,828				625,692				573,196
Loss from discontinued operations, net of taxes		(213,889	)	(h)		(39,271	)	(h)		(26,919	)	(h)
Net income	$	339,939			$	586,421			$	546,277

(a)	Operating income for 2007 includes $37 million of stock-based compensation expense and $9.9 million of charges associated with workforce reductions in response to reduced volume levels.
(b)	Operating income for 2006 includes $33.7 million of stock-based compensation expense, and $27 million of special charges, primarily associated with integration activities.
(c)	During 2005, the Company recorded a $6.2 million charge primarily related to forgiving amounts owed by patients and physicians, and related property damage as a result of the hurricanes in the Gulf Coast.
(d)	Operating income for 2007 includes $4.6 million of stock-based compensation expense, $0.8 million of charges associated with workforce reductions in response to reduced volume levels, and a $4 million charge related to the expensing of in-process research and development associated with the acquisition of HemoCue (see Note 3).
(e)	Operating income for 2006 includes $5.4 million of stock-based compensation expense.
(f)	Operating income for 2007 includes $15 million of stock-based compensation expense.
(g)	Operating income for 2006 includes $16.2 million of stock-based compensation expense.
(h)	Results for 2007 reflect a charge of $241 million to establish a reserve in connection with various government claims (see Note 15). Results for 2006 reflect losses from NID’s operations, due to its voluntary product hold instituted late in the second quarter of 2005 in connection with a quality review of all its products. In addition, results for 2006 also reflect pre-tax charges of $32 million, primarily related to the wind down of NID’s operations. Results for 2005 reflect losses from NID’s operations, due to its voluntary product hold instituted late in the second quarter of 2005 in connection with a quality review of all its products (see Note 15 and Note 16).

F-39

QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
(dollars in thousands unless otherwise indicated)

	2007		2006		2005
Depreciation and amortization:
Clinical testing business	$	189,939	$	167,586	$	156,920
All other operating segments		19,301		16,461		8,441
General corporate		28,639		11,640		5,822
Discontinued operations		—		1,711		4,941
Total depreciation and amortization	$	237,879	$	197,398	$	176,124
Capital expenditures:
Clinical testing business	$	193,785	$	168,636	$	204,469
All other operating segments		17,760		17,291		13,445
General corporate		7,556		6,722		3,912
Discontinued operations		—		773		2,444
Total capital expenditures	$	219,101	$	193,422	$	224,270

18. SUMMARIZED FINANCIAL INFORMATION

          The Company’s Senior Notes due 2010, Senior Notes due 2011, Senior Notes due 2015, Senior Notes due 2017 and Senior Notes due 2037 are fully and unconditionally guaranteed by the Subsidiary Guarantors. With the exception of Quest Diagnostics Receivables Incorporated (see paragraph below), the non-guarantor subsidiaries are primarily foreign and less than wholly owned subsidiaries. In January 2005, the Company completed its redemption of all of its outstanding Debentures. In July 2006, the Company repaid at maturity the $275 million outstanding under its Senior Notes due 2006.

          In conjunction with the Company’s Secured Receivables Credit Facility, the Company maintains a wholly owned non-guarantor subsidiary, Quest Diagnostics Receivables Incorporated (“QDRI”). The Company and certain of its Subsidiary Guarantors transfer all private domestic receivables to QDRI. QDRI utilizes the transferred receivables to collateralize borrowings under the Company’s Secured Receivables Credit Facility. The Company and the Subsidiary Guarantors provide collection services to QDRI. QDRI uses cash collections principally to purchase new receivables from the Company and the Subsidiary Guarantors.

          The following condensed consolidating financial data illustrates the composition of the combined guarantors. Investments in subsidiaries are accounted for by the parent using the equity method for purposes of the supplemental consolidating presentation. Earnings (losses) of subsidiaries are therefore reflected in the parent’s investment accounts and earnings. The principal elimination entries relate to investments in subsidiaries and intercompany balances and transactions. LabOne, Focus Diagnostics and AmeriPath have been included in the accompanying condensed consolidating financial data, subsequent to the closing of the acquisitions, as Subsidiary Guarantors.

F-40

QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
(dollars in thousands unless otherwise indicated)

Condensed Consolidating Balance Sheet
December 31, 2007

	Parent		Subsidiary Guarantors			Non- Guarantor Subsidiaries			Eliminations			Consolidated
Assets
Current assets:
Cash and cash equivalents	$	111,610	$	14,847		$	41,137		$	—		$	167,594
Accounts receivable, net		27,309		234,532			620,126			—			881,967
Other current assets		46,986		183,505			101,055			(6,750	)		324,796
Total current assets		185,905		432,884			762,318			(6,750	)		1,374,357
Property, plant and equipment, net		215,062		654,341			42,595			—			911,998
Goodwill and intangible assets, net		153,848		5,422,270			530,719			—			6,106,837
Intercompany receivable (payable)		859,841		(610,371	)		(249,470	)		—			—
Investment in subsidiaries		5,149,196		—			—			(5,149,196	)		—
Other assets		167,105		48,433			38,054			(81,091	)		172,501
Total assets	$	6,730,957	$	5,947,557		$	1,124,216		$	(5,237,037	)	$	8,565,693
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable and accrued expenses	$	451,944	$	634,079		$	45,443		$	(6,750	)	$	1,124,716
Short-term borrowings and current portion of long-term debt		—		62,386			101,195			—			163,581
Total current liabilities		451,944		696,465			146,638			(6,750	)		1,288,297
Long-term debt		2,829,927		247,573			299,712			—			3,377,212
Other liabilities		124,844		457,837			74,352			(81,091	)		575,942
Stockholders’ equity		3,324,242		4,545,682			603,514			(5,149,196	)		3,324,242
Total liabilities and stockholders’ equity	$	6,730,957	$	5,947,557		$	1,124,216		$	(5,237,037	)	$	8,565,693

Condensed Consolidating Balance Sheet
December 31, 2006

	Parent		Subsidiary Guarantors			Non- Guarantor Subsidiaries			Eliminations			Consolidated
Assets
Current assets:
Cash and cash equivalents	$	134,598	$	7,661		$	7,381		$	—		$	149,640
Accounts receivable, net		4,380		139,934			630,100			—			774,414
Other current assets		55,213		124,104			87,647			—			266,964
Total current assets		194,191		271,699			725,128			—			1,191,018
Property, plant and equipment, net		215,224		520,184			16,949			—			752,357
Goodwill and intangible assets, net		152,903		3,365,359			66,130			—			3,584,392
Intercompany receivable (payable)		124,698		(9,576	)		(115,122	)		—			—
Investment in subsidiaries		3,685,481		—			—			(3,685,481	)		—
Other assets		133,051		6,748			38,909			(44,993	)		133,715
Total assets	$	4,505,548	$	4,154,414		$	731,994		$	(3,730,474	)	$	5,661,482
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable and accrued expenses	$	444,326	$	363,074		$	26,596		$	—		$	833,996
Short-term borrowings and current portion of long-term debt		—		16,874			300,000			—			316,874
Total current liabilities		444,326		379,948			326,596			—			1,150,870
Long-term debt		933,272		304,854			979			—			1,239,105
Other liabilities		108,779		159,199			29,351			(44,993	)		252,336
Stockholders’ equity		3,019,171		3,310,413			375,068			(3,685,481	)		3,019,171
Total liabilities and stockholders’ equity	$	4,505,548	$	4,154,414		$	731,994		$	(3,730,474	)	$	5,661,482

F-41

QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
(dollars in thousands unless otherwise indicated)

Condensed Consolidating Statement of Operations
For the Year Ended December 31, 2007

	Parent			Subsidiary Guarantors			Non- Guarantor Subsidiaries			Eliminations			Consolidated
Net revenues	$	821,908		$	5,488,797		$	715,478		$	(321,276	)	$	6,704,907
Operating costs and expenses:
Cost of services		458,544			3,265,817			245,487			—			3,969,848
Selling, general and administrative		162,857			1,153,522			319,934			(23,455	)		1,612,858
Amortization of intangible assets		222			21,013			6,669			—			27,904
Royalty (income) expense		(393,975	)		393,975			—			—			—
Other operating expense (income), net		51			(2,578	)		5,488			—			2,961
Total operating costs and expenses		227,699			4,831,749			577,578			(23,455	)		5,613,571
Operating income		594,209			657,048			137,900			(297,821	)		1,091,336
Non-operating expense, net		(178,849	)		(282,187	)		(15,719	)		297,821			(178,934	)
Income from continuing operations before taxes		415,360			374,861			122,181			—			912,402
Income tax expense		157,270			150,994			50,310			—			358,574
Income from continuing operations		258,090			223,867			71,871			—			553,828
Income (loss) from discontinued operations, net of taxes		—			(213,917	)		28			—			(213,889	)
Equity earnings from subsidiaries		81,849			—			—			(81,849	)		—
Net income	$	339,939		$	9,950		$	71,899		$	(81,849	)	$	339,939

Condensed Consolidating Statement of Operations
For the Year Ended December 31, 2006

	Parent			Subsidiary Guarantors			Non- Guarantor Subsidiaries			Eliminations			Consolidated
Net revenues	$	942,692		$	4,995,640		$	710,692		$	(380,365	)	$	6,268,659
Operating costs and expenses:
Cost of services		501,942			2,958,591			235,473			—			3,696,006
Selling, general and administrative		147,862			1,020,774			264,488			(22,408	)		1,410,716
Amortization of intangible assets		1,451			8,924			468			—			10,843
Royalty (income) expense		(394,693	)		394,693			—			—			—
Other operating (income) expense, net		(3,358	)		24,704			1,671			—			23,017
Total operating costs and expenses		253,204			4,407,686			502,100			(22,408	)		5,140,582
Operating income		689,488			587,954			208,592			(357,957	)		1,128,077
Non-operating (expense) income, net		(160,244	)		(295,672	)		3,155			357,957			(94,804	)
Income from continuing operations before taxes		529,244			292,282			211,747			—			1,033,273
Income tax expense		201,426			118,441			87,714			—			407,581
Income from continuing operations		327,818			173,841			124,033			—			625,692
Loss from discontinued operations, net of taxes		—			(28,980	)		(10,291	)		—			(39,271	)
Equity earnings from subsidiaries		258,603			—			—			(258,603	)		—
Net income	$	586,421		$	144,861		$	113,742		$	(258,603	)	$	586,421

F-42

QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
(dollars in thousands unless otherwise indicated)

Condensed Consolidating Statement of Operations For the Year Ended December 31, 2005
	Parent			Subsidiary Guarantors			Non- Guarantor Subsidiaries			Eliminations			Consolidated
Net revenues	$	874,113		$	4,319,625		$	544,174		$	(281,186	)	$	5,456,726
Operating costs and expenses:
Cost of services		491,029			2,540,063			189,621			—			3,220,713
Selling, general and administrative		102,040			879,544			254,912			(20,634	)		1,215,862
Amortization of intangible assets		1,628			2,991			18			—			4,637
Royalty (income) expense		(352,743	)		352,743			—			—			—
Other operating expense (income), net		8,288			(13	)		(309	)		—			7,966
Total operating costs and expenses		250,242			3,775,328			444,242			(20,634	)		4,449,178
Operating income		623,871			544,297			99,932			(260,552	)		1,007,548
Non-operating expenses, net		(97,718	)		(219,652	)		(722	)		260,552			(57,540	)
Income from continuing operations before taxes		526,153			324,645			99,210			—			950,008
Income tax expense		206,703			129,987			40,122			—			376,812
Income from continuing operations		319,450			194,658			59,088			—			573,196
Loss from discontinued operations, net of taxes		—			(26,437	)		(482	)		—			(26,919	)
Equity earnings from subsidiaries		226,827			—			—			(226,827	)		—
Net income	$	546,277		$	168,221		$	58,606		$	(226,827	)	$	546,277

Condensed Consolidating Statement of Cash Flows For the Year Ended December 31, 2007
	Parent			Subsidiary Guarantors			Non- Guarantor Subsidiaries			Eliminations			Consolidated
Cash flows from operating activities:
Net income	$	339,939		$	9,950		$	71,899		$	(81,849	)	$	339,939
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization		50,726			170,344			16,809			—			237,879
Provision for doubtful accounts		11,219			83,240			205,767			—			300,226
Provision for restructuring and other special charges		—			238,781			—			—			238,781
Other, net		(64,298	)		37,970			20,596			81,849			76,117
Changes in operating assets and liabilities		634,379			(200,171	)		(700,226	)		—			(266,018	)
Net cash provided by (used in) operating activities		971,965			340,114			(385,155	)		—			926,924
Net cash used in investing activities		(2,200,512	)		(1,334,217	)		(316,554	)		2,092,090			(1,759,193	)
Net cash provided by financing activities		1,205,559			1,001,289			735,465			(2,092,090	)		850,223
Net change in cash and cash equivalents		(22,988	)		7,186			33,756			—			17,954
Cash and cash equivalents, beginning of year		134,598			7,661			7,381			—			149,640
Cash and cash equivalents, end of year	$	111,610		$	14,847		$	41,137		$	—		$	167,594

F-43

QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
(dollars in thousands unless otherwise indicated)

Condensed Consolidating Statement of Cash Flows For the Year Ended December 31, 2006
	Parent			Subsidiary Guarantors			Non- Guarantor Subsidiaries			Eliminations			Consolidated
Cash flows from operating activities:
Net income	$	586,421		$	144,861		$	113,742		$	(258,603	)	$	586,421
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		46,674			140,103			10,621			—			197,398
Provision for doubtful accounts		5,934			51,258			186,251			—			243,443
Provision for restructuring and other special charges		—			47,868			7,920			—			55,788
Other, net		(316,207	)		55,233			22,948			258,603			20,577
Changes in operating assets and liabilities		200,269			(129,327	)		(222,673	)		—			(151,731	)
Net cash provided by operating activities		523,091			309,996			118,809			—			951,896
Net cash used in investing activities		(13,177	)		(120,444	)		(9,748	)		(271,033	)		(414,402	)
Net cash used in financing activities		(452,257	)		(186,650	)		(112,110	)		271,033			(479,984	)
Net change in cash and cash equivalents		57,657			2,902			(3,049	)		—			57,510
Cash and cash equivalents, beginning of year		76,941			4,759			10,430			—			92,130
Cash and cash equivalents, end of year	$	134,598		$	7,661		$	7,381		$	—		$	149,640

Condensed Consolidating Statement of Cash Flows For the Year Ended December 31, 2005
	Parent			Subsidiary Guarantors			Non- Guarantor Subsidiaries			Eliminations			Consolidated
Cash flows from operating activities:
Net income	$	546,277		$	168,221		$	58,606		$	(226,827	)	$	546,277
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		51,943			113,506			10,675			—			176,124
Provision for doubtful accounts		5,659			43,669			184,300			—			233,628
Other, net		(203,458	)		33,809			20,511			226,827			77,689
Changes in operating assets and liabilities		174,884			(214,707	)		(142,312	)		—			(182,135	)
Net cash provided by operating activities		575,305			144,498			131,780			—			851,583
Net cash used in investing activities		(1,020,236	)		(176,202	)		(15,243	)		131,888			(1,079,793	)
Net cash provided by (used in) financing activities		465,448			30,405			(116,927	)		(131,888	)		247,038
Net change in cash and cash equivalents		20,517			(1,299	)		(390	)		—			18,828
Cash and cash equivalents, beginning of year		56,424			6,058			10,820			—			73,302
Cash and cash equivalents, end of year	$	76,941		$	4,759		$	10,430		$	—		$	92,130

F-44

QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES
(in thousands, except per share data)
Quarterly Operating Results (unaudited)

2007 (a) (b) (c)	First Quarter			Second Quarter			Third Quarter			Fourth Quarter			Total Year
Net revenue from continuing operations	$	1,526,208		$	1,641,156		$	1,767,070		$	1,770,473		$	6,704,907
Gross profit from continuing operations		594,423			672,414			740,472			727,750			2,735,059
Income from continuing operations		107,515			141,979			150,325			154,009			553,828
Loss from discontinued operations		(1,622	)		(647	)		(52,360	)		(159,260	)		(213,889	)
Net income (loss)	$	105,893	(d)	$	141,332		$	97,965	(e)	$	(5,251	) (f)	$	339,939
Earnings per common share basic
Income from continuing operations	$	0.56		$	0.74		$	0.78		$	0.80		$	2.87
Loss from discontinued operations		(0.01	)		—			(0.27	)		(0.83	)		(1.11	)
Net income (loss)	$	0.55		$	0.74		$	0.51		$	(0.03	)	$	1.76
Earnings per common share dilutive
Income from continuing operations	$	0.55		$	0.73		$	0.77		$	0.79		$	2.84
Loss from discontinued operations		(0.01	)		—			(0.27	)		(0.82	)		(1.10	)
Net income (loss)	$	0.54		$	0.73		$	0.50		$	(0.03	)	$	1.74
2006 (a)	First Quarter			Second Quarter			Third Quarter			Fourth Quarter			Total Year
Net revenue from continuing operations	$	1,553,105		$	1,583,082		$	1,583,202		$	1,549,270		$	6,268,659
Gross profit from continuing operations		636,945			656,385			649,467			629,856			2,572,653
Income from continuing operations		154,604			155,960			163,853			151,275			625,692
Loss from discontinued operations		(9,967	)		(23,984	)		(3,331	)		(1,989	)		(39,271	)
Net income	$	144,637	(g)	$	131,976	(h)	$	160,522	(i)	$	149,286	(j)	$	586,421
Earnings per common share basic
Income from continuing operations	$	0.78		$	0.79		$	0.83		$	0.78		$	3.18
Loss from discontinued operations		(0.05	)		(0.12	)		(0.02	)		(0.01	)		(0.20	)
Net income	$	0.73		$	0.67		$	0.81		$	0.77		$	2.98
Earnings per common share dilutive
Income from continuing operations	$	0.77		$	0.78		$	0.82		$	0.77		$	3.14
Loss from discontinued operations		(0.05	)		(0.12	)		(0.02	)		(0.01	)		(0.20	)
Net income	$	0.72		$	0.66		$	0.80		$	0.76		$	2.94

(a)	During the third quarter of 2006, the Company completed its wind-down of NID and classified the operations of NID as discontinued operations. Results of operations have been prepared to report the results of NID as discontinued operations for all periods presented (see Note 16).
(b)	In the fourth quarter of 2006, the Company announced that it would not be a national contracted provider of laboratory services to UNH beginning January 1, 2007 (see Note 17).
(c)	On January 31, 2007, the Company completed the acquisition of HemoCue. On May 31, 2007, the Company completed the acquisition of AmeriPath. The quarterly operating results include the results of operations of HemoCue and AmeriPath subsequent to the closing of the applicable acquisitions.
(d)	In the first quarter of 2007, the Company recorded $10.7 million of costs associated with workforce reductions and a $4 million charge related to in-process research and development expense associated with the acquisition of HemoCue.
(e)	In the third quarter of 2007, the Company recorded a charge of $51 million associated with the government’s investigation in connection with NID (see Note 15).
(f)	In the fourth quarter of 2007, the Company recorded a $4.0 million charge associated with the write-down of an investment and $190 million associated with the government’s investigation in connection with NID (see Note 15).
(g)	In the first quarter of 2006, the Company recorded $21 million in charges as a result of finalizing its plan of integration of LabOne, $4.1 million in charges related to consolidating operations in California into a new facility and a $15.8 million gain on the sale of an investment.
(h)	In the second quarter of 2006, the Company recorded $28 million in charges as a result of discontinuing NID’s operations and a $12.3 million charge associated with the write-down of an investment.
(i)	In the third quarter of 2006, the Company recorded $2.7 million in charges as a result of discontinuing NID’s operations and a $4.0 million charge associated with the write-down of an investment.
(j)	In the fourth quarter of 2006, the Company recorded an additional $1.0 million in charges as a result of discontinuing NID’s operations and a $10.0 million charge associated with the write-down of an investment. During the fourth quarter of 2006, the Company revised its estimate of the number of performance share units expected to be earned at the end of the performance periods as a result of revising its estimates of projected performance and reduced stock-based compensation expense associated with performance share units by approximately $8 million.

F-45

QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES
SCHEDULE II - VALUATION ACCOUNTS AND RESERVES
(in thousands)

	Balance at 1-1-07		Provision for Doubtful Accounts		Net Deductions and Other (a)		Balance at 12-31-07
Year ended December 31, 2007
Doubtful accounts and allowances	$	205,086	$	300,226	$	255,245	$	250,067
	Balance at 1-1-06		Provision for Doubtful Accounts		Net Deductions and Other (a)		Balance at 12-31-06
Year ended December 31, 2006
Doubtful accounts and allowances	$	193,754	$	243,443	$	232,111	$	205,086
	Balance at 1-1-05		Provision for Doubtful Accounts		Net Deductions and Other (a)		Balance at 12-31-05
Year ended December 31, 2005
Doubtful accounts and allowances	$	202,857	$	233,628	$	242,731	$	193,754

(a) “Net Deductions and Other” primarily represent accounts written-off, net of recoveries.

F-46

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

EXHIBITS TO FORM 10-K
For the fiscal year ended December 31, 2007
Commission File No. 001-12215

QUEST DIAGNOSTICS INCORPORATED

Exhibit Number	Description
3.1	Restated Certificate of Incorporation (filed as an Exhibit to the Company’s current report on Form 8-K (Date of Report: May 31, 2001) and incorporated herein by reference) (Commission File Number 001-12215)
3.2	Amendment of the Restated Certificate of Incorporation (filed as an Exhibit to the Company’s quarterly report on Form 10-Q for the quarter ended June 30, 2006 and incorporated herein by reference)
3.3	Amended and Restated By-Laws of the Registrant (filed as an Exhibit to the Company’s current report on Form 8-K (Date of Report: March 28, 2007) and incorporated herein by reference)
4.1	Form of 7½% Senior Note due 2011, including the form of guarantee endorsed thereon (filed as an Exhibit to the Company’s current report on Form 8-K (Date of Report: June 27, 2001) and incorporated herein by reference) (Commission File Number 001-12215)
4.2	Form of 5.125% Exchange Senior Note due 2010, including the form of guarantee endorsed thereon (filed as an Exhibit to the Company’s current report on Form 8-K (Date of Report: November 1, 2005) and incorporated herein by reference)
4.3	Form of 5.45% Exchange Senior Note due 2015, including the form of guarantee endorsed thereon (filed as an Exhibit to the Company’s current report on Form 8-K (Date of Report: November 1, 2005) and incorporated herein by reference)
4.4	Form of 6.40% Senior Note due 2017, including the form of guarantee endorsed thereon (filed as an Exhibit to the Company’s current report on Form 8-K (Date of Report: June 19, 2007) and incorporated herein by reference)
4.5	Form of 6.95% Senior Note due 2037, including the form of guarantee endorsed thereon (filed as an Exhibit to the Company’s current report on Form 8-K (Date of Report: June 19, 2007) and incorporated herein by reference)
4.6	Indenture dated as of June 27, 2001, among the Company, the Subsidiary Guarantors, and the Trustee (filed as an Exhibit to the Company’s current report on Form 8-K (Date of Report: June 27, 2001) and incorporated herein by reference) (Commission File Number 001-12215)
4.7	First Supplemental Indenture, dated as of June 27, 2001, among the Company, the Subsidiary Guarantors, and The Bank of New York (filed as an Exhibit to the Company’s current report on Form 8-K (Date of Report: June 27, 2001) and incorporated herein by reference) (Commission File Number 001-12215)
4.8	Second Supplemental Indenture, dated as of November 26, 2001, among the Company, the Subsidiary Guarantors, and The Bank of New York (filed as an Exhibit to the Company’s current report on Form 8-K (Date of Report: November 26, 2001) and incorporated herein by reference) (Commission File Number 001-12215)
4.9	Third Supplemental Indenture, dated as of April 4, 2002, among the Company, the Additional Subsidiary Guarantors, and The Bank of New York (filed as an Exhibit to the Company’s current report on Form 8-K (Date of Report: April 1, 2002) and incorporated herein by reference) (Commission File Number 001-12215)
4.10	Fourth Supplemental Indenture dated as of March 19, 2003, among Unilab Corporation (f/k/a Quest Diagnostics Newco Incorporated), the Company, The Bank of New York, and the Subsidiary Guarantors (filed as an Exhibit to the Company’s quarterly report on Form 10-Q for the quarter ended March 31, 2003 and incorporated herein by reference)

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4.11	Fifth Supplemental Indenture dated as of April 16, 2004, among Unilab Acquisition Corporation (d/b/a FNA Clinics of America), the Company, The Bank of New York, and the Subsidiary Guarantors (filed as an Exhibit to the Company’s quarterly report on Form 10-Q for the quarter ended March 31, 2004 and incorporated herein by reference)
4.12	Sixth Supplemental Indenture dated as of October 31, 2005, among the Company, The Bank of New York, and the Subsidiary Guarantors (filed as an Exhibit to the Company’s current report on Form 8-K (Date of Report: October 31, 2005) and incorporated herein by reference)
4.13	Seventh Supplemental Indenture dated as of November 21, 2005, among the Company, The Bank of New York, and the Subsidiary Guarantors (filed as an Exhibit to the Company’s current report on Form 8-K (Date of Report: November 21, 2005) and incorporated herein by reference)
4.14	Eighth Supplemental Indenture dated as of July 31, 2006, among the Company, The Bank of New York, and the Subsidiary Guarantors (filed as an Exhibit to the Company’s current report on Form 8-K (Date of Report: July 31, 2006) and incorporated herein by reference)
4.15	Ninth Supplemental Indenture dated as of September 30, 2006, among the Company, The Bank of New York, and the Subsidiary Guarantors (filed as an Exhibit to the Company’s current report on Form 8-K (Date of Report: September 30, 2006) and incorporated herein by reference)
4.16	Tenth Supplemental Indenture dated as of June 22, 2007, among the Company, The Bank of New York, and the Subsidiary Guarantors (filed as an Exhibit to the Company’s current report on Form 8-K (Date of Report: June 19, 2007) and incorporated herein by reference)
4.17	Eleventh Supplemental Indenture dated as of June 22, 2007, among the Company, The Bank of New York, and the Additional Subsidiary Guarantors (filed as an Exhibit to the Company’s current report on Form 8-K (Date of Report: June 19, 2007) and incorporated herein by reference)
4.18	Twelfth Supplemental Indenture dated as of June 25, 2007, among the Company, The Bank of New York, and the Additional Subsidiary Guarantors (filed as an Exhibit to the Company’s current report on Form 8-K (Date of Report: June 19, 2007) and incorporated herein by reference)
10.1	Agreement and Plan of Merger dated as of April 15, 2007, by and among the Company, Ace Acquisition Sub, Inc. and AmeriPath Group Holdings, Inc. (filed as an Exhibit to the Company’s current report on Form 8-K (Date of Report: April 15, 2007) and incorporated herein by reference)
10.2	Amendment dated as of May 31, 2007 to Agreement and Plan of Merger dated as of April 15, 2007, by and among the Company, Ace Acquisition Sub, Inc. and AmeriPath Group Holdings, Inc. (filed as an Exhibit to the Company’s current report on Form 8-K (Date of Report: May 31, 2007) and incorporated herein by reference)
10.3	Commitment Letter dated as of April 15, 2007, between the Company and Morgan Stanley Senior Funding, Inc. (filed as an Exhibit to the Company’s current report on Form 8-K (Date of Report: April 15, 2007) and incorporated herein by reference)
10.4	Third Amended and Restated Credit and Security Agreement dated as of April 20, 2004, among Quest Diagnostics Receivables Inc., as Borrower, the Company, as Servicer, each of the lenders party thereto and Wachovia Bank, National Association, as Administrative Agent (filed as an Exhibit to the Company’s quarterly report on Form 10-Q for the quarter ended March 31, 2004 and incorporated herein by reference)
10.5	Amendment No. 1 dated as of April 18, 2006 to Third Amended and Restated Credit and Security Agreement dated as of April 20, 2004, among Quest Diagnostics Receivables Inc., as Borrower, the Company, as Servicer, each of the lenders party thereto and Wachovia Bank, National Association, as Administrative Agent (filed as an Exhibit to the Company’s current report on Form 8-K (Date of Report: February 12, 2007) and incorporated herein by reference)
10.6	Amendment No. 2 dated as of April 28, 2006 to Third Amended and Restated Credit and Security Agreement dated as of April 20, 2004, among Quest Diagnostics Receivables Inc., as Borrower, the Company, as Servicer, each of the lenders party thereto and Wachovia Bank, National Association, as Administrative Agent (filed as an Exhibit to the Company’s current report on Form 8-K (Date of Report: February 12, 2007) and incorporated herein by reference)
10.7	Amendment No. 3 dated as of November 10, 2006 to Third Amended and Restated Credit and Security Agreement dated as of April 20, 2004, among Quest Diagnostics Receivables Inc., as

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	Borrower, the Company, as Servicer, each of the lenders party thereto and Wachovia Bank, National Association, as Administrative Agent (filed as an Exhibit to the Company’s current report on Form 8-K (Date of Report: February 12, 2007) and incorporated herein by reference)
10.8	Amendment No. 4 dated as of February 9, 2007 to Third Amended and Restated Credit and Security Agreement dated as of April 20, 2004, among Quest Diagnostics Receivables Inc., as Borrower, the Company, as Servicer, each of the lenders party thereto and Wachovia Bank, National Association, as Administrative Agent (filed as an Exhibit to the Company’s current report on Form 8-K (Date of Report: February 12, 2007) and incorporated herein by reference)
10.9	Amendment No. 5 dated as of May 25, 2007 to Third Amended and Restated Credit and Security Agreement dated as of April 20, 2004, among Quest Diagnostics Receivables Inc., as Borrower, the Company, as Servicer, each of the lenders party thereto and Wachovia Bank, National Association, as Administrative Agent (filed as an Exhibit to the Company’s current report on Form 8-K (Date of Report: May 25, 2007) and incorporated herein by reference)
10.10	Second Amended and Restated Receivables Sale Agreement dated as of April 20, 2004, among the Company and each of its direct or indirect wholly owned subsidiaries who is or hereafter becomes a seller hereunder, as the Sellers, and Quest Diagnostics Receivables Inc., as the Buyer (filed as an Exhibit to the Company’s quarterly report on Form 10-Q for the quarter ended March 31, 2004 and incorporated herein by reference)
10.11*	Joinder Agreement, dated as of November 10, 2006, executed and delivered by LabOne, Inc., Central Plains Laboratories, LLC, LabOne of Ohio, Inc., ExamOne World Wide, Inc. and Systematic Business Services, Inc., in favor of Quest Diagnostics Receivables Inc., as the Buyer with respect to the Second Amended and Restated Receivables Sale Agreement dated as of April 20, 2004 among the Company and each of its direct or indirect wholly owned subsidiaries who is or hereafter becomes a seller thereunder, as the Sellers, and the Buyer.
10.12	Term Loan Credit Agreement dated as of December 19, 2003, among the Company, certain subsidiary guarantors of the Company, the lenders party thereto, and Sumitomo Mitsui Banking Corporation (filed as an Exhibit to the Company’s 2003 annual report on Form 10-K and incorporated herein by reference)
10.13	First Amendment to Term Loan Credit Agreement dated as April 20, 2004, among the Company, certain subsidiary guarantors of the Company, the lenders party thereto, and Sumitomo Mitsui Banking Corporation (filed as an Exhibit to the Company’s quarterly report on Form 10-Q for the quarter ended June 30, 2004 and incorporated herein by reference)
10.14	Interim Credit Agreement dated as of January 31, 2007, among the Company, certain subsidiary guarantors of the Company, the lenders party thereto, and Bank of America, N.A. (filed as an Exhibit to the Company’s current report on Form 8-K (Date of Report: January 31, 2007) and incorporated herein by reference)
10.15	Credit Agreement dated as of May 31, 2007, among the Company, certain subsidiary guarantors of the Company, the lenders party thereto, Bank of America, N.A., as Administrative Agent, Morgan Stanley Senior Funding, Inc., as Syndication Agent, Barclays Bank Plc, JPMorgan Chase Bank, N.A., Merrill Lynch Bank, USA and Wachovia Bank, National Association, as co-Documentation Agents, and Morgan Stanley Senior Funding, Inc. and Banc of America Securities LLC, as Joint Lead Arrangers and Joint Book Runners (filed as an Exhibit to the Company’s current report on Form 8-K (Date of Report: May 31, 2007) and incorporated herein by reference)
10.16	Bridge Credit Agreement dated as of May 31, 2007, among the Company, certain subsidiary guarantors of the Company, the lenders party thereto, Bank of America, N.A., as Administrative Agent, Morgan Stanley Senior Funding, Inc., as Syndication Agent, Barclays Bank Plc, JPMorgan Chase Bank, N.A., Merrill Lynch Bank, USA and Wachovia Bank, National Association, as co-Documentation Agents, and Morgan Stanley Senior Funding, Inc. and Banc of America Securities LLC, as Joint Lead Arrangers and Joint Book Runners (filed as an Exhibit to the Company’s current report on Form 8-K (Date of Report: May 31, 2007) and incorporated herein by reference)
10.17	Stock and Asset Purchase Agreement dated as of February 9, 1999, among SmithKline Beecham plc, SmithKline Beecham Corporation and the Company (the “Stock and Asset Purchase Agreement”) (filed as Appendix A of the Company’s Definitive Proxy Statement dated May 11, 1999 and incorporated herein by reference) (Commission File Number 001-12215)

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10.18	Amendment No. 1 dated August 6, 1999, to the Stock and Asset Purchase Agreement (filed as an Exhibit to the Company’s current report on Form 8-K (Date of Report: August 16, 1999) and incorporated herein by reference) (Commission File Number 001-12215)
10.19	Stockholders Agreement dated as of August 16, 1999, between SmithKline Beecham plc and the Company (filed as an Exhibit to the Company’s current report on Form 8-K (Date of Report: August 16, 1999) and incorporated herein by reference) (Commission File Number 001-12215)
10.20	Amended and Restated Global Clinical Trials Agreement, dated as of December 19, 2002, between SmithKline Beecham plc dba GlaxoSmithKline and the Company (filed as an Exhibit to post effective amendment No. 1 to the Company’s Registration Statement on Form S-4 and incorporated herein by reference) (Commission File Number 333-88330)
10.21‡	Amended and Restated Employee Stock Purchase Plan (filed as an Exhibit to the Company’s quarterly report on Form 10-Q for the quarter ended September 30, 2007 and incorporated herein by reference)
10.22‡	1996 Employee Equity Participation Program, as amended (filed as an Exhibit to the Company’s quarterly report on Form 10-Q for the quarter ended September 30, 2002 and incorporated herein by reference) (Commission File Number 001-12215)
10.23‡	Amended and Restated Quest Diagnostics Incorporated Employee Long-Term Incentive Plan (filed as an Exhibit to the Company’s quarterly report on Form 10-Q for the quarter ended September 30, 2007 and incorporated herein by reference)
10.24‡	Form of Non-Qualified Stock Option Agreement (filed as an Exhibit to the Company’s current report on Form 8-K (Date of report: February 15, 2006) and incorporated herein by reference)
10.25‡	Form of Non-Qualified Stock Option Agreement dated as of February 12, 2007 (filed as an Exhibit to the Company’s 2007 annual report on Form 10-K and incorporated herein by reference)
10.26*	Non-Qualified Stock Option Agreement, dated as of February 12, 2007, between the Company and Surya N. Mohapatra
10.27‡	Form of Performance Share Agreement (2007-2009 Performance Period) (filed as an Exhibit to the Company’s 2006 annual report on Form 10-K and incorporated herein by reference)
10.28‡	Form of Performance Share Agreement (filed as an Exhibit to the Company’s current report on Form 8-K (Date of report: February 15, 2006) and incorporated herein by reference)
10.29*	Performance Share Award Agreement, dated as of February 12, 2007, between the Company and Surya N. Mohapatra
10.30‡	Amended and Restated Quest Diagnostics Incorporated Long-Term Incentive Plan for Non-Employee Directors (filed as an Exhibit to the Company’s quarterly report on Form 10-Q for the quarter ended September 30, 2007) and incorporated herein by reference)
10.31‡	Amended and Restated Deferred Compensation Plan For Directors (filed as an Exhibit to the Company’s current report on Form 8-K (Date of Report: October 18, 2006) and incorporated herein by reference)
10.32‡	Amended and Restated Employment Agreement between the Company and Surya N. Mohapatra dated as of July 31, 2006 (filed as an Exhibit to the Company’s current report on Form 8-K (Date of Report: July 31, 2006) incorporated herein by reference)
10.33‡	Supplemental Deferred Compensation Plan (filed as an Exhibit to the Company’s quarterly report on Form 10-Q for the quarter ended September 30, 2007 and incorporated herein by reference)
10.34‡	Quest Diagnostics Incorporated Supplemental Executive Retirement Plan, effective December 14, 2004 (filed as an Exhibit to the Company’s current report on Form 8-K (Date of report: December 14, 2004) and incorporated herein by reference)
10.35‡	Amendment to the Quest Diagnostics Incorporated Supplemental Executive Retirement Plan (filed as an Exhibit to the Company’s current report on Form 8-K (Date of Report: July 31, 2006) and incorporated herein by reference)
10.36‡	Senior Management Incentive Plan (filed as Appendix A to the Company’s Definitive Proxy Statement dated March 28, 2003) and incorporated herein by reference)

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10.37‡	Amended and Restated Quest Diagnostics Incorporated Executive Officer Severance Plan (filed as an Exhibit to the Company’s quarterly report on Form 10-Q for the quarter ended September 30, 2007) and incorporated herein by reference)
10.38‡	AmeriPath Group Holdings, Inc. 2006 Stock Option and Restricted Stock Purchase Plan (filed as an Exhibit to the Company’s registration statement on Form S-8 and incorporated herein by reference) (Commission File Number 333-143889)
10.39*‡	Profit Sharing Plan of Quest Diagnostics Incorporated, Amended and Restated as of January 1, 2007
10.40*	Letter of Agreement effective as of January 1, 2008 between Quest Diagnostics Incorporated and SmithKline Beecham Corporation (portions of this Exhibit have been omitted and filed separately with the Securities and Exchange Commission as part of an application for confidential treatment pursuant to the Securities Act of 1933, as amended or the Securities Exchange Act of 1934, as amended)
10.41*‡	Amendment Dated as of August 17, 2007 to the AmeriPath Group Holdings, Inc. 2006 Stock Option Plan and Restricted Stock Purchase Plan
11.1	Statement re: Computation of Earnings Per Common Share (the calculation of per share earnings is in Part II, Item 8, Note 2 to the consolidated financial statements (Summary of Significant Accounting Policies) and is omitted in accordance with Item 601(b)(11) of Regulation S-K)
21.1*	Subsidiaries of Quest Diagnostics Incorporated
23.1*	Consent of PricewaterhouseCoopers LLP
24.1*	Power of Attorney (included on signature page)
31.1*	Rule 13a-14(a) Certification of Chief Executive Officer
31.2*	Rule 13a-14(a) Certification of Chief Financial Officer
32.1**	Section 1350 Certification of Chief Executive Officer
32.2**	Section 1350 Certification of Chief Financial Officer

* Filed herewith.

** Furnished herewith.

‡ Management contract or compensatory plan or arrangement required to be filed as an exhibit to this Form 10-K pursuant to Item 15(b) of Form 10-K.

E-5

EX-10.11

Exhibit 10.11

JOINDER AGREEMENT

          THIS JOINDER AGREEMENT is executed and delivered by LabOne, Inc., a Missouri corporation; Central Plains Laboratories, LLC, a Kansas limited liability company; LabOne of Ohio, Inc., a Delaware corporation; ExamOne World Wide, Inc., a Pennsylvania corporation; and Systematic Business Services, Inc., a Missouri corporation (collectively, “New Sellers”) in favor of Quest Diagnostics Receivables Inc., a Delaware corporation, as purchaser (the “Buyer”), with respect to that certain Second Amended and Restated Receivables Sale Agreement dated as of April 20, 2004, by and between Quest Diagnostics Incorporated and certain of its wholly-owned subsidiaries from time to time party thereto as “Sellers” and the Buyer (as amended, supplemented, joined, restated and/or otherwise modified from time to time, the “Sale Agreement”). Capitalized terms used and not otherwise defined herein are used with the meanings attributed thereto in the Sale Agreement.

          Subject to receipt of counterparts hereof signed by the Agents and the Buyer, by its signature below, each of the New Sellers hereby absolutely and unconditionally agrees to become a party to the Sale Agreement as a Seller thereunder and to be bound by the provisions thereof, including, without limitation, the provisions of Section 8.12 thereof.

          Attached hereto is an amended and restated version of Schedule 2.1(o) to the Sale Agreement. After giving effect to the amendments and restatements embodied therein, each of the representations and warranties contained in Article II of the Sale Agreement will be true and correct as to New Sellers.

          The “Responsible Officers” of each of the New Sellers will be any of its Chief Executive Officer, President, Vice President – Finance, Treasurer, Secretary or Assistant Secretary, acting singly.

          Delivered herewith are each of the documents, certificates and opinions required to be delivered by New Sellers pursuant to Article V of the Sale Agreement.

          The provisions of Article VIII of the Sale Agreement are incorporated in this Joinder Agreement by this reference with the same force and effect as if set forth in full herein except that references in such Article VIII to “this Agreement” shall be deemed to refer to “this Joinder Agreement and to the Sale Agreement as modified by this Joinder Agreement.”

          Please acknowledge your consent to New Sellers’ joinder in the Sale Agreement by signing the enclosed copy hereof in the appropriate space provided below and faxing a copy of such counterpart to (a) the Administrative Agent, at fax number (404) 214-5481, Attention: Elizabeth R. Wagner, and (b) to New Sellers at the fax number set forth below their signature hereto.

          IN WITNESS WHEREOF, New Sellers have executed this Joinder Agreement as of the 10th day of November, 2006.

LabOne, Inc.

Central Plains Laboratories, LLC

ExamOne World Wide, Inc.

LabOne of Ohio, Inc.

Systematic Business Services, Inc.

By:
	Name:	Joseph P. Manory
	Title:	Vice President and Treasurer
Address for Notices:
1290 Wall Street West
Lyndhurst, NJ 07071
Fax No. 201-729-8905

Each of the undersigned hereby consents
to New Sellers’ joinder in the Sale Agreement:

WACHOVIA BANK, NATIONAL ASSOCIATION,
as VFCC Agent and Administrative Agent

By:
	Name:
	Title:

CALYON NEW YORK BRANCH, as Atlantic Agent

By:
	Name:
	Title:

QUEST DIAGNOSTICS RECEIVABLES INC., as Buyer

By:
	Name:	Joseph P. Manory
	Title:	Vice President and Treasurer

EX-10.26

Exhibit 10.26

QUEST DIAGNOSTICS INCORPORATED
NON-QUALIFIED STOCK OPTION AGREEMENT (CEO)

This Non-Qualified Stock Option Agreement (the “Option Agreement”), dated as of February 12, 2007 (the “Grant Date”), is by and between Quest Diagnostics Incorporated, 1290 Wall Street West, Lyndhurst, New Jersey 07071 (the “Corporation” or the “Company”) and Surya Mohapatra (the “Optionee”) 85 Fox Hedge Road, Saddle River, NJ 07458.

1.	Conditions. This Option Agreement is subject in all respects to the Corporation’s Amended and Restated Employee Long-Term Incentive Plan, which is incorporated herein by reference. The Optionee acknowledges that he has read the terms of the Amended and Restated Long-Term Employee Incentive Plan and that those terms shall govern in the event of any conflict between them and those of this Option Agreement. Subject to the foregoing, except for the provisions of Section 4(d) of this Option Agreement, the terms of the Employment Agreement dated as of July 31, 2006 between the Corporation and the Optionee (the “Employment Agreement”) shall govern in the event of any conflict between them and the terms of this Option Agreement. Capitalized terms not defined herein have the meaning set forth in the Employment Agreement. In consideration of the grant of the option provided pursuant to this Option Agreement and by accepting the terms of this Agreement, the Optionee agrees that all options granted to the Optionee by the Corporation prior to the date hereof (the “Prior Options”) shall be subject to forfeiture pursuant to paragraph 4(h) of this Option Agreement (for false attestation under the Executive Share Ownership Guidelines of the Corporation (the “ Minimum Share Ownership Policy”)), the Shares obtained on exercise of such Prior Options after the date hereof shall be subject to the Minimum Share Ownership Policy pursuant to paragraph 5(b) of this Option Agreement and the terms of paragraphs 4(h) and 5(b) hereof are made a part of the terms of each of the Prior Options.
	In consideration of the grant of the option provided pursuant to this Option Agreement and by accepting the terms of this Agreement, the Optionee agrees that this Option shall be subject to forfeiture pursuant to paragraph 4(h) of this Agreement.
	This Option Agreement shall become effective only after the Optionee has executed and returned to the Executive Compensation Department (to the attention of Lisa Zajac (1290 Wall Street West – 5th Floor, Lyndhurst, NJ 07071) a signed copy of this Option Agreement and shall be revoked if not executed and returned to Lisa Zajac within thirty (30) days of receipt by the Optionee..
2.	Award of Option. The Corporation hereby awards to the Optionee an option (the “Option”) to purchase from the Corporation such number of shares of the Corporation’s common stock (the “Shares”) at the exercise price set forth in this Option Agreement (the “Exercise Price”) below. This option shall vest equally over a three-year period. If the foregoing results in a fractional number of Shares subject to the Option vesting on any vesting date, the number of Shares subject to the Option vesting on the first and second vesting dates shall be rounded down to the previous whole number of Shares and the Shares subject to the Option vesting on the third vesting date shall be rounded up to the next whole number of Shares, as shall be necessary in order to result in a vesting of 100% of the Shares subject to the Option. The Compensation Committee of the Corporation may, in its sole discretion, convert this Option at any time to a stock settled stock appreciation grant.

	Number of Shares Subject to Option: 280,000
	Exercise Price per Share: $52.245
	Expiration Date: February 12, 2014
Vesting Schedule:
Vesting Dates	% of Grant	Incremental	Cumulative
February 12, 2008	33.33 %	93,333	93,333
February 12, 2009	33.33 %	93,333	186,666
February 12, 2010	33.34 %	93,334	280,000

Page 1 of 6
EOAgmt

Non-Qualified Stock Option Agreement
February 12, 2007
Page 2.

This option shall expire, and no shares may be purchased pursuant to this Option, after the expiration date set forth above (the “Expiration Date”).

3.	Not An Incentive Stock Option. This Option is not intended to be an “incentive stock option” within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”) and this Agreement shall be construed and interpreted in accordance with such intention.
4.	Vesting. Except as otherwise provided below, the Option shall vest and become exercisable as to the percentage of Shares subject to the Option on the vesting dates set forth above (the “Vesting Dates”).
	(a)	Involuntary Termination or Voluntary Termination for Good Reason. If the Optionee’s employment is terminated by the Company (other than as contemplated by clauses (b), (c), (d) (e) or (f)), or the Optionee terminates his employment for Good Reason prior to the third anniversary of the date of this Agreement, the portion of the Option scheduled to vest within the 24 month period following the Date of Termination will vest on the appropriate date(s) as if the Optionee remained an employee. All other unvested options shall be cancelled on the Optionee’s Date of Termination; provided, however, that if the Optionee’s termination of employment occurs within 90 days prior to a Change in Control, then the portion of the Option scheduled to vest within the 36 month period following the Date of Termination will vest on the appropriate date(s) as if the Optionee remained an employee
	(b)	Termination for Cause. If the Optionee’s employment is terminated for Cause, this Option shall terminate and be of no further force or effect as of the Date of Termination.
	(c)	Non-Renewal of Employment Agreement. If the Optionee’s employment is terminated as a result of the non-renewal of the Employment Agreement, the portion of the Option scheduled to vest within the 24 -month period (or 36 month period if the termination occurs within 90 days prior to a Change of Control) following the Date of Termination will vest on the appropriate date(s) as if the Optionee remained an employee. All other unvested options shall be cancelled on the Date of Termination.
	(d)	Other Voluntary Termination. — If the Optionee terminates his employment other than for Good Reason or Disability or following non-renewal of the Employment Agreement, the Optionee will vest in a percentage of the Shares subject to this Option determined by dividing (i) the number of whole months from the most recent February 12 to the Date of Termination by (ii) 36, and all unvested Options will be canceled on the Date of Termination.
	(e)	Death. If the Optionee shall die while employed, this Option shall vest on the date of the Optionee’s death.
	(f)	Disability. If the Optionee’s employment shall terminate as a result of Disability, this Option shall vest on the Date of Termination.
	(g)	Change in Control. All options will vest immediately on a Change in Control.
	(h)	Breach of Share Ownership Guidelines Any false attestation made under the Minimum Share Ownership Policy may result in the immediate cancellation of this Option and all Prior Options (to the extent not exercised), whether or not vested.
5.	Non-Transferability.
	(a)	The rights under this Option Agreement shall not be transferable other than by will or the laws of descent and distribution and may be exercised during the lifetime of the Optionee only by the Optionee except to the extent of a disability (as defined in Section 22(e)(3) of the Code), in which case the Option may be exercised by the Optionee’s legal representative.
	(b)	If the Optionee is subject to the Minimum Share Ownership Policy, the Optionee agrees that any shares issued hereunder or pursuant to any Prior Option shall be subject to the restrictions set forth in the Minimum Share Ownership Policy. If the Optionee is not in compliance with the Minimum Share Ownership Policy, the Corporation may terminate the employment of such Optionee (which termination shall be treated as a without Cause termination under the Employment Agreement) and/or the Option shall immediately terminate and cease to be exercisable. The Optionee hereby acknowledges and agrees that the investment risk associated with the retention of any Shares, whether pursuant to the Minimum Share Ownership Policy or otherwise, is the sole responsibility of the Optionee and Optionee hereby holds the Corporation harmless against any claim of loss related to the retention of the Shares.
6.	Exercise. The purchase price of Shares purchased hereunder shall be paid in full with, or in a combination of,
	(a)	cash or

Page 2 of 6

Non-Qualified Stock Option Agreement
February 12, 2007
Page 3.

	(b)	shares of the Corporation’s Common Stock that have been owned by the Optionee, and have been fully vested and freely transferable by the Optionee, for at least six months preceding the date of exercise of the Option, duly endorsed or accompanied by stock powers executed in blank. However, the Corporation in its discretion may permit the Optionee (if the Optionee owns shares that have been owned by the Optionee, and have been fully vested and fully transferable by the Optionee, for at least six months preceding the date of exercise) to “attest” to his ownership of the number of shares required to pay all or part of the purchase price (and not require delivery of the shares), in which case the Corporation will deliver to the Optionee the number of shares to which the Optionee is entitled, net of the “attested” shares. If payment is made in whole or in part with shares of the Corporation’s Common Stock, the value of such Common Stock shall be the mean between its high and low prices on the day of purchase as reported by The New York Times following the close of business on the date of exercise. No “reload” or other option will be granted by reason of any such exercise. The Optionee agrees that, notwithstanding the terms of any pre-existing agreement between the Corporation and the Optionee, any shares of the Corporation’s Common Stock surrendered (or “attested” to) for payment of the exercise price of any options previously granted by the Corporation to the Optionee (whether granted under the terms of the Amended and Restated Employee Long-Term Incentive Plan or any predecessor program) shall be valued in the manner provided in the preceding sentence except to the extent otherwise expressly provided by the terms of the program document.
7.	Exercise After Termination of Employment, Death or Disability. The provisions covering the exercise of this Option following termination of employment (i.e., the Date of Termination) are as follows:
	(a)	Termination as a result of death or Disability—If the Optionee’s employment is terminated by reason of death or Disability, all vested options may be exercised through the Expiration Date.
	(b)	Termination after a Change in Control. If the Optionee’s employment is terminated for any reason other than for Cause (whether voluntary or involuntary) after a Change in Control, all vested Options may be exercised through the Expiration Date.
	(c)	Termination by the Optionee for Good Reason. If the Optionee terminates his employment for Good Reason, all vested options may be exercised through the Expiration Date.
	(d)	Non-Renewal of Employment Agreement. If the Optionee’s employment is terminated as a result of the non-renewal of the Employment Agreement, all vested options may be exercised through the Expiration Date.
	(e)	Other Termination by the Optionee. If the Optionee terminates his employment other than as contemplated by clauses (a), (b), (c) or (d), all vested options may be exercised for ninety (90) days following such termination (but not beyond the Expiration Date).
	(f)	Termination for Other Reasons — If the Optionee’s employment is terminated by the Corporation for any reason other than as contemplated by clauses (a), (b) or (d) or as contemplated by Section 4(b), all vested options may be exercised through the Expiration Date.
	In no event may any portion of the Option be exercised after the Expiration Date.
8.	Consideration. In consideration for the Option granted by this Option Agreement, the Optionee hereby agrees to be bound by the Nondisclosure provisions set forth in Section 9 of this Option Agreement For purposes of Section 9, the term “Company” shall mean the Corporation, its affiliates, divisions and subsidiaries, or any other entity in which the Corporation, directly or indirectly, controls or has an ownership or equity interest equal to or greater than 25.0% of the combined voting power of the entity’s then outstanding securities, and their respective successors and assigns.
9.	Nondisclosure of Confidential Information.
	(a)	For purposes of this Option Agreement, the term “Confidential Information” shall mean all ideas, inventions, data, databases, know-how, processes, methods, practices, specifications, raw materials and preparations, compositions, designs, devices, fabrication techniques, technical plans, algorithms, computer programs, protocols, client information, medical records, documentation, customer names and lists, supplier names and lists, price lists, supplier names and lists, apparatus, business plans, marketing plans, financial information, chemical and biological reagents, business methods and systems, literary and graphical and audiovisual works and sound recordings, mask works, computer programs, and the like, and potential trade names, trademarks, and logos, in whatever form or medium and which have commercial value, and whether or not designated or marked “Confidential” or the like, which the Optionee learns, acquires, conceives, creates, develops, or improves while employed by the Company and which (1) relate to the past,

Page 3 of 6

Non-Qualified Stock Option Agreement
February 12, 2007
Page 4.

	current, or prospective business of the Company or its subsidiaries and (a) which have not previously been publicly disclosed without restrictions on use by the Company, or (b) which Optionee knows or has good reason to know are not generally publicly known; or (2) are received by the Company from a third party under an obligation of confidentiality to the third party which the Optionee knows or reasonably should have known are confidential to such third party. “Confidential Information” shall not include any information known generally to the public (other than as a result of an unauthorized disclosure by the Optionee).
(b)	The Optionee recognizes and acknowledges that during his or her employment with the Company, the Optionee may be given access to or develop Confidential Information. The Optionee shall not use or disclose (directly or indirectly) any Confidential Information (whether or not developed by the Optionee) at any time or in any manner, except as authorized and required in the course of employment with the Company. The Optionee shall not disclose to the Company or use on behalf of the Company any Confidential Information obtained from any former employer or any other third party. All documents and things embodying Confidential Information, whether prepared by the Optionee or otherwise coming into the Optionee’s possession, are the exclusive property of the Company, and must not be removed from any of its premises except as required in the course of employment with the Company. All such documents and things shall be promptly returned by the Optionee to the Company upon the request of the Company and on any termination of employment with the Company. The Optionee will not remove any Confidential Information such as documents or things or retain them in whole or part in any manner. The Optionee shall ensure that any export of Confidential Information undertaken by the Optionee or with his/her knowledge or approval shall be in compliance with all applicable laws. Notwithstanding the foregoing, the Optionee shall be permitted to retain documents and information to the extent permitted by Section 12(g) and Section 14 of the Employment Agreement and shall have other rights set forth in Section 12(g) of the Employment Agreement.
(c)	The Optionee shall promptly disclose to the Company all Confidential Information which the Optionee creates, conceives, develops, or improves (either alone or with others) referred to below as a “Creation” while in the employment of the Company, if the Creation either: (1) relates to any actual or demonstrably contemplated business, or research or development project, of the Company or its subsidiaries, or to any reasonable extension or variation thereof; or (2) results from any work performed by the Optionee for the Company; or (3) was created utilizing any of the Company’s equipment, supplies, facilities, time, or Confidential Information. The Optionee shall keep complete, accurate, and authentic records on all Creations in the manner and form requested by the Company. The Optionee shall promptly disclose to the Company, in confidence, all patent, copyright, and trademark applications filed by the Optionee within one (1) year after termination of employment with the Company and which relate to any field in which the Optionee worked at the Company. The Optionee agrees that any such application for a patent, copyright registration, trademark registration, mask work registration, or similar right filed within one (1) year after termination of employment with the Company shall be presumed to relate to a Creation of the Optionee created during employment at the Company, unless the Optionee can prove otherwise.
(d)	The Optionee hereby assigns to the Company all of the Optionee’s rights in all of the above-described Creations. All such Creations that are subject to copyright or mask work protection are explicitly considered by the Optionee and the Company to be works made for hire to the extent permitted by law. To the extent that any such Creations are subject to copyright protection and are not works made for hire, any and all of the Optionee’s copyright and mask work interest therein are hereby assigned by the Optionee to the Company, and are the exclusive property of the Company.
(e)	The Optionee agrees to assist the Company in obtaining and/or maintaining patents, copyrights, trademarks, mask work rights, and similar rights to any Creations assigned by the Optionee to the Company, if and to the extent that the Company, in its sole discretion, requests such assistance, the Optionee shall sign all documents and do all other things deemed necessary by the Company, at the Company’s expense, to obtain and/or maintain such rights, to provide confirmatory evidence of the Optionee’s assignment of such Creations to the Company, to defend them from invalidation, and to protect them against infringement by other parties. The obligations of this paragraph are continuing and survive the termination of the Optionee’s employment with the Company. The Optionee irrevocably appoints the Chairman of the Compensation Committee of the Company’s Board of Directors (with powers of delegation) to act as the Optionee’s agent and attorney-in-fact to perform all acts as the Optionee’s agent and to file, prosecute, and maintain applications and registrations for patents, trademarks, copyrights, mask work rights, and similar rights to any Creations assigned by the Optionee to the Company under this Option Agreement, such appointment being effective both during the Optionee’s employment by Company, and thereafter if the Optionee (1) refuses to perform those acts, or (2) is unavailable, within the meaning of any applicable laws. The Optionee acknowledges that the grant of the foregoing power of attorney is coupled with an interest, is irrevocable, and shall survive his/her death or disability.

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Non-Qualified Stock Option Agreement
February 12, 2007
Page 5.

10.	Damages and Injunctive Relief. The Optionee understands that if the terms of Section 9 of this Option Agreement are violated, the Corporation would be seriously and irreparably damaged, and agrees that the Corporation will be entitled to seek appropriate remedies for those damages, including, without limitation, injunctive relief to enforce any provision of this Agreement and all reasonable attorney’s fees incurred by the Corporation to enforce the terms of Section 9.
11.	Forfeiture. The Optionee will immediately forfeit any unexercised portion of the Option for any violations of (i) the terms of Section 9 of this Agreement and/or (ii) the non-compete obligations set forth in any agreement between the Optionee and the Corporation or otherwise pursuant to any written policy of the Corporation, in addition to any equitable and legal rights the Corporation has or may have. The Optionee understands that the forfeiture of any unexercised portion of the Option is only one element of the damages potentially sustained by the Corporation for a violation of Section 9 of this Agreement or the non-compete obligation described above, and such forfeiture shall not constitute a release of any claim that the Company may have for damages, past, present, or future. In addition, a breach by the Employee of any non solicit, non compete or confidentiality covenant or any other restrictive covenants of his or hers that may be in place that occurs after any exercise and delivery of shares pursuant to this Agreement (including any breach occurring after termination of employment) shall cause such exercise and delivery to be rescinded (and if the Employee has previously sold the shares issued pursuant to this Agreement, the Employee would be required to pay back to the Company the pre-tax proceeds received from the sale of such shares).
12.	Consent Requirement.
	(a)	If the Corporation shall at any time determine that any consent (as hereinafter defined) is necessary or desirable as a condition of, or in connection with, the granting of this Option, the issuance or purchase of Shares or other rights hereunder, or the taking of any other action hereunder (a “Plan Action”), then no such Plan Action shall be taken, in whole or in part, unless and until such consent shall have been effected or obtained to the full satisfaction of the Corporation.
	(b)	The term “consent” as used herein with respect to any action referred to in Section 12(a) means (i) any and all listings, registrations or qualifications in respect thereof upon any securities exchange or under any federal, state or local law, rule or regulation, (ii) any and all written agreements and representations by the Optionee with respect to the disposition of Shares, or with respect to any other matter, which the Corporation shall deem necessary or desirable to comply with the terms of any such listing, registration or qualification or to obtain an exemption from the requirement that any such listing, qualification or registration be made, (iii) any and all consents, clearances and approvals in respect of a Plan Action by any governmental or other regulatory bodies, and (iv) any and all consents or authorizations required to comply with, or required to be obtained under, applicable local law or otherwise required by the Corporation. Nothing herein shall require the Corporation to list, register or qualify the Shares of its common stock on any securities exchange.
13.	Invalidity and Enforcement. If any provision of this Agreement is deemed invalid or unenforceable, either in whole or in part, this Option Agreement will be deemed amended to delete or to modify, as set forth in this Section, the offending provision or provisions and to alter the bounds of this Agreement in order to render it valid and enforceable. The Corporation and the Optionee specifically request that any court having jurisdiction over any dispute relating to this Option Agreement modify, if possible, any offending provision so that such provision will be enforceable to the maximum extent permitted by State law.
14.	Employee at Will. The Optionee understands that his/her employment with the Corporation is at will and that it can be terminated at any time by the Optionee and/or the Corporation, subject to Optionee’s rights under the Employment Agreement.
15.	Enforcement by Successors and Assigns. The Corporation and any of its successors or assignees may enforce the Corporation’s rights under this Option Agreement.
16.	Entire Agreement. Except as otherwise provided in the Employment Agreement, the Agreement supersedes any prior agreement or understandings between the Optionee and the Company with respect to nonuse and non-disclosure and constitutes the entire agreement between the Corporation and the Optionee. No modification of this Option Agreement will have any force or effect unless such modification is in writing, signed by the Chairman of the Compensation Committee of the Corporation’s Board of Directors and the Optionee, and expressly indicates an intent to modify this Option Agreement.
17.	Interpretation. Any dispute, disagreement or matter of interpretation which shall arise under this Agreement shall be finally determined by the Corporation’s Compensation Committee in its absolute discretion.
18.	Notice of Exercise. The Optionee may exercise the Option, in accordance with the procedures specified by the Corporation from time to time.

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Non-Qualified Stock Option Agreement
February 12, 2007
Page 6.

19.	Rights Prior to Exercise. The Optionee shall not have any rights as a stockholder with respect to any Shares subject to this Option prior to the date on which he is recorded as the holder of such Shares on the records of the Corporation.
20.	Taxes. The Corporation may make such provisions and take such steps as it may deem necessary or appropriate for the withholding of all federal, state, local and other taxes required by law to be withheld with respect to this Option.
21.	Governing Law. This Option Agreement and all rights hereunder shall be governed by, and construed and interpreted in accordance with, the laws of the state of New York applicable to contracts made and to be performed entirely within such state. Each of the parties hereto hereby irrevocably and unconditionally submits, for itself and its property, to the exclusive jurisdiction of any New York state court or federal court of the United States of America sitting in New York City, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement, or for recognition or enforcement of any judgment, and each of the parties hereto hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in any such New York state court or, to the extent permitted by law, in such federal court. Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Each of the parties hereto irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection that it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement in state or federal court in New York City. Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by Law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court.
22.	Acknowledgements. By execution of this Non-Qualified Stock Option Grant Agreement, the Optionee agrees that he has received and reviewed a copy of: (a) the Prospectus (link to Prospectus: http://questnet1.qdx.com/Business_Groups/Legal/policies/stock_option/stock_option.htm) relating to the Corporation’s Employee Equity Participation Program and; (b) the Quest Diagnostics Incorporated 2006 Annual Report (link to 2006 Annual Report: http://www.corporate-ir.net/ireye/ir_site.zhtml?ticker=DGX&script=700to Shareholders and Form 10-K); (c) the Corporation’s Policy for Purchasing and Selling Securities (“the Policy”) (link to Trading Policy: http://questnet1.qdx.com/Business_Groups/Legal/policies/policies.htm.) The Optionee further agrees to fully comply with the terms of the Policy; and the Corporation’s Executive Share Ownership Guidelines (link to guidelines: http://questnet1.qdx.com/Business_Groups/Legal/policies/policies.htm);
OPTIONEE:

By:
	Surya Mohapatra

Page 6 of 6

EX-10.29

Exhibit 10.29

QUEST DIAGNOSTICS INCORPORATED
PERFORMANCE SHARE AWARD AGREEMENT (CEO)
(2007 – 2009 Performance Period)

This Performance Share Award Agreement (the “Share Agreement”) dated as of February 12, 2007 (the “Grant Date”) is by and between Quest Diagnostics Incorporated, 1290 Wall Street West, Lyndhurst, NJ 07071 (the “Company”) and Mohapatra, Surya N.(the “Employee”) 85 Fox Hedge Rd Saddle River, NJ 07458.
1.	Conditions. This Share Agreement is subject in all respects to the Company’s Amended and Restated Employee Long-Term Incentive Plan (the “Plan”), the applicable terms of which are incorporated herein by reference. Terms not defined in this Share Agreement shall have the meaning ascribed in the Plan except for the terms “Cause”, “Change in Control”, “Date of Termination”, “Disability”, and “Good Reason”, which terms shall have the meanings set forth in the Employment Agreement dated as of July 31, 2006 (the “Employment Agreement”) between the Corporation and the Employee. The terms of the Employment Agreement shall control in the event of any conflict between them and the terms of this Share Agreement. The Employee acknowledges that he has read the terms of the Plan. This Share Agreement shall become void and the underlying grant will be revoked unless this document is executed by the Employee and returned by mail to the Executive Compensation Department to the attention of Lisa Zajac (1290 Wall Street West – 5th Floor, Lyndhurst, NJ 07071) within thirty (30) days from the date of transmittal to the Employee.
2.	Calculation of Potential Award. The Employee shall be eligible to vest in shares of the Company’s stock as provided in this section (shares that have so vested, “Vested Shares”).
	Employee’s Target Performance Shares: 56,000
	Performance will be measured over the Performance Period using Baseline Year results and Final Year results for the Company as well as for the companies in the Comparator Peer Group (see Appendix A for these defined terms). After the Final Year of the Performance Period, the results of each company in the Comparator Peer Group will be arrayed from highest to lowest. The Company’s results will then be compared to that of the Comparator Peer Group and, based on the Company’s relative position in this array; Vested Shares will be awarded based upon the following formula:

Performance Relative to Peers *	“Earnings Multiple”* multiplied by Target Performance Shares = Vested Shares
Greater Than or Equal to 80th %ile	2 × Target Performance Shares = Vested Shares
Equal to 50th %ile	1 × Target Performance Shares = Vested Shares
Less Than or Equal to 20th %ile	0 × Target Performance Shares = 0 Shares
*Intermediate Performance and resulting Earnings Multiple will be interpolated.

	For example, if the Company’s EPS Compound Annual Growth Rate (CAGR) from the Baseline to the end of the Performance Period (the end of fiscal year 2009 is at the 65th %ile relative to the companies in the S&P500 Healthcare Index, an Earnings Multiple of 1.5 will be applied to the Target Performance Shares to calculate the Vested Shares.
3.	Adjustments to Target Performance Shares: The Target Performance Shares will only be adjusted on a pro rata basis in the event either of the following occur:
	(a)	the Employee’s employment with the Company ends prior to the end of the Performance Period by reason of involuntary termination (other than for Cause) or voluntary termination for Good Reason, the Target Performance Shares will be pro-rated by adding the number of full months

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2007 Incentive Stock Agreement

		served by the Employee during the Performance Period plus 24 (but not to exceed the number of months remaining in the Performance Period) and then dividing that total by the number of months in the Performance Period (“Pro Ration Factor”); provided however, that there shall be no pro ration (so that the Pro Ration Factor is 1) if the Employee’s Date of Termination occurs within 90 days prior to a Change in Control. At the end of the Performance Period, the Vested Shares will be calculated based on the product of the Target Performance Shares, the Pro Ration Factor and the Earnings Multiple; or
	(b)	the Employee’s employment with the Company is terminated as a result of the non-renewal of the Employment Agreement, the Target Performance Shares will be pro-rated by adding the number of full months served by the Employee during the Performance Period plus 24 (or 36 month period if the Date of Termination occurs within 90 days prior to a Change of Control) (but not to exceed the number of months remaining in the Performance Period) and then dividing that total by the number of months in the Performance Period (“Non Renewal Pro Ration Factor”). At the end of the Performance Period, the Vested Shares will be calculated based on the product of the Target Performance Shares, the Non Renewal Pro Ration Factor and the Earnings Multiple; or
	(c)	If the Employee terminates his employment other than by reason of death or Disability or as contemplated by Section 3(a) or Section 3(b) prior to the end of the Performance Period, the Target Performance Shares will be pro-rated by dividing the number of full months served by the Employee during the Performance Period by the number of months in the Performance Period (“Voluntary Termination Pro Ration Factor”). At the end of the Performance Period, the Vested Shares will be calculated based on the product of the Target Performance Shares, the Voluntary Termination Pro Ration Factor and the Earnings Multiple.
4.	Vesting and Exceptions to Vesting:
	Subject to the exception enumerated at the end of this Section 4, the Employee will vest in shares of the Company’s stock as provided in this Agreement at the end of the Performance Period. Vested Shares, net of required tax withholding as described in Section 8 below, will be transferred into the Employee’s account at the Company’s dedicated broker as soon as practicable after the final calculation of the number of Vested Shares.
	In the event a Change in Control of the Company occurs prior to the end of the Performance Period (or prior to the determination of the final approved Earnings Multiple), then, upon the consummation of such transaction, a number of Vested Shares will be delivered to the Employee equal to the greater of: (1) the Target Performance Shares (as pro rated, if applicable, pursuant to section 3 above) or (2) the number of Performance Shares that would be Vested Shares had the calculation been based on the Performance Period including the most recent fiscal year end results of the Company and the companies in the Comparator Peer Group.
	The Employee will not vest and will forfeit all Target Performance Shares if, either:
	(x)	The Employee was terminated for Cause; or
	(y)	The Employee breaches any nonsolicit, non compete or confidentiality covenant or any other restrictive covenants of his or hers that may be in place, including those set forth in the Employment Agreement. The Employee understands and acknowledges that he is a key employee of the Company which was a reason, in part, for being provided with this Grant, and,

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2007 Incentive Stock Agreement

		as such, have restrictive covenants in place. Forfeiture under this subsection (b) shall not constitute a release of any claim that the Company may have for damages, past, present, or future in respect of any such breach. In addition, a breach by the Employee of any non solicit, non compete or confidentiality covenant or any other restrictive covenants of his or hers that may be in place that occurs after any shares have been delivered pursuant to this Agreement (including any breach occurring after the Date of Termination) shall cause such delivery to be rescinded (and if the Employee has previously sold the shares issued pursuant to this Agreement, the Employee would be required to pay back to the Company the pre-tax proceeds received from the sale of such shares).
5.	Executive Share Ownership Guidelines: If the Employee has been designated as a participant in the Company’s Executive Share Ownership Guidelines, which haven been established by the Compensation Committee of the Board of Directors, Vested Shares earned by the Employee (net of tax withholdings) pursuant to this Share Agreement would qualify under and are subject to such guidelines.
6.	Non-Transferability. Except pursuant to the laws of descent and distribution, the Performance Shares described in this Share Agreement may not be sold, assigned, transferred, pledged or otherwise encumbered by or on behalf of or for the benefit of the Employee. Unless otherwise provided at the time of delivery of the Vested Shares to the Employee, the Vested Shares may be so sold, assigned, transferred, pledged or encumbered.
7.	Interpretation. Any dispute, disagreement or matter of interpretation which shall arise under this Share Agreement shall be finally determined by the Company’s Compensation Committee in its absolute discretion.
8.	Taxes: Any Vested Shares under this program will be considered taxable income and subject to tax and tax withholdings as appropriate. The Company will reduce the number of Vested Shares to be delivered to the Employee by the amount of the taxes due (with the shares valued at the average of the high and low selling prices on the date that the Vested Shares are valued for purposes of reporting compensation for Federal income tax purposes).
9.	Governing Law. This Share Agreement and all rights hereunder shall be governed by, and construed and interpreted in accordance with, the laws of the state of New York applicable to contracts made and to be performed entirely within such state. Each of the parties hereto hereby irrevocably and unconditionally submits, for itself and its property, to the exclusive jurisdiction of any New York state court or federal court of the United States of America sitting in New York City, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement, or for recognition or enforcement of any judgment, and each of the parties hereto hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in any such New York state court or, to the extent permitted by law, in such federal court. Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Each of the parties hereto irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection that it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement in any state or federal court sitting in New York City. Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by Law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court.

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2007 Incentive Stock Agreement

10.	Acknowledgements. By execution of this Share Agreement, the Employee agrees that he has received and reviewed a copy of:
	(a)	the Prospectus (link to Prospectus: http://questnet1.qdx.com/Business_Groups/Legal/policies/stock_Grant/stock_Grant.htm) relating to the Company’s Amended and Restated Employee Long-Term Incentive Plan;
	(b)	the Quest Diagnostics Incorporated 2006 Annual Report (link to 2006 Annual Report: http://www.corporate-ir.net/ireye/ir_site.zhtml?ticker=DGX&script=700 to Shareholders and Form 10-K);
	(c)	the Company’s Policy for Purchasing and Selling Securities (“the Policy”) (link to Trading Policy: http://questnet1.qdx.com/Business_Groups/Legal/policies/policies.htm.) The Employee further agrees to fully comply with the terms of the Policy; and
	(d)	the Company’s Executive Share Ownership Guidelines (link to guidelines: http://questnet1.qdx.com/Business_Groups/Legal/policies/policies.htm).

EMPLOYEE:

By:
	Mohapatra, Surya N.

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Appendix A
QUEST DIAGNOSTICS INCORPORATED
PERFORMANCE SHARE AWARD AGREEMENT
2007 – 2009 Performance Period

Baseline –$2.50 per share for the Company and fully-diluted earnings per share for Fiscal Year 2006 for each company in the Comparator Peer Group.

• Fiscal Year refers to the year during which the last full month occurs in each company’s annual reporting period. For most companies in the Comparator Peer Group, the Fiscal Year ended on December 31. For certain other companies, the Fiscal Year ended during other months in 2006.

Final Year – Fiscal Year 2009 for the Company and each company in the Comparator Peer Group.

Performance Period – The Performance Period will run from January 1, 2007 through December 31, 2009, the Final Year for the Company (and corresponding Peer Group fiscal years).

Performance Goal(s) - Compound Annual Growth Rate (CAGR) in Fully-Diluted Earnings Per Share for the Company and each company in the Comparator Peer Group from the Baseline to the Final Year (i.e., for Fiscal Years 2007, 2008 and 2009).

• The reported Fully-Diluted Earnings Per Share results will include the annual compensation cost of each company’s equity awards.

• Final awards will be determined by the end of the first quarter following the end of the measurement period based upon publicly filed information. If any company in the Peer Group has not publicly reported its Fully Diluted Earnings Per Share by February 28, 2010, its CAGR will be computed as of its most recent quarterly report.

Comparator Peer Group – The Comparator Peer Group is comprised of the companies in the Standard & Poors 500 Healthcare Index as of December 31, 2009.

• Excluded from the list of companies in the Comparator Peer Group will be those companies reporting a negative EPS in fiscal Year 2006 since calculating CAGR will not be possible for these companies.

EX-10.39

Exhibit 10.39

THE PROFIT SHARING PLAN OF

QUEST DIAGNOSTICS INCORPORATED

(Amendment and Restatement
Effective January 1, 2007)

TABLE OF CONTENTS

INTRODUCTION			1
DEFINITIONS			4
ELIGIBILITY AND PARTICIPATION			24
	2.1	Eligibility	24
	2.2	Participation	24
	2.3	Beneficiary Designation	25
	2.4	Investment Option Specification	26
	2.5	Notification of Individual Account Balance	27
CONTRIBUTIONS			28
	3.1	Employee Pre-Tax Contributions	28
	3.2	Employer Matching Contributions	31
	3.3	Discretionary Contributions	33
	3.4	Rollover Contributions	33
	3.5	Maximum Deductible Contribution	34
	3.6	Actual Deferral Percentage Test Safe Harbor	34
	3.7	Payment of Contributions to Trustee	35
	3.8	Employee After-Tax Contributions	35
	3.9	Actual Contribution Percentage Test Safe Harbor	35
	3.10	Merger of Quest Diagnostics Incorporated Employee Stock Ownership Plan into this Plan	36
	3.11	USERRA	37
	3.12	QNEC’s	37
ALLOCATIONS TO INDIVIDUAL ACCOUNTS			38
	4.1	Individual Accounts	38
	4.2	Allocation of Employee Pre-Tax Contributions	38
	4.3	Allocation of Employer Matching Contributions	39
	4.4	Allocation of Discretionary Contributions	39
	4.5	Allocation of Forfeitures	39
	4.6	Maximum Additions	40

i

DISTRIBUTIONS			41
	5.1	Normal Retirement	41
	5.2	Disability	41
	5.3	Death Before Retirement or Termination of Employment	41
	5.5	Termination of Employment	43
	5.6	Method of Payment	48
	5.7	Cash-Outs; Consent	51
	5.8	Benefits to Minors and Incompetents	52
	5.9	Payment of Benefits	53
	5.10	Valuation of Accounts	57
	5.11	Direct Rollovers	60
	5.12	Payment to Alternate Payee Under QDRO	62
	5.13	Distribution Upon Severance from Employment	62
LOANS AND WITHDRAWALS			63
	6.1	Loans to Participants	63
	6.2	Hardship Withdrawals	66
	6.3	Non-Hardship Withdrawals	69
	6.4	Withdrawal of Dividends	71
	6.5	Certain Dividends	72
	6.6	Qualified Reservist Distribution	72
TRUST FUND			74
	7.1	Contributions	74
	7.2	Trustee	74
	7.3	Employer Stock Fund	74
FIDUCIARIES			76
	8.1	General	76
	8.2	Corporation	76
	8.3	Employer	77
	8.4	Trustee	77
	8.5	Committee	77
	8.6	Claims for Benefits	79

ii

	8.7	Denial of Benefits – Review Procedure	79
	8.8	Records	80
	8.9	Missing Persons	81
AMENDMENT AND TERMINATION OF THE PLAN			82
	9.1	Amendment of the Plan	82
	9.2	Termination of the Plan	82
PROVISIONS RELATIVE TO EMPLOYERS INCLUDED IN PLAN			84
	10.1	Method of Participation	84
	10.2	Withdrawal	84
TOP-HEAVY PROVISIONS			86
	11.1	Determination of Top-Heavy	86
	11.2	Top-Heavy Definitions	87
MISCELLANEOUS			89
	12.1	Governing Law	89
	12.2	Construction	89
	12.3	Administration Expenses	89
	12.4	Participant’s Rights; Acquittance	89
	12.5	Spendthrift Clause	89
	12.6	Merger, Consolidation or Transfer	89
	12.7	Mistake of Fact	90
	12.8	Counterparts	90
	12.9	Transitional Rule	90
ADOPTION OF THE PLAN			91
Appendix A			92
Appendix B			93
Appendix C			95

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INTRODUCTION

          Effective October 1, 1973, MetPath Inc. established the Profit Sharing Plan of MetPath Inc. (the “MetPath Plan”) for the benefit of its eligible employees.

          Effective September 1, 1986, the MetPath Plan was amended and restated to incorporate a qualified cash or deferred arrangement under Code Section 401(k). Effective January 1, 1989, the MetPath Plan was again amended and restated in its entirety to comply with the requirements of the Tax Reform Act of 1986 and subsequent legislation.

          Prior to April 1, 1992, the MetPath Plan was funded through a group annuity contract arrangement with Ætna Life Insurance Company and with Connecticut National Bank as Trustee. Effective April 1, 1992, MetPath Inc. severed the group annuity contract arrangement, removed Connecticut National Bank as Trustee, and appointed Fidelity Management Trust Company as successor Trustee.

          Prior to October 31, 1992, MetPath Inc., a New York corporation, was a wholly-owned subsidiary of Corning Lab Services Inc. As a result of a corporate restructuring, effective October 31, 1992, MetPath Inc. merged with and into Corning Lab Services Inc. Consequently, effective October 31, 1992, the Profit Sharing Plan of MetPath Inc. was renamed the Profit Sharing Plan of Corning Lab Services Inc.

          As a result of another corporate restructuring, effective January 1, 1994, Corning Lab Services Inc. changed its name to MetPath Inc., a Delaware corporation. Consequently, effective January 1, 1994, the Profit Sharing Plan of Corning Lab Services Inc. was renamed the Profit Sharing Plan of MetPath Inc.

          Effective January 1, 1996, the Plan was again amended and restated in its entirety to reflect certain substantive changes and was renamed the Profit Sharing Plan of Corning Life Sciences Inc. to reflect another corporate restructuring effective December 31, 1994.

          Also effective January 1, 1996, the assets and liabilities of this Plan representing the account balances of Corning SciCor, Inc. employees were transferred to the Corning Pharmaceutical Services Inc. Retirement Savings Plan.

          Effective December 31, 1996, the Plan was again amended and restated in its entirety to reflect the spinoff of Quest Diagnostics Incorporated from Corning Incorporated and the

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adoption of an employee stock ownership plan and was renamed the Profit Sharing Plan of Quest Diagnostics Incorporated.

          Effective January 1, 1997, the Plan was again amended and restated to reflect certain substantive changes and to comply with the applicable provisions of the following acts: the Uniformed Services Employment and Reemployment Rights Act of 1994, the Small Business Job Protection Act of 1996, the Taxpayer Relief Act of 1997, the Internal Revenue Service Restructuring and Reform Act of 1998, and the Community Renewal Tax Relief Act of 2000.

          On June 18, 2002, a First Amendment to the Plan was signed.

          Effective January 1, 2002, the Plan is hereby again amended and restated to incorporate the provisions of the First Amendment, to reflect certain other substantive changes and to comply with the applicable provisions of the Economic Growth and Tax Relief Reconciliation Act of 2001 and the Job Creation and Worker Assistance Act of 2002.

          This Plan consists of a profit sharing plan which is intended to qualify under Sections 401(a) and 401(k) of the Internal Revenue Code at 1986, as amended (the “Code”).

          Prior to January 1, 2002, the Plan also consisted of an employee stock ownership plan which was intended to qualify as a stock bonus plan under Code Section 401(a) and as an employee stock ownership plan under Code Section 4975(e)(7).

          Effective October 1, 2002, the Quest Diagnostics Incorporated Employee Stock Ownership Plan (the “ESOP”) merged into this Plan, and the assets and liabilities of the ESOP were subsequently transferred to the Trust Fund. However, the portion of this Plan representing the amounts transferred from the ESOP shall not be considered an employee stock ownership plan under Code Section 4975(e)(7).

          Except as expressly provided herein, the Plan provisions as in effect immediately prior to this amendment and restatement shall remain in effect for those Participants who do not complete an hour of service at any time after January 1, 2002.

          No provision of this amended and restated Plan shall be construed to eliminate or reduce any early retirement benefit or subsidy that continues after retirement or optional form of benefit that existed under the Plan prior to this amendment and restatement, except to the extent permitted under Treasury Regulations §1.401(a)-4 and §1.411(d)-4.

          Effective June 1, 2007, the portion of a Participant’s Individual Account under the Plan that is invested in the Employer Stock Fund shall consist of an employee stock ownership plan

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which is intended to qualify as a profit sharing plan under Code Section 401(a) and as an employee stock ownership plan under Code Section 4975(e)(7).

          Effective January 1, 2007, the Plan is hereby again amended and restated to incorporate the provisions of the First through the Sixth Amendments, to reflect the merger of LabOne, Inc. Profit Sharing Plan and the LabOne, Inc. Money Purchase Pension Plan. Certain provisions relating to the Pension Protection Act of 2006 are adopted effective as of January 1, 2008.

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ARTICLE I
DEFINITIONS

1.1 As used herein, unless otherwise required by the context, the following words and phrases shall have the meanings indicated:

          Active Participant – For purposes of the allocation of a Discretionary Contribution made with respect to a Plan Year, a Participant is an Active Participant if he (1) is an active Employee as of the last day of such Plan Year, (2) is on authorized leave of absence as of the last day of such Plan Year, (3) has terminated employment due to a reduction-in-force during such Plan Year, or (4) has died during such Plan Year.

          Advance Medical Plan – The Advance Medical & Research Center, Inc. Retirement Plan, the assets and liabilities of which have been transferred to this Plan.

          Affiliate – An organization which is not an Employer, but which must be considered together with an Employer under Code Sections 414(b), (c), (m) or (o).

          AML-East Plan – The AML 401(k) Plan, the assets and liabilities of which have been transferred to this Plan.

          AML-East Plan Participant – A Participant who was formerly a participant in the AML-East Plan.

          AML-West Plan – The APL Healthcare Group Inc. Profit Sharing and 401(k) Plan, the assets and liabilities of which have been transferred to this Plan.

          AML-West Plan Participant – A Participant who was formerly a participant in the AML-West Plan.

          Appropriate Request – A request by a Participant in the form and manner provided by the Committee that is appropriate for the intended purpose. If the Committee and the Plan’s recordkeeper so agree, an Appropriate Request may be executed over the telephone or Internet. To constitute an Appropriate Request, such request must be completed correctly and, if required to be in writing, duly executed and delivered to the Committee.

          Beneficiary – Any person designated by a Participant under Section 2.3 to receive such benefits as may become payable hereunder after the death of such Participant.

          Board – The Board of Directors of the Corporation.

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          Catch-Up Pre-Tax Contributions – Contributions made to the Plan by the Employer under Section 3.1(b) pursuant to a salary reduction agreement entered into between the Employer and the Participant.

          CBCLS Employer Contribution Sub-Account – The CBCLS Employer Contribution Sub-Account shall hold any amount transferred to this Plan from the CBCLS Plan representing employer matching contributions and discretionary contributions made to the CBCLS Plan on behalf of a Participant who was formerly a participant in the CBCLS Plan but was not an active participant in the CBCLS Plan on December 31, 1991, and any earnings and losses thereon. (Any amount transferred to this Plan from the CBCLS Plan representing employer matching contributions and discretionary contributions made to the CBCLS Plan on behalf of a Participant who was an active participant in the CBCLS Plan on December 31, 1991 shall be held in such Participant’s Rollover Sub-Account.)

          CBCLS Plan – The Continental Bio Clinical Laboratory Service, Inc. Profit Sharing and Retirement Savings Plan, the assets and liabilities of which have been transferred to this Plan.

          CDS Plan – The Clinical Diagnostics Services 401(k) Plan, the assets and liabilities of which have been transferred to this Plan.

          Code – The Internal Revenue Code of 1986, as amended.

          Committee – The Benefits Administration Committee, as provided for in Section 8.5, or a duly-authorized representative of the Benefits Administration Committee.

          Contributions – Payments as provided herein by the Employer to the Trustee for the purpose of providing the benefits under this Plan.

          Corning Stock Fund – A stock fund investing primarily in the common stock of Corning Incorporated.

          Corporation – Quest Diagnostics Incorporated (DE), or any successor thereto. The Corporation is the “plan sponsor,” “named fiduciary,” and “administrator” of the Plan (as such terms are defined under ERISA).

          Covance Stock Fund – A stock fund investing primarily in the common stock of Covance, Inc., formerly know as Corning Pharmaceutical Services Inc.

          CPF Pension Plan – The Clinical Pathology, Inc. Pension Plan, the assets and liabilities of which have been transferred to this Plan.

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          CPF Pension Plan Participant – A Participant whose Individual Account includes a Money Purchase Pension Plan Sub-Account.

          CPF Savings Plan – The CPF/MetPath Savings and Retirement Plan (formerly, the MDS Health Group, Inc. Savings and Retirement Plan), the assets and liabilities of which have been transferred to this Plan.

          Damon Plan – The Damon Corporation Savings Plus Retirement Plan, the assets and liabilities of which have been transferred to this Plan.

          Deferral Compensation – An Employee’s wages as defined in Code Section 3401(a) and all other payments of compensation to an Employee by an Employer (in the course of the Employer’s trade or business) for which the Employer is required to furnish the Employee a written statement under Code Sections 6041(d), 6051(a)(3) and 6052, excluding reimbursements or other expense allowances, cash and non-cash fringe benefits (e.g., employee discounts), moving expenses, deferred compensation and welfare benefits, plus Employee Pre-Tax Contributions, salary reduction contributions to a Code Section 125 cafeteria plan and pre-tax contributions to purchase qualified transportation fringe benefits pursuant to Code Section 132(f)(4).

          Notwithstanding the preceding paragraph, (1) effective with the September 3, 1999 pay date, Deferral Compensation shall include amounts (e.g., bonuses, commissions or unused vacation) paid by the Employer following the Employee’s termination of employment with the Employer, but only if such amounts are paid no later than 30 days after the Employee’s termination of employment; (2) Deferral Compensation shall not include severance pay; and (3) Deferral Compensation shall not include compensation generated from any of the following: the disqualifying disposition of a statutory stock option; the disposition of shares of stock under an employee stock purchase plan if the option price was below the fair market value of the stock at the time the option was granted; the value of a nonstatutory stock option at the time of grant or exercise; the vesting of restricted stock; or the payment of dividends on restricted stock.

          Effective January 1, 2002, Deferral Compensation in excess of $200,000 (or such different amount as may be applicable under Code Section 401(a)(17)(B)) for any Plan Year shall not be taken into account.

          DeYor Plan – The DeYor Laboratories 401(k) Profit Sharing Plan and Trust, the assets and liabilities of which have been transferred to this Plan.

6

          Discretionary Contributions – Contributions made by an Employer under Section 3.3.

          Effective Date – The Plan was effective October 1, 1973. Except as otherwise specified, this amendment and restatement is effective January 1, 2007. The Effective Date for each Employer is set forth in Appendix A.

          Eligibility Service

          (a) As of any date, the aggregate of an Employee’s periods of eligibility service (as defined in the next sentence), including any eligibility service credited under subsection (b). For purposes of this subsection (a), a period of eligibility service is each period of time required to be recognized under this Plan commencing on the Employee’s Employment Commencement Date, or any subsequent Reemployment Commencement Date, and ending on a Severance from Service Date.

          (b) Eligibility service shall also include the following:

                    (1) Periods of employment with an Affiliate (while such organization is an Affiliate) which would have constituted eligibility service under the Plan had the Participant been employed by an Employer;

                    (2) Periods of employment with an Employer other than as an Employee, including employment as a leased employee within the meaning of Code Section 414(n), which would have constituted eligibility service under the Plan had the Participant been employed as an Employee; provided, however, that employment as a leased employee within the meaning of Code Section 414(n) shall not be taken into account if more than five calendar days elapses between the last day of employment as a leased employee and the Employment Commencement Date;

                    (3) Periods of employment with an Employer prior to the Employer’s Effective Date which would have constituted eligibility service under the Plan had the service been rendered after the Employer’s Effective Date, under rules promulgated by the Committee applied in a uniform and nondiscriminatory manner, and to the extent permitted by applicable law;

                    (4) Periods of employment with the sponsor of a Merged Plan prior to the Merged Plan’s Merger Date which would have constituted eligibility service under the Plan had the service been rendered after the Merged Plan’s Merger Date, under rules promulgated by the

7

Committee applied in a uniform and nondiscriminatory manner, and to the extent permitted by applicable law;

                    (5) With respect to any person employed by an Employer that is a joint venture, periods of contiguous employment with the joint venture partner of the Corporation (or a subsidiary thereof) prior to the establishment of the joint venture which would have constituted eligibility service under the Plan had the service been rendered after the establishment of the joint venture, under rules promulgated by the Committee applied in a uniform and nondiscriminatory manner, and to the extent permitted by applicable law;

                    (6) With respect to an Employee who directly transferred employment to the Employer from a joint venture with the Corporation (or a subsidiary thereof) that is not an Employer, (A) periods of contiguous employment with the joint venture which would have constituted eligibility service under the Plan had the joint venture been an Employer, and (B) periods of contiguous employment with the joint venture partner of the Corporation (or subsidiary) prior to the establishment of the joint venture which would have constituted eligibility service under the Plan had the partner been an Employer, both periods of employment credited under rules promulgated by the Committee applied in a uniform and nondiscriminatory manner, and to the extent permitted by applicable law;

                    (7) Periods of qualified military service required under Code Section 414(u); and

                    (8) Periods of employment with an entity which adopts this Plan and who is not a member of the Quest Diagnostics Incorporated Controlled Group under Code Sections 414(b), (c), (m) or (o).

          In no event shall Eligibility Service be credited under more than one paragraph of this subsection (b).

          Eligible Employee – An Employee eligible for participation under Section 2.1.

          Employee – Any common-law employee of the Corporation or of any other Employer. Notwithstanding the preceding sentence, the following shall not be considered an Employee for purposes of this Plan: (1) any individual who is classified as an “independent contractor” or “consultant” by an Employer, regardless of such individual’s reclassification for any reason by the Internal Revenue Service or any governmental agency or any other entity; (2) any person who is covered by a collective bargaining agreement where such agreement provides for a

8

different retirement plan, or where no provision is made for any retirement plan after good faith bargaining between the Employer and employee representatives; (3) any person who is excluded from participation hereunder by the terms of his Employer’s adoption of this Plan; (4) any leased employee of an Employer within the meaning of Code Section 414(n) (other than a leased employee of a joint venture Employer who is leased from another Employer); (5) any employee who is a nonresident alien and who receives no earned income (within the meaning of Code Section 911(d)(2)) from the Employer which constitutes income from sources within the United States (within the meaning of Code Section 861(a)(3)); (6) any person who receives compensation solely for service as a member of the Board; or (7) after August 15, 1999, any person employed in Puerto Rico shall not be considered an Employee and shall be ineligible to participate in the Plan for purposes of any contributions including Employee Pre-Tax Contributions, Employer Matching Contributions and Discretionary Contributions.

          Employee After-Tax Sub-Account – That portion of a Participant’s Individual Account attributable to the Employee After-Tax Contributions allocated to such Participant prior to January 1, 1996 and any earnings or losses on such contributions. The Employee After-Tax Sub-Account of a Participant who was a participant in a Merged Plan that permitted after-tax contributions shall also hold any amount transferred to this Plan from such Merged Plan representing the balance of such Participant’s after-tax account under such Merged Plan and earnings and losses thereon.

          Employee Pre-Tax Catch-Up Sub-Account – That portion of a Participant’s Individual Account attributable to the Catch-Up Pre-Tax Contributions allocated to such Participant under Section 4.2 and any earnings or losses on such contributions.

          Employee Pre-Tax Contributions – Regular Pre-Tax Contributions and Catch-Up Pre-Tax Contributions made to the Plan by the Employer under Section 3.1 pursuant to salary reduction agreements entered into between the Employer and the Participant.

          Employee Regular Pre-Tax Sub-Account – That portion of a Participant’s Individual Account attributable to the Regular Pre-Tax Contributions allocated to such Participant under Section 4.2 and any earnings or losses on such contributions. The Employee Regular Pre-Tax Sub-Account of a Participant who was a participant in a Merged Plan that contained a qualified cash or deferred arrangement shall also hold any amount transferred to this Plan from such

9

Merged Plan representing the balance of such Participant’s pre-tax account under such Merged Plan and any earnings and losses thereon.

          Employer – Collectively or individually as the context may indicate, the Corporation and any other entity which has been authorized by the Board to adopt the Plan and by action of its own board of directors as specified in Section 10.1 has adopted the Plan or any successor to one or more of such entities. As of January 1, 2007, the following entities were Employers:

• Quest Diagnostics Incorporated (DE)

• Quest Diagnostics Incorporated (MI)

• Quest Diagnostics LLC (CT)

• Quest Diagnostics of Pennsylvania Inc. (DE)

• MetWest Inc. dba Quest Diagnostics

• Quest Diagnostics LLC (MA)

• Quest Diagnostics Incorporated (MD)

• Nichols Institute Diagnostics (CA)

• Quest Diagnostics Incorporated (CA)

• Quest Diagnostics LLC (IL)

• Quest Diagnostics Clinical Laboratories, Inc. (DE) (f/k/a SmithKline Beecham Clinical Laboratories, Inc.)

• MedPlus, Inc.

• Quest Diagnostics Nichols Institute Inc.

• Quest Diagnostics Incorporated (NV)

• Associated Pathologists, Chartered

• Quest Diagnostics Venture LLC (PA) (a joint venture)

• Diagnostic Laboratory of Oklahoma (a joint venture)

• Associated Diagnostic Pathologists, Inc.

• Associated Pathologists, Chartered

• LabOne, Inc.

          Employer Matching Contributions – Contributions made to the Plan by the Employer under Section 3.2.

          Employer Matching Sub-Account – That portion of a Participant’s Individual Account attributable to the Employer Matching Contributions allocated to such Participant under

10

Section 4.3 and invested in one or more of the Investment Options at the direction of the Participant, and any earnings and losses on such contributions. The Employer Matching Sub-Account of a Participant who was formerly a participant in the Maryland Medical Laboratory Plan also shall hold any amount transferred to this Plan from the Maryland Medical Laboratory Plan representing matching company contributions and discretionary company contributions made to the Maryland Medical Laboratory Plan and any earnings and losses thereon.

          Employer Stock – Any class of the Corporation’s common stock or the Corporation’s preferred stock that is convertible into common stock.

          Employer Stock Fund – A stock fund investing primarily in Employer Stock.

          Employer Stock Matching Contributions – That portion of the Employer Matching Contribution made prior to January 1, 2000 that, pursuant to Section 3.2, was mandatorily invested in Employer Stock prior to January 1, 2002.

          Employer Stock Matching Sub-Account – That portion of a Participant’s Individual Account attributable to Employer Stock Matching Contributions, and any earnings and losses on such contributions.

          Employment Commencement Date – The later of (1) the date on which an Employee first performs an hour of service for an Employer, or (2) the Effective Date of the Employee’s Employer.

          ERISA – The Employee Retirement Income Security Act of 1974, as amended.

          ESOP Diversification Sub-Account – That portion of a Participant’s Individual Account attributable to the amounts transferred to this Plan from the Quest Diagnostics Incorporated Employee Stock Ownership Plan pursuant to a diversification election under Code Section 401(a)(28), and earnings or losses on such amounts.

          Fiduciary – The Corporation, the Employer, the Trustee, the Committee and any individual, corporation, firm or other entity which assumes, in accordance with Article VIII, responsibilities of the Corporation, the Employer, the Trustee or the Committee respecting management of the Plan or the disposition of its assets.

          Forfeitures – Amounts forfeited pursuant to Section 5.5(b)(3).

          Fund – The Trust Fund.

11

          Highly Compensated Employee – For any Plan Year, any employee who (a) during the current Plan Year or the immediately preceding Plan Year was at any time a 5-percent owner (as defined in Code Section 416(i)(1); or (b) during the immediately preceding Plan Year received compensation (as defined in Code Section 414(q)(4)) from an Employer or an Affiliate in excess of $100,000 (as adjusted under Code Section 414(q)(1)).

          A former employee shall be treated as a Highly Compensated Employee if such employee was a Highly Compensated Employee (a) when such employee separated from service with the Employer, or (b) at any time after attaining age 55.

          Individual Account – The aggregate of a Participant’s Employee Regular Pre-Tax Sub-Account, Employee Pre-Tax Catch-Up Sub-Account, Employee After-Tax Sub-Account, Employer Matching Sub-Account, Employer Stock Matching Sub-Account, Partnership Sub-Account, Rollover Sub-Account, Prior Plan Rollover Sub-Account, Pre-1999 Cash Match Sub-Account, Post-1999 Cash Match Sub-Account, Pre-1999 Stock Match Sub-Account, Post-1999 Stock Match Sub-Account, ESOP Diversification Sub-Account, Prior ESOP Employer Contributions Sub-Account, Prior ESOP Employer Stock Sub-Account, Money Purchase Pension Plan Sub-Account, Prior Plan Employer Contribution Sub-Account, Prior Plan Employer Qualified Sub-Account, CBCLS Employer Contribution Sub-Account, Prior Employer Match Sub-Account, Prior Profit Sharing Sub-Account, Prior Unilab Employer Contribution Sub-Account, Qualified Nonelective Contribution Sub-Account, Prior LabOne Employer Match Sub-Account, Prior LabOne Money Purchase Plan Sub-Account, Vested Employer Stock Dividend Sub-Account and Vested Money Purchase Plan Dividend Sub-Account.

          Investment Option – The investment vehicle elected by the Participant in accordance with Section 2.4 for investment of his Individual Account.

          Prior to June 2, 2003, the Investment Options were the following: Fidelity Contrafund, Fidelity Diversified International Fund, Fidelity Equity-Income Fund, Fidelity Growth & Income Portfolio, Fidelity Low Priced Stock Fund, Fidelity Magellan Fund, Fidelity OTC Portfolio, Fidelity Puritan Fund, Fidelity Spartan U.S. Equity Index Fund, Fidelity U.S. Bond Index Fund, the Managed Income Portfolio, the Managed Income Portfolio II, the Employer Stock Fund, the Corning Stock Fund and the Covance Fund.

          Effective June 2, 2003, the following Investment Options were added: The Fidelity Freedom Income Fund; the Fidelity Freedom 2000 Fund; the Fidelity Freedom 2010 Fund; the

12

Fidelity Freedom 2020 Fund; the Fidelity Freedom 2030 Fund; and the Fidelity Freedom 2040 Fund.

          Notwithstanding the preceding, (i) effective July 30, 2004, the Managed Income Portfolio II Class 3 was added as a new Investment Option and no new contributions or transfers may be made to the Managed Income Portfolio II Class 2; (ii) effective July 30, 2004, any remaining Individual Accounts (or portions thereof) invested in the Managed Income Portfolio II Class 2 were automatically transferred to the Managed Income Portfolio II Class 3; and (iii) effective July 30, 2004, no new contributions or transfers may be made to the Fidelity Low Priced Stock Fund.

          Notwithstanding the preceding, (i) effective September 1, 2005, the following Investment Options were added: The Fidelity Freedom 2005 Fund; the Fidelity Freedom 2015 Fund; the Fidelity Freedom 2025 Fund; the Fidelity Freedom 2035 Fund; and the Lord Abbett Small-Cap Value Fund (Class Y); (ii) effective December 1, 2005, no new contributions or transfers may be made to the Fidelity Magellan Fund, and any remaining Individual Accounts (or portions thereof) invested in the Fidelity Magellan Fund as of such date automatically will be transferred to the Fidelity Spartan U.S. Equity Index Fund.

          Notwithstanding the preceding provisions of this definition, (i) effective October 2, 2006, the following Investment Options were added: T. Rowe Price Institutional Large-Cap Growth Fund; the Fidelity Freedom 2045 Fund; and the Fidelity Freedom 2050 Fund; (ii) effective December 29, 2006, the Corning Stock Fund and Covance Stock Fund are eliminated as Investment Options.

          LabOne (k) Plan – The LabOne, Inc. Profit Sharing 401(k) Plan, the assets and liabilities of which have been transferred to this Plan.

          LabOne (k) Plan Participant – A Participant who was formerly a Participant in the LabOne (k) Plan.

          LabOne Pension Plan – The LabOne, Inc. Money Purchase Pension Plan, the assets and liabilities of which have been transferred to this Plan.

          LabOne Pension Plan Participant – A Participant who was formerly a Participant in the LabOne Pension Plan.

          LabPortal Plan – The LabPortal, Inc. 401(k) Plan, the assets and liabilities of which have been transferred to this Plan.

13

          LabPortal Plan Participant – A Participant who was formerly a participant in the LabPortal Plan.

          Limitation Year – January 1 – December 31.

          Maryland Medical Laboratory Plan – The Maryland Medical Laboratory, Inc. 401(k) Profit Sharing Plan and Trust, the assets and liabilities of which have been transferred to this Plan.

          MedPlus Plan – The MedPlus, Inc. 401(k) Plan, the assets and liabilities of which have been transferred to this Plan.

          MedPlus Plan Participant – A Participant who was formerly a participant in the MedPlus Plan.

          Merged Plan – The Advance Medical Plan, the AML-East Plan, the AML-West Plan, the CBCLS Plan, the CDS Plan, the CPF Pension Plan, the CPF Savings Plan, the Damon Plan, the DeYor Plan, the LabPortal Plan, the Maryland Medical Laboratory Plan, the MedPlus Plan, the MetWest Plan, the Nichols Institute Plan, the Podiatric Pathology Laboratories Plan, the Statlab Plan, the Unilab Plan, the LabOne (k) Plan, and the LabOne Pension Plan, either individually or collectively as the case may be.

          Merger Date – The Merger Date for each Merged Plan is set forth in Appendix B.

          MetWest Plan – The Profit Sharing Plan and Trust Agreement for Employees of MetWest Inc., the assets and liabilities of which have been transferred to this Plan.

          Money Purchase Pension Plan Sub-Account – The Money Purchase Pension Plan Sub-Account of a Participant who was formerly a participant in the CPF Pension Plan shall hold any amount transferred to this Plan from the CPF Pension Plan representing employer contributions made to the CPF Pension Plan and any earnings and losses thereon.

          Net Asset Value – With respect to any mutual fund that the Committee may designate as an available Investment Option, the total net assets of the respective fund divided by the number of outstanding shares of the respective fund.

          Nichols Institute Plan – The Nichols Institute 401(k) Plan, the assets and liabilities of which have been transferred to this Plan.

          Normal Retirement Age – Age 65.

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          Participant – Any Employee or former Employee who has an Individual Account balance and any Employee who has met the eligibility requirements of Section 2.1. Participation ends in accordance with Section 2.2.

          Partnership Sub-Account – That portion of a Participant’s Individual Account attributable to the Discretionary Contributions allocated to such Participant under Section 4.4 and any earnings or losses on such contributions. The Partnership Sub-Account of a Participant who was formerly a participant in the Damon Plan shall also hold any amount transferred to this Plan from the Damon Plan representing “Long Term Savings Contributions” made to the Damon Plan on his behalf and earnings and losses thereon. The Partnership Sub-Account of a Participant who was a participant in the MetWest Plan shall also hold any amount transferred to this Plan from the MetWest Plan representing that portion of such Participant’s “Incentive Contribution Account” under the MetWest Plan which consisted of non-matching “Incentive Contributions” and earnings and losses thereon.

          Period of Severance – The period of time commencing on an Employee’s Severance from Service Date and ending on his Reemployment Commencement Date.

          Plan – The Profit Sharing Plan of Quest Diagnostics Incorporated, contained herein or as duly amended. Prior to December 31, 1996, the Plan was known as the Profit Sharing Plan of Corning Life Sciences Inc. Prior to January 1, 1996, the Plan was known as the Profit Sharing Plan of MetPath Inc. Prior to January 1, 1994, the Plan was known as the Profit Sharing Plan of Corning Lab Services Inc. Prior to October 31, 1992, the Plan was known as the Profit Sharing Plan of MetPath Inc.

          Plan Year – January 1 – December 31.

          Podiatric Pathology Laboratories Plan – The Podiatric Pathology Laboratories, Inc. Profit Sharing Plan, the assets and liabilities of which have been transferred to this Plan.

          Post-1999 Cash Match Sub-Account – That portion of a Participant’s Employer Matching Sub-Account attributable to Employer Matching Contributions allocated to such Participant under Section 4.3 after December 31, 1998, and any earnings or losses on such contributions.

          Post-1999 Stock Match Sub-Account – That portion of a Participant’s Employer Stock Matching Sub-Account attributable to Employer Stock Matching Contributions allocated to such Participant under Section 4.3 after December 31, 1998 and prior to January 1, 2000, and any earnings or losses on such contributions.

15

          Pre-1999 Cash Match Sub-Account – That portion of a Participant’s Employer Matching Sub-Account attributable to Employer Matching Contributions allocated to such Participant under Section 4.3 prior to January 1, 1999, and any earnings or losses on such contributions.

          Pre-1999 Stock Match Sub-Account – That portion of a Participant’s Employer Stock Matching Sub-Account attributable to Employer Stock Matching Contributions allocated to such Participant under Section 4.3 prior to January 1, 1999, and any earnings or losses on such contributions.

          Prime Rate – The “prime rate,” as published in The Wall Street Journal.

          Prior Employer Match Sub-Account – That portion of the Individual Account of an AML-East Plan Participant attributable to employer matching contributions and employer discretionary contributions made to the AML-East Plan and earnings or losses thereon, and that portion of the Individual Account of an AML-West Plan Participant attributable to employer matching contributions made to the AML-West Plan and earnings or losses thereon.

          Prior ESOP Employer Contributions Sub-Account – That portion of a Participant’s Individual Account attributable to the amount transferred to this Plan from the Quest Diagnostics Incorporated Employee Stock Ownership Plan representing the Participant’s “Discretionary Contribution Sub-Account” under the Quest Diagnostics Incorporated Employee Stock Ownership Plan.

          Prior ESOP Employer Stock Sub-Account – That portion of a Participant’s Individual Account attributable to the amount transferred to this Plan from the Quest Diagnostics Incorporated Employee Stock Ownership Plan representing the Participant’s “Initial Contribution Sub-Account” under the Quest Diagnostics Incorporated Employee Stock Ownership Plan.

          Prior LabOne Money Purchase Plan Sub-Account – That portion of a Participant’s Individual Account that is attributable to the Participant’s account under the LabOne, Inc. Money Purchase Pension Plan.

          Prior LabOne Employer Match Sub-Account – That portion of a Participant’s Individual Account that is attributable to the Participant’s match account under the LabOne, Inc. Profit Sharing 401(k) Plan.

          Prior Plan Employer Contribution Sub-Account – The Prior Plan Employer Contribution Sub-Account of a Participant who was a participant in the DeYor Plan shall hold any amount

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transferred to this Plan from the DeYor Plan representing discretionary contributions and employer matching contributions made to the DeYor Plan and any earnings and losses thereon. The Prior Plan Employer Contribution Sub-Account of a Participant who was a participant in the MedPlus Plan shall hold any amount transferred to this Plan from the MedPlus Plan representing employer matching contributions and profit sharing contributions made to the MedPlus Plan and any earnings and losses thereon. The Prior Plan Employer Contribution Sub-Account of a Participant who was a participant in the Unilab Plan shall hold any amount transferred to this Plan from the Unilab Plan representing amounts that were previously transferred to the Unilab Plan from the terminated Associated Laboratories, Inc. defined benefit plan and earnings and losses thereon.

          Prior Plan Employer Qualified Sub-Account – The Prior Plan Employer Qualified Sub-Account of a Participant who was a participant in the CBCLS Plan shall hold any amount transferred to this Plan from the CBCLS Plan representing qualified nonelective contributions and qualified matching contributions made to the CBCLS Plan and any earnings and losses thereon.

          Prior Plan Rollover Sub-Account – For a MedPlus Plan Participant, a LabPortal Plan Participant, an AML-East Plan Participant, an AML-West Plan Participant, a Unilab Plan Participant, a LabOne (k) Plan Participant, or a LabOne Pension Plan Participant, that portion of the Individual Account attributable to rollover contributions made to the predecessor plan and earnings or losses thereon.

          Prior Profit Sharing Sub-Account – That portion of the Individual Account of an AML-West Plan Participant attributable to employer profit sharing contributions made to the AML-West Plan and earnings or losses thereon.

          Prior Unilab Employer Contribution Sub-Account – That portion of the Individual Account of a Unilab Plan Participant attributable to: (1) matching contributions and employer partnership contributions made to the Unilab Plan and earnings or losses thereon; (2) profit sharing contributions made to the Associated Laboratories, Inc. 401(k) Plan that were subsequently transferred to the Unilab Plan, and earnings and losses thereon; and (3) matching contributions and profit sharing contributions made to the Profit Sharing Plan of Employees of Medical Laboratory Network, Inc. that were subsequently transferred to the Unilab Plan, and earnings and losses thereon.

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          Qualified Nonelective Contribution Sub-Account – That portion of a Participant’s Individual Account attributable to “qualified nonelective contributions” made pursuant to Section 3.12 and any earnings or losses thereon.

          Reemployment Commencement Date – The first date on which an Employee again performs an hour of service following a Period of Severance.

          Regular Pre-Tax Contributions – Contributions made to the Plan by the Employer under Section 3.1(a) pursuant to a salary reduction agreement entered into between the Employer and the Participant.

          Rollover Sub-Account – That portion of a Participant’s Individual Account attributable to his rollover contributions under Section 3.4 and any earnings or losses on such contributions. The Rollover Sub-Account of a Participant who was an active participant in the CBCLS Plan on December 31, 1991 also shall hold any amount transferred to this Plan from the CBCLS Plan representing employer matching contributions and discretionary contributions made to the CBCLS Plan and any earnings and losses thereon. The Rollover Sub-Account of a Participant who was formerly a participant in the CPF Savings Plan also shall hold any amount transferred to this Plan from the CPF Savings Plan representing employer matching contributions made to the CPF Savings Plan and any earnings and losses thereon. The Rollover Sub-Account of a Participant who was formerly a participant in the Statlab Plan also shall hold any amount transferred to this Plan from the Statlab Plan representing employer contributions made to the Statlab Plan and earnings and losses thereon. The Rollover Sub-Account of a Participant who was formerly a participant in the Damon Plan also shall hold any amount transferred to this Plan from the Damon Plan representing matching contributions and rollover contributions made to the Damon Plan and any earnings and losses thereon. The Rollover Sub-Account of a Participant who was formerly a participant in the Podiatric Pathology Laboratories Plan also shall hold any amount transferred to this Plan from the Podiatric Pathology Laboratories Plan representing employer contributions made to the Podiatric Pathology Laboratories Plan and earnings and losses thereon. The Rollover Sub-Account of a Participant who was formerly a participant in the Nichols Institute Plan also shall hold any amount transferred to this Plan from the Nichols Institute Plan representing matching contributions, rollover contributions and qualified nonelective contributions made to the Nichols Institute Plan and any earnings and losses thereon.

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          Section 415 Compensation – An Employee’s wages as defined in Code Section 3401(a) and all other payments of compensation to an Employee by an Employer (in the course of the Employer’s trade or business) for which the Employer is required to furnish the Employee a written statement under Code Sections 6041(d), 6051(a)(3) and 6052. Section 415 Compensation shall be determined without regard to any rules that limit the remuneration included in wages based on the nature or location of the employment or the services performed (such as the exception for agricultural labor in Code Section 3401(a)(2)). Effective January 1, 1998, Section 415 Compensation also includes Employee Pre-Tax Contributions to this Plan and salary reduction contributions to a Code Section 125 cafeteria plan, and effective January 1, 2001, Section 415 Compensation also includes pre-tax contributions to purchase qualified transportation fringe benefits pursuant to Code Section 132(f)(4).

          Severance From Service Date – (a) Except as provided in subsection (b), the earlier of (1) or (2):

                    (1) The date on which the Employee quits, retires, is discharged or dies provided he does not earn an hour of service for an Employer or Affiliate within 12 months after such date; or

                    (2) The first anniversary of the first date of a period in which an Employee remains absent from service (with or without pay) with an Employer or Affiliate for any reason other than quit, retirement, discharge or death, such as vacation, holiday, sickness, disability or leave of absence.

          (b) (1) For purposes of determining the Severance from Service Date of an Employee who is absent from work beyond the first anniversary of the first day of absence by reason of a Parenthood Purpose described in paragraph (2), such Severance from Service Date shall be the second anniversary of the first day of such absence. The period between the first and second anniversaries of the first day of absence from work is neither a period credited as a Year of Vesting Service nor a Period of Severance. The Committee may request that the Employee furnish information to establish that the absence is for a Parenthood Purpose and the number of days for which there was such an absence. In the event such information is not submitted in a timely manner, this subsection (b) shall not apply.

                    (2) The following shall be deemed Parenthood Purposes:

                              (A) the pregnancy of the Employee,

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                              (B) the birth of a child of the Employee,

                              (C) the placement of a child with the Employee in connection with the adoption of such child by such Employee, or

                              (D) caring for such child for a period beginning immediately following such birth or placement.

          Statlab Plan – The Statlab, Inc. Retirement Plan, the assets and liabilities of which have been transferred to this Plan.

          Total and Permanent Disability – A Participant shall be considered totally and permanently disabled once the Committee, in its sole discretion, determines that he has incurred a disability which renders him totally and permanently unable to satisfactorily perform his usual duties for his Employer or the duties of such other position which the Employer makes available to him and for which he is qualified by reason of his training, education or experience. Such determination shall be made by the Committee based on medical reports and such other evidence which the Committee determines to be satisfactory; provided, however, that conclusive evidence that the Participant is eligible for and is receiving disability benefits under the provisions of the Federal Social Security Act shall be sufficient to deem the Participant totally and permanently disabled.

          Trust Agreement – The agreement entered into between the Employer and the Trustee under Article VII.

          Trust Fund – All funds received by the Trustee together with all income, profits and increments thereon, and less any expenses or payments made out of the Trust Fund.

          Trustee – Such individual, individuals, financial institution, or a combination of them as shall be designated in the Trust Agreement to hold in trust any assets of the Plan for the purpose of providing benefits under the Plan, and shall include any successor trustee to the Trustee initially designated thereunder.

          Unilab Plan – The Unilab 401(k) Plan, the assets and liabilities of which have been transferred to this Plan.

          Unilab Plan Participant – A Participant who was formerly a participant in the Unilab Plan.

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          Valuation Date – The date on which a Participant’s Individual Account is valued pursuant to Section 5.10. Subject to Section 5.10(b), the Valuation Date shall be a date that falls as soon as administratively feasible after an Appropriate Request for a distribution is made.

          Vested Employer Stock Dividend Sub-Account – That portion of a Participant’s Individual Account that is comprised of cash dividends received under Section 6.5(a) which are associated with the Employer Stock Fund and the Participant’s Prior LabOne Employer Match Sub-Account, Prior ESOP Employer Contributions Sub-Account, Prior Employer Match Sub-Account and Prior Unilab Employer Contribution Sub-Account.

          Vested Money Purchase Plan Dividend Sub-Account – That portion of a Participant’s Individual Account that is comprised of cash dividends received under Section 6.5(b) which are associated with the Employer Stock Fund and the Participant’s Prior LabOne Money Purchase Plan Sub-Account.

          Year of Vesting Service

           (a) As of any date, the aggregate of an Employee’s periods of vesting service, including any vesting service credited under subsection (b) and excluding any vesting service disregarded under subsection (c). For purposes of this subsection (a), a period of vesting service is each period of time required to be recognized under this Plan commencing on the Employee’s Employment Commencement Date, or any subsequent Reemployment Commencement Date, and ending on a Severance from Service Date.

           (b) Vesting service shall also include the following:

                    (1) Periods of employment with an Affiliate (while such organization is an Affiliate) which would have constituted vesting service under the Plan had the Participant been employed by an Employer;

                    (2) Periods of employment with an Employer other than as an Employee, including employment as a leased employee within the meaning of Code Section 414(n), which would have constituted vesting service under the Plan had the Participant been employed as an Employee; provided, however, that employment as a leased employee within the meaning of Code Section 414(n) shall not be taken into account if more than five calendar days elapses between the last day of employment as a leased employee and the Employment Commencement Date;

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                    (3) Periods of employment with an Employer prior to the Employer’s Effective Date which would have constituted vesting service under the Plan had the service been rendered after the Employer’s Effective Date, under rules promulgated by the Committee applied in a uniform and nondiscriminatory manner, and to the extent permitted by applicable law;

                    (4) Periods of employment with the sponsor of a Merged Plan prior to the Merged Plan’s Merger Date which would have constituted vesting service under the Plan had the service been rendered after the Merged Plan’s Merger Date, under rules promulgated by the Committee applied in a uniform and nondiscriminatory manner, and to the extent permitted by applicable law;

                    (5) With respect to any person employed by an Employer that is a joint venture, periods of contiguous employment with the joint venture partner of the Corporation (or a subsidiary thereof) prior to the establishment of the joint venture which would have constituted vesting service under the Plan had the service been rendered after the establishment of the joint venture, under rules promulgated by the Committee applied in a uniform and nondiscriminatory manner, and to the extent required by applicable law;

                    (6) With respect to an Employee who directly transferred employment to the Employer from a joint venture with the Corporation (or a subsidiary thereof) that is not an Employer, (A) periods of contiguous employment with the joint venture which would have constituted vesting service under the Plan had the joint venture been an Employer, and (B) periods of contiguous employment with the joint venture partner of the Corporation (or subsidiary) prior to the establishment of the joint venture which would have constituted vesting service under the Plan had the partner been an Employer, both periods of employment credited under rules promulgated by the Committee applied in a uniform and nondiscriminatory manner, and to the extent permitted by applicable law;

                    (7) With respect to any person employed by the Employer on or before December 31, 1998, periods of employment with Corning Incorporated or Corning Pharmaceutical Services Inc., which are contiguous with a transfer of employment from Corning Incorporated or Corning Pharmaceutical Services Inc. to an Employer and which would have constituted vesting service under the Plan had the service been rendered after the transfer of employment;

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                    (8) Periods of qualified military service required under Code Section 414(u); and

                    (9) Periods of employment with an entity which adopts this Plan and who is not a member of the Quest Diagnostics Incorporated controlled group under Code Sections 414(b), (c), (m) or (o).

          (c) In no event shall Years of Vesting Service be credited under more than one paragraph of subsection (b).

          (d) If a Merged Plan determines Years of Vesting Service under an hours counting methodology, then Years of Vesting Service shall be determined under the methodology, hours counting or elapsed time, whichever results in the greater vesting percentage.

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ARTICLE II
ELIGIBILITY AND PARTICIPATION

2.1 Eligibility

          (a) Any Employee who was a Participant in this Plan on December 31, 2006 shall remain a Participant on January 1, 2007, as long as he remains an Employee on such date. Such an Employee shall remain eligible to make Employee Pre-Tax Contributions and to receive Employer Matching Contributions and Discretionary Contributions.

          (b) Any Employee who was not a Participant in this Plan on December 31, 2006 shall become a Participant on the date he completes one month of Eligibility Service. Such an Employee shall become eligible to make Employee Pre-Tax Contributions on the date he becomes a Participant and shall become eligible to receive Employer Matching Contributions and Discretionary Contributions on the date he completes 12 months of Eligibility Service.

2.2 Participation

          (a) Each Employee who is a Participant may, by making an Appropriate Request, enter into a salary reduction agreement in accordance with Section 3.1(a).

          (b) Each person who becomes a Participant shall remain a Participant so long as he remains an Employee or maintains an Individual Account balance. If a Participant terminates employment with no balance in his Individual Account, he shall cease being a Participant upon his termination of employment.

          (c) If an Employee who was formerly a Participant terminates employment and is subsequently reemployed as an Employee, he shall become a Participant upon his Reemployment Commencement Date. Such an Employee shall become eligible to make Employee Pre-Tax Contributions upon his Reemployment Commencement Date and shall become eligible to receive Employer Matching Contributions and Discretionary Contributions on the later of (1) his Reemployment Commencement Date, or (2) the date he completes 12 months of Eligibility Service (taking into account Eligibility Service both before and after his Reemployment Commencement Date).

          (d) If an Employee who was not formerly a Participant terminates employment and is subsequently reemployed as an Employee, he shall become a Participant on the later of (1) his Reemployment Commencement Date, or (2) the date he completes one month of Eligibility

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Service (taking into account Eligibility Service both before and after his Reemployment Commencement Date). Such an Employee shall become eligible to make Employee Pre-Tax Contributions on the date he becomes a Participant and shall become eligible to receive Employer Matching Contributions and Discretionary Contributions on the date he completes 12 months of Eligibility Service (taking into account Eligibility Service both before and after his Reemployment Commencement Date).

2.3 Beneficiary Designation

          (a) Upon commencing participation, each Participant shall designate a Beneficiary by filing a properly completed form with the Committee. In the absence of any valid designation of Beneficiary, the Participant shall be deemed to have designated his spouse as his Beneficiary, and if the Participant is unmarried upon his death, he shall be deemed to have designated the following as his Beneficiary: (1) the beneficiary designated under the group-term life insurance plan sponsored by the Corporation; and (2) if no beneficiary has been designated under the group-term life insurance plan sponsored by the Corporation, the Participant’s estate. (Prior to August 16, 1999, in the absence of any valid designation of Beneficiary, the Participant shall be deemed to have designated his spouse as his Beneficiary, and if the Participant is unmarried upon his death, he shall be deemed to have designated his estate as his Beneficiary.)

          (b) The Beneficiary of a married Participant shall be his spouse unless the Participant designates someone other than his spouse as his Beneficiary, and the Participant files with the Committee his spouse’s written consent to such designation. Such spousal consent shall be on a form approved by the Committee, shall be irrevocable by the spouse, shall acknowledge the effect of such designation and shall be witnessed by a Committee member or a notary public. The spouse may alternatively execute an irrevocable general consent that does not identify the designated Beneficiary and which allows the Participant to make future changes in the Beneficiary designation without spousal consent. Any such general consent shall satisfy the requirements of Treasury Regulation §1.401(a)-20 Q&A-31(c).

          (c) If an unmarried Participant later marries, or if a married Participant later remarries, any prior designation by such Participant of a Beneficiary other than the spouse to whom he is married on his date of death shall be null and void unless consented to by such spouse in the manner provided in subsection (b).

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          (d) The interpretation of the Committee with respect to any Beneficiary designation, subject to applicable law, shall be binding and conclusive upon all parties, and no person who claims to be a Beneficiary, or any other person, shall have the right to question any action of the Committee.

          (e) The rights of any spouse or Beneficiary hereunder shall be subject to the provisions of any qualified domestic relations order within the meaning of ERISA Section 206(d)(3).

2.4 Investment Option Specification

          (a) Effective with Contributions made on or after October 1, 2005, in the absence of any valid Investment Option specification to the contrary, a Participant’s Individual Account automatically shall be invested in the applicable Fidelity Freedom Fund (based on the Participant’s date of birth), unless the Committee specifies a different Investment Option for this purpose. Commencing on the date that is 30 days after the Employee’s date of hire with an Employer (or such other date as the Committee shall designate), the Employee may change his Investment Option specification in accordance with subsection (b).

          (b) Effective November 1, 2007, a Participant shall be limited so that no more than twenty-five percent (25%) of contributions on a pay period basis may be allocated to the Employer Stock Fund.

          (c) Effective November 1, 2007, if a Participant’s Individual Account is comprised of twenty-five percent (25%) or more of Employer Stock, no future exchanges into the Employer Stock Fund will be permitted until Employer Stock comprises less than twenty-five percent (25%) of the Participant’s Individual Account. Future exchanges will then be permitted into the Employer Stock Fund but only to the extent the allocation of Employer Stock does not exceed twenty-five percent (25%) of the Individual Account.

          (d) A Participant may, by making an Appropriate Request, change his Investment Option specification with respect to Contributions to be made in the future and/or with respect to amounts already held in his Individual Account. Exchanges between Investment Options shall be subject to such administrative procedures as have been adopted by the Committee. The Committee, in its sole discretion, may modify such procedures after providing reasonable notification to Participants.

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2.5 Notification of Individual Account Balance

          As of the last day of each calendar quarter, the Plan’s recordkeeper shall notify each Participant of the amount of his share in the Contributions for the period just completed and the balance of his Individual Account, including distributions, loans and withdrawals, if any, since the effective date of the last statement.

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ARTICLE III
CONTRIBUTIONS

3.1 Employee Pre-Tax Contributions

          (a) (1) A Participant may enter into a salary reduction agreement with his Employer in which it is agreed that the Employer will reduce the Participant’s Deferral Compensation during each pay period by a designated percentage and contribute that amount so determined to the Plan on behalf of the Participant. Such contributions shall be referred to as “Regular Pre-Tax Contributions.” The Employer may disregard or modify a Participant’s salary reduction agreement with respect to Regular Pre-Tax Contributions to the extent necessary to insure that (1) the excess deferral rules of subsection (c) are met, or (2) the limitations set forth in Sections 3.5 or 4.6 are not exceeded. Regular Pre-Tax Contributions may be any whole percentage between 1% and 35% of the Deferral Compensation otherwise payable to the Participant during the applicable payroll period.

                    (2) The salary reduction agreement of an Employee who first becomes eligible to make Regular Pre-Tax Contributions shall be effective as of the first payroll period coincident with or next following the date on which his Appropriate Request is processed.

                    (3) Regular Pre-Tax Contributions shall be invested among the various Investment Options in accordance with the Employee’s outstanding Investment Option election as in effect under Section 2.4.

                    (4) A Participant who has in effect a salary reduction agreement with respect to Regular Pre-Tax Contributions may elect to change such agreement, including prospectively suspending such agreement, by making an Appropriate Request. Such election shall become effective as of the first payroll period coincident with or next following the date on which the Appropriate Request is processed.

                    (5) Regular Pre-Tax Contributions shall be remitted to the Trustee in accordance with Department of Labor Regulations at 29 C.F.R. §2510.3-102. Regular Pre-Tax Contributions once elected to be deferred by a Participant shall be credited to his Employee Regular Pre-Tax Sub-Account under Section 4.2.

          (b) (1) Effective with the payroll period ending August 2, 2002, a Participant who will have attained age 50 before the end of the Plan Year may enter into a salary reduction

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agreement with his Employer in which it is agreed that the Employer will reduce the Participant’s Deferral Compensation during each pay period by a designated percentage (beyond the designated percentage by which the Participant’s Deferral Compensation is reduced on account of a salary reduction agreement with respect to Regular Pre-Tax Contributions) and contribute that amount so determined to the Plan on behalf of the Participant. Such contributions shall be referred to as “Catch-Up Pre-Tax Contributions.” Catch-Up Pre-Tax Contributions may be any whole percentage between 1% and 35% of the Deferral Compensation otherwise payable to the Participant during the applicable payroll period. Catch-Up Pre-Tax Contributions shall be made in accordance with, and subject to the limitations of, Code Section 414(v). Catch-Up Pre-Tax Contributions shall not be taken into account for purposes of the Code Section 402(g) limitation set forth in Section 3.1(c)(1) or the Code Section 415 limitation set forth in Section 4.6. The Plan shall not be treated as failing to satisfy the provisions of the Plan implementing the requirements of Code Section 401(k)(3), 401(k)(12), 410(b), or 416, as applicable, by reason of the making of Catch-Up Pre-Tax Contributions.

                    (2) The salary reduction agreement of a Participant who first became eligible to make Catch-Up Pre-Tax Contributions shall be effective as of the first payroll period coincident with or next following the date on which his Appropriate Request is processed.

                    (3) Catch-Up Pre-Tax Contributions shall be invested in accordance with the Investment Option specification designated by the Participant for the investment of the Regular Pre-Tax Contributions.

                    (4) A Participant who has in effect a salary reduction agreement with respect to Catch-Up Pre-Tax Contributions may elect to change such agreement, including prospectively suspending such agreement, by making an Appropriate Request. Such election shall become effective as of the first payroll period coincident with or next following the date on which the Appropriate Request is processed.

                    (5) Catch-Up Pre-Tax Contributions shall be remitted to the Trustee in accordance with Department of Labor Regulations at 29 C.F.R. §2510.3-102. Catch-Up Pre-Tax Contributions once elected to be deferred by a Participant shall be credited to his Employee Pre-Tax Catch-Up Sub-Account under Section 4.2.

                    (6) If, by the end of a Plan Year, the amount of Employee Pre-Tax Contributions originally designated as Regular Pre-Tax Contributions does not exceed either the

29

Code Section 402(g) limitation for such Plan Year set forth in Section 3.1(c)(1), or the 35% of Deferral Compensation set forth in Section 3.1(a)(1), or the maximum Code Section 415(c) limitation as set forth in Section 4.6(a)(1), then any Employee Pre-Tax Contributions made by the Participant and originally designated as Catch-Up Pre-Tax Contributions shall be recharacterized as Regular Pre-Tax Contributions to the extent Employee Pre-Tax Contributions originally designated as Regular Pre-Tax Contributions and Employee Pre-Tax Contributions recharacterized as Regular Pre-Tax Contributions do not exceed both limitations.

                    (7) In order to make a Catch-Up Pre-Tax Contribution, a Participant must either be making a Regular Pre-Tax Contribution of at least 6% of Deferral Compensation or have reached the Code Section 402(g) limit.

          (c) Excess deferrals

                    (1) No Participant may have Regular Pre-Tax Contributions made on his behalf under this Plan in any calendar year which in the aggregate exceed the dollar limitation contained in Code Section 402(g) in effect for such calendar year. For purposes of the preceding sentence, Regular Pre-Tax Contributions are deemed made as of the pay date for which the salary is deferred, regardless of when the contributions are actually made to the Trust Fund.

                    (2) (A) If in any calendar year the aggregate of a Participant’s Regular Pre-Tax Contributions made on his behalf under this Plan, plus his other elective deferrals under any other qualified cash or deferred arrangement (as defined in Code Section 401(k)) maintained by any sponsor, under any simplified employee pension (as defined in Code Section 408(k)), or used to have an annuity contract purchased on his behalf under Code Section 403(b), exceed the limitation of paragraph (1), then no later than the March 15 following such calendar year the Participant may notify the Committee (i) that he has exceeded the limitation and (ii) of the amount of his Regular Pre-Tax Contributions under this Plan which he wants distributed to him (and earnings thereon), notwithstanding his salary reduction agreement, so that he will not exceed the limitation. The Committee may require the Participant to provide reasonable proof that he has exceeded the limitation of paragraph (1).

                              If in any calendar year the aggregate of a Participant’s Regular Pre-Tax Contributions made on his behalf under the Plan, plus his other elective deferrals under any other qualified cash or deferred arrangement (as defined in Code Section 401(k)) maintained by the Employer, under a simplified employee pension (as defined in Code Section 408(k))

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sponsored by the Employer, or used to have the Employer purchase an annuity contract on his behalf under Code Section 403(b), exceed the limitation of paragraph (1), then the Participant shall be deemed to have notified the Committee that (i) he has exceeded the limitation and (ii) he wants distributed to him the amount of such excess deferrals (and income thereon) notwithstanding the salary reduction agreement so that he will not exceed the limitation. No later than the next April 15, the Committee may (but shall not be obligated to) make the distribution requested, or deemed to have been requested, by the Participant under this subparagraph. Such distribution may be made notwithstanding any other provision of law or this Plan. Except as otherwise provided by regulations issued by the Secretary of the Treasury, such distribution shall not reduce the amount of Regular Pre-Tax Contributions considered as Annual Additions under Section 4.6. Any amounts not distributed under this subparagraph shall continue to be held in accordance with the terms of this Plan.

                              (B) After a distribution of excess Regular Pre-Tax Contributions (if any) under subparagraph (A), Employer Matching Contributions made with respect to such distributed Regular Pre-Tax Contributions (if any) shall be withdrawn (with earnings thereon) from such Participant’s Employer Matching Sub-Account and applied to reduce future Employer Matching Contributions under Section 3.2.

3.2 Employer Matching Contributions

          Subject to Section 3.5, prior to the payroll period ending July 5, 2002, the Employer shall make Employer Matching Contributions to the Trust Fund equal to 100% of the Employee Pre-Tax Contributions made by each Participant with respect to each payroll period, but taking into account only those Employee Pre-Tax Contributions made by the Participant with respect to such payroll period which are made at a rate that does not exceed 4% of the Participant’s Deferral Compensation.

          Subject to Section 3.5, on or after the payroll period ending July 5, 2002, the Employer shall make Employer Matching Contributions to the Trust Fund equal to 100% of the Regular Pre-Tax Contributions made by each Participant with respect to each payroll period, but taking into account only those Regular Pre-Tax Contributions made by the Participant with respect to such payroll period which are made at a rate that does not exceed 6% of the Participant’s Deferral Compensation. The Employer shall not make Employer Matching Contributions with

31

respect to Catch-Up Pre-Tax Contributions, except for Catch-Up Pre-Tax Contributions that have been recharacterized as Regular Pre-Tax Contributions pursuant to Section 3.1(b)(6).

          Prior to January 1, 2002, one-half of the Employer Matching Contributions made prior to January 1, 2000 were invested in the Investment Option specification designated by the Participant for the investment of the Participant’s Employee Pre-tax Contributions and were held in the Employer Matching Sub-Account, and the other one-half of the Employer Matching Contributions made prior to January, 1, 2000 were mandatorily invested in Employer Stock and held in the Employer Stock Matching Sub-Account. In addition, prior to January 1, 2000, the Employer made an additional Employer Matching Contribution equal to 15 percent of the Employer Stock Matching Contribution made pursuant to the preceding sentence, and such additional amount also was mandatorily invested in Employer Stock and held in the Employer Stock Matching Sub-Account.

          Effective January 1, 2002, a Participant may designate that his Employer Stock Matching Sub-Account be invested in accordance with the Investment Option specification designated by the Participant for the investment of Regular Pre-Tax Contributions. Pursuant to Section 2.4(b), a Participant may change such Investment Option specification. In the absence of a valid Investment Option specification to the contrary, a Participant’s Employer Stock Matching Sub-Account shall remain invested in the Employer Stock Fund.

          Effective for Employer Matching Contributions made on or after January 1, 2000, the entire Employer Matching Contribution shall be invested in accordance with the Investment Option specification designated by the Participant for the investment of Regular Pre-Tax Contributions and shall be held in the Employer Matching Sub-Account.

          Notwithstanding anything in this Section 3.2 to the contrary, if the Code Section 402(g) limit is less than 6% of the Code Section 401(a)(17) limit when a Non-highly Compensated Employee makes Regular Pre-tax Contributions equal to the Code Section 402(g) limit and also makes Catch-up Pre-tax Contributions then the Non-highly Compensated Employee will receive Employer Matching Contributions on his Catch-up Pre-tax Contributions. Notwithstanding, the Non-highly Compensated Employee will only receive Employer Matching Contributions on his Catch-up Pre-tax Contributions to the extent necessary to meet the matching contributions formula of this Section 3.2.

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3.3 Discretionary Contributions

          The Employer may elect for any Plan Year to make a Discretionary Contribution. The Employer, in its sole discretion, shall determine the amount of such Discretionary Contribution which shall be expressed as a percentage of Deferral Compensation and which shall be allocated in accordance with Section 4.4. The Employer shall also contribute sufficient Discretionary Contributions as may be required by Section 11.1(b).

3.4 Rollover Contributions

          (a) An Employee (regardless of whether he has satisfied the initial eligibility requirements of Section 2.1) may, by making an Appropriate Request, request to make a rollover contribution to the Plan from the type of plans described in subsection (b) below.

          (b) (1) The Plan will accept a direct rollover of an eligible rollover distribution, as defined in Code Section 402(f)(2)(A), from:

                              (A) a qualified plan described in Code Section 401(a) or 403(a), excluding after-tax employee contributions;

                              (B) an annuity contract described in Code Section 403(b), excluding after-tax employee contributions; or

                              (C) an eligible plan under Code section 457(b) which is maintained by a state, political subdivision of a state, or any agency or instrumentality of a state or political subdivision of a state.

                    (2) The Plan will accept a participant contribution of an eligible rollover distribution, as defined in Code Section 402(f)(2)(A), from:

                              (A) a qualified plan described in Code Section 401(a) or 403(a);

                              (B) an annuity contract described in Code Section 403(b);

                              (C) an eligible plan under Code section 457(b) which is maintained by a state, political subdivision of a state, or any agency or instrumentality of a state or political subdivision of a state.

                    (3) The Plan will accept a participant rollover contribution of the portion of a distribution from an individual retirement account or annuity described in Code Section 408(a) or 408(b) that is a “conduit IRA” (i.e., an individual retirement account or annuity that solely holds amounts that were rolled over from a qualified retirement plan and earnings on such amounts).

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          (c) The Committee may require the Employee requesting to make a rollover contribution to provide whatever documentation and/or certifications the Committee deems necessary to reasonably conclude that the rollover contribution satisfies the conditions set forth in subsection (b) above.

          (d) Rollover contributions must be in cash; contributions in-kind shall not be permitted. Such a contribution shall be held in the Employee’s Rollover Sub-Account and shall be 100% vested at all times. The rollover contribution of an Employee who has not satisfied the initial eligibility requirements of Section 2.1 shall be invested in the Fidelity Puritan Fund, unless and until he makes a different Investment Option specification pursuant to Section 2.4. The rollover contribution of an Employee who has already satisfied the initial eligibility requirements of Section 2.1 shall be invested in accordance with the Employee’s outstanding Investment Option specification.

          (e) If the Committee, after reasonably concluding that a rollover contribution made by an Employee met the conditions set forth in subsection (b) above, later determines that the contribution did not meet those conditions, it shall direct the Trustee to distribute to the Employee the amount of such rollover contribution, plus any earnings attributable thereto, within a reasonable time after such determination.

          (f) A Katrina distribution that qualifies as an eligible rollover distribution pursuant to IRS notice 2005-92 to a plan qualified under Code Section 401(a) may be accepted as a rollover contribution to this Plan. The Employee making such rollover shall have three (3) years from receipt of the Katrina distribution to recontribute the distribution. During this three (3) year period, the Employee can recontribute all or part of his distribution in a single or multiple payments.

3.5 Maximum Deductible Contribution

          In no event shall the Employer be obligated to make a Contribution for a Plan Year in excess of the maximum amount deductible by it under Code Section 404(a)(3).

3.6 Actual Deferral Percentage Test Safe Harbor

          Effective with the Plan Year commencing January 1, 1999, this Plan shall be deemed to meet the requirements of Code Section 401(k)(3)(A)(ii) (the “actual deferral percentage test”) since (1)(A) the rate of Employer Matching Contributions does not increase as an Employee’s rate of Employee Pre-Tax Contributions increases, (B) the aggregate amount of Employer

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Matching Contributions at each rate of Employee Pre-Tax Contributions is at least equal to the aggregate amount of Employer Matching Contributions which would be made if Employer Matching Contributions were made on the basis of the percentages described in Code Section 401(k)(12)(B)(i), and (C) the rate of Employer Matching Contributions with respect to any Employee Pre-Tax Contributions of a Highly Compensated Employee at any rate of Employee Pre-Tax Contributions is not greater than that with respect to an Employee who is not a Highly Compensated Employee, and (2) the Committee provides each Eligible Employee, within a reasonable period before each such Plan Year, written notice of the Eligible Employee’s rights and obligations under the Plan which is sufficiently accurate and comprehensive to appraise the Eligible Employee of such rights and obligations and is written in a manner calculated to be understood by the average Eligible Employee.

3.7 Payment of Contributions to Trustee

          Unless an earlier time for contribution is specified elsewhere in this Plan, in all events the Employer shall pay to the Trustee its Contributions for each Plan Year within the time prescribed by law, including extensions of time for the filing of its federal income tax return for the Employer’s taxable year during which such Plan Year ended.

3.8 Employee After-Tax Contributions

          Effective January 1, 1996, no Participant shall be permitted to make employee after-tax contributions under the Plan.

3.9 Actual Contribution Percentage Test Safe Harbor

          Effective with the Plan Year commencing January 1, 1999, this Plan shall be deemed to meet the requirements of Code Section 401(m)(2) (the “actual contribution percentage test”) since (1)(A) the rate of Employer Matching Contributions does not increase as an Employee’s rate of Employee Pre-Tax Contributions increases, (B) the aggregate amount of Employer Matching Contributions at each rate of Employee Pre-Tax Contributions is at least equal to the aggregate amount of Employer Matching Contributions which would be made if Employer Matching Contributions were made on the basis of the percentages described in Code Section 401(k)(12)(B)(i), and (C) the rate of Employer Matching Contributions with respect to any Employee Pre-Tax Contributions of a Highly Compensated Employee at any rate of Employee Pre-Tax Contributions is not greater than that with respect to an Employee who is not a Highly Compensated Employee, (2) the Committee provides each Eligible Employee, within a

35

reasonable period before each such Plan Year, written notice of the Eligible Employee’s rights and obligations under the Plan which is sufficiently accurate and comprehensive to appraise the Eligible Employee of such rights and obligations and is written in a manner calculated to be understood by the average Eligible Employee, and (3) Employer Matching Contributions on behalf of any Employee may not be made with respect to an Employee’s Employee Pre-Tax Contributions in excess of 6 percent of the Employee’s Deferral Compensation.

3.10 Merger of Quest Diagnostics Incorporated Employee Stock Ownership Plan into this Plan

          Effective October 1, 2002, the Quest Diagnostics Incorporated Employee Stock Ownership Plan (the “ESOP”) merged into this Plan, and the assets and liabilities of the ESOP were subsequently transferred to the Trust Fund. The balance of each former ESOP participant’s account under the ESOP immediately prior to the merger was transferred to this Plan. The value of each former ESOP participant’s “Initial Contribution Sub-Account” under the ESOP immediately prior to the merger shall represent the opening balance of such Participant’s Prior ESOP Employer Stock Sub-Account under this Plan, and the value of each former ESOP participant’s “Discretionary Contribution Sub-Account” under the ESOP immediately prior to the merger shall represent the opening balance of such Participant’s Prior ESOP Employer Contributions Sub-Account under this Plan. Such values were determined on the basis of the closing share price of Employer Stock on October 1, 2002, as published in The Wall Street Journal, and by converting shares of Employer Stock to equivalent units.

          A Participant’s Prior ESOP Employer Stock Sub-Account and Prior ESOP Employer Contributions Sub-Account shall be initially invested in the Employer Stock Fund.

          As soon as administratively practicable after the merger, a Participant may designate that his Prior ESOP Employer Stock Sub-Account and his Prior ESOP Employer Contributions Sub-Account be invested in accordance with the Investment Option specification designated by the Participant for the investment of Regular Pre-Tax Contributions. Pursuant to Section 2.4(b), a Participant may change such Investment Option specification. In the absence of a valid Investment Option specification to the contrary, a Participant’s Prior ESOP Employer Stock Sub-Account and Prior ESOP Employer Contributions Sub-Account shall remain invested in the Employer Stock Fund.

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3.11 USERRA

          Notwithstanding any provision of this Plan to the contrary, Contributions with respect to qualified military service will be provided in accordance with Code Section 414(u).

3.12 QNEC’s

          To the extent it deems necessary to correct a failure to follow the provisions of the Plan, the Employer may make “qualified nonelective contributions” (as defined in §1.401(k)-1(g)(13) of the Treasury regulations) on behalf of affected individuals in an amount determined by the Employer. Such qualified nonelective contributions shall be held in a Participant’s Qualified Nonelective Contribution Sub-Account and shall be 100% vested at all times.

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ARTICLE IV
ALLOCATIONS TO INDIVIDUAL ACCOUNTS

4.1 Individual Accounts

           (a) The Committee shall establish and maintain an Individual Account in the name of each Participant, comprised of the following sub-accounts to which the Committee shall credit all amounts allocated to each such Participant under this Article IV: an Employee Regular Pre-Tax Sub-Account, an Employee Pre-Tax Catch-Up Sub-Account, an Employee After-Tax Sub-Account, an Employer Matching Sub-Account, an Employer Stock Matching Sub-Account, a Partnership Sub-Account, a Rollover Sub-Account, a Prior Plan Rollover Sub-Account, a Pre-1999 Cash Match Sub-Account, a Post-1999 Cash Match Sub-Account, a Pre-1999 Stock Match Sub-Account, a Post-1999 Stock Match Sub-Account, an ESOP Diversification Sub-Account, a Prior ESOP Employer Contributions Sub-Account, a Prior ESOP Employer Stock Sub-Account, a Money Purchase Pension Plan Sub-Account, a Prior Plan Employer Contribution Sub-Account, a Prior Plan Employer Qualified Sub-Account, a CBCLS Employer Contribution Sub-Account, a Prior Employer Match Sub-Account, a Prior Profit Sharing Sub-Account, a Prior Unilab Employer Contribution Sub-Account, a Qualified Nonelective Contribution Sub-Account, a Prior LabOne Employer Match Sub-Account, a Prior LabOne Money Purchase Plan Sub-Account, a Vested Employer Stock Dividend Sub-Account and a Vested Money Purchase Plan Dividend Sub-Account.

          (b) Separate accounts shall be maintained for all former Employee Participants who have an interest in the Plan.

          (c) The maintenance of separate accounts shall not require a segregation of the Trust assets and no Participant shall acquire any right to or interest in any specific asset of the Trust as a result of the allocations provided for in the Plan.

4.2 Allocation of Employee Pre-Tax Contributions

          A Participant’s Regular Pre-Tax Contributions under Section 3.1(a) shall be allocated to the Participant’s Employee Regular Pre-Tax Sub-Account and shall be invested in accordance with the Participant’s outstanding Investment Option specification. A Participant’s Catch-Up Pre-Tax Contributions under Section 3.1(b) shall be allocated to the Participant’s Employee

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Pre-Tax Catch-Up Sub-Account and shall be invested in accordance with the Investment Option specification designated by the Participant for the investment of Regular Pre-Tax Contributions.

4.3 Allocation of Employer Matching Contributions

          As of the end of each payroll period, the Employer Matching Contributions made on behalf of a Participant under Section 3.2 shall be allocated to his Employer Matching Sub-Account and shall be invested in accordance with the Investment Option specification designated by the Participant for the investment of Regular Pre-Tax Contributions. Notwithstanding the preceding sentence, Employer Matching Contributions with respect to recharacterized Regular Pre-Tax Contributions shall be made as soon as administratively practicable following the end of the Plan Year for which the Regular Pre-Tax Contributions were originally designated as Catch-Up Pre-Tax Contributions.

4.4 Allocation of Discretionary Contributions

          (a) A Participant’s allocable share as determined under subsection (b) of the Discretionary Contribution shall be credited to the Participant’s Partnership Sub-Account as of the last day of the Plan Year for which his Employer shall make a Discretionary Contribution under Section 3.3 and shall be invested in accordance with the Investment Option specification designated by the Participant for the investment of Regular Pre-Tax Contributions.

          (b) Each Participant who is an Active Participant with respect to a Plan Year for which his Employer shall make a Discretionary Contribution shall receive an allocation of the Discretionary Contribution. Each Participant shall receive an amount equal to the Discretionary Contribution (expressed as a percentage of Deferral Compensation) multiplied by the Participant’s Deferral Compensation during the Plan Year.

4.5 Allocation of Forfeitures

          Any Forfeitures arising under Section 5.5(b)(3) shall be used to the extent necessary to restore a reemployed Participant’s Prior ESOP Employer Stock Sub-Account, Prior ESOP Employer Contributions Sub-Account, Prior Employer Match Sub-Account or Prior Unilab Employer Contribution Sub-Account as provided in Section 5.5(b)(3) and/or shall be applied to reduce Employer Contributions (including corrective allocations made to the Plan and earnings on such corrective allocations).

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4.6 Maximum Additions

          (a) Notwithstanding anything herein to the contrary, the sum of the Regular Pre-Tax Contributions, Employer Matching Contributions and Discretionary Contributions allocated to a Participant’s Individual Account for any Limitation Year (the “Annual Additions”), when combined with any annual additions credited to the Participant for the same period under any other qualified defined contribution plan maintained by the Employer or an Affiliate, shall not exceed the lesser of the following:

                    (1) $45,000, as adjusted for increases in the cost-of-living under Code Section 415(d); or

                    (2) 100% of the Participant’s total Section 415 Compensation received from the Employer for such Limitation Year.

          (b) In the event a Participant is covered by this Plan and any other qualified defined contribution plan maintained by the Employer (or an Affiliate), the maximum Annual Additions to this Plan shall be decreased as determined necessary by the Employer to insure that the limitations of Code Section 415(c) are not exceeded.

          In the event that corrective adjustments in the Annual Additions to any Individual Accounts are required as a result of Forfeitures or due to a reasonable error in estimating a Participant’s compensation or in determining the amount of Regular Pre-Tax Contributions that may be made with respect to any Participant under the annual additions limit of Section 4.6(a), the adjustment shall first be made by reducing the Regular Pre-Tax Contributions, next the Discretionary Contributions, and finally the Employer Matching Contributions.

          Any amounts withheld or taken from a Participant’s Individual Account pursuant to the preceding paragraph shall be segregated in the Trust Fund in a separate account and applied toward the Contribution of the Employer for the next Limitation Year, except that Regular Pre-Tax Contributions (and earnings thereon) shall be distributed to the Participant who made them.

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ARTICLE V
DISTRIBUTIONS

5.1 Normal Retirement

          Upon the retirement of a Participant on or after attaining his Normal Retirement Age, the value of his entire Individual Account (as determined under Section 5.10) automatically shall become 100% vested and shall become payable as soon as administratively feasible following his retirement. The Committee shall thereupon direct the Trustee to distribute to the retiring Participant such amount in accordance with Section 5.6.

5.2 Disability

          Upon the Total and Permanent Disability of a Participant, the value of his entire Individual Account (as determined under Section 5.10) automatically shall become 100% vested. As soon as administratively feasible following a Participant’s Total and Permanent Disability, the Committee shall direct the Trustee to distribute to the Participant such amount in accordance with Section 5.6. Notwithstanding the preceding sentence, pursuant to Section 5.7(b), consent of the Participant may be required before distribution can be made.

5.3 Death Before Retirement or Termination of Employment

          (a) Upon the death of a Participant before retirement or termination of employment, the value of such Participant’s entire Individual Account (as determined under Section 5.10) automatically shall become 100% vested and shall become payable in accordance with subsection (b). The Committee shall direct the Trustee to distribute to the deceased Participant’s Beneficiary such amount in accordance with Section 5.6. After the death of the Participant and before distribution of the Participant’s Individual Account balance, the Participant’s Beneficiary shall be entitled to select the Investment Options in which the Individual Account will be invested in accordance with the same rules then applicable to Participant selection of Investment Options.

          (b) (1) If a Participant other than a CPF Pension Plan Participant or LabOne Pension Plan Participant dies, the Beneficiary shall receive the Individual Account in a lump sum or installments under Section 5.6(c) as soon as administratively feasible unless the Beneficiary defers the distribution subject o Section 5.9(c).

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          (b) (2) If a CPF Pension Plan Participant or a LabOne Pension Plan Participant dies with his surviving spouse as Beneficiary, the Individual Account shall be paid by purchase of an annuity contract providing for annuity payments for the spouse’s lifetime, unless the spouse elects to receive the Individual Account in a lump sum or in installments under Section 5.6(c). Subject to Section 5.9(c), payments shall commence at a time designated by the spouse, but in no event earlier than a date that falls as soon as administratively feasible following the Participant’s date of death.

5.4 Death After Retirement or Termination of Employment

          (a) Upon the death of a Participant who has terminated employment but who has not received (or begun receiving) his benefit under Section 5.6, the value of the vested portion of such Participant’s Individual Account (as determined under Section 5.5(b)(2) and Section 5.10) shall become payable in accordance with subsection (b). (For any Participant who has begun benefit payments under Section 5.6, the provisions of such form of distribution shall control any payments upon the death of such Participant.) The Committee shall direct the Trustee to distribute to the deceased Participant’s Beneficiary such amount in accordance with Section 5.6. After the death of the Participant and before distribution of the Participant’s Individual Account balance, the Participant’s Beneficiary shall be entitled to select the Investment Options in which the Individual Account will be invested in accordance with the same rules then applicable to Participant selection of Investment Options.

          (b) (1) If a Participant other than a CPF Pension Plan Participant or LabOne Pension Plan Participant dies, the Beneficiary shall receive the Individual Account in a lump sum or installments under Section 5.6(c) as soon as administratively feasible unless the Beneficiary defers the distribution subject o Section 5.9(c).

          (b) (2) If a CPF Pension Plan Participant or a LabOne Pension Plan Participant dies with his surviving spouse as Beneficiary, the Individual Account shall be paid by purchase of an annuity contract providing for annuity payments for the spouse’s lifetime, unless the spouse elects to receive the Individual Account in a lump sum or in installments under Section 5.6(c). Subject to Section 5.9(c), payments under an annuity contract shall commence at a time designated by the spouse, but in no event earlier than a date that falls as soon as administratively feasible following the Participant’s date of death.

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5.5 Termination of Employment

          (a) Upon the termination of employment of a Participant due to a reduction-in-force, the value of his entire Individual Account (as determined under Section 5.10) automatically shall become 100% vested. As soon as administratively feasible following a Participant’s termination of employment due to a reduction-in-force, the Committee shall direct the Trustee to distribute to the Participant such amount in accordance with Section 5.6. Notwithstanding the preceding sentence, pursuant to Section 5.7(b), consent of the Participant may be required before distribution can be made.

          (b) (1) Upon termination of employment for any reason other than retirement under Section 5.1, disability under Section 5.2, death under Section 5.3, or reduction-in-force under subsection (a) above, a Participant shall be entitled to the value of the vested portion of his Individual Account (as determined under paragraph (b)(2) below and Section 5.10).

          As soon as administratively feasible following a Participant’s termination of employment, the Committee shall direct the Trustee to distribute to such Participant the value of the vested portion of his Individual Account. Notwithstanding the preceding sentence, pursuant to Section 5.7(b), consent of the Participant may be required before distribution can be made.

                    (2) (A) A Participant shall at all times be 100% vested in each portion of his Individual Account other than his Prior ESOP Employer Stock Sub-Account, his Prior ESOP Employer Contributions Sub-Account, his Prior Employer Match Sub-Account, his Prior Unilab Employer Contribution Sub-Account, his Prior LabOne Money Purchase Sub-Account, and his Prior LabOne Employer Match Sub-Account (i.e., his Employee Regular Pre-Tax Sub-Account, Employee Pre-Tax Catch-Up Sub-Account, Employee After-Tax Sub-Account, Employer Matching Sub-Account, Employer Stock Matching Sub-Account, Partnership Sub-Account, Rollover Sub-Account, ESOP Diversification Sub-Account, Money Purchase Pension Plan Sub-Account, Prior Plan Employer Contribution Sub-Account, Prior Plan Employer Qualified Sub-Account, CBCLS Employer Contribution Sub-Account, Prior Profit Sharing Sub-Account and Qualified Nonelective Contribution Sub-Account).

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                              (B) A Participant shall have a vested interest in the following percentage of his Prior ESOP Employer Stock Sub-Account, taking into account only Years of Vesting Service credited for periods of employment on or after December 31, 1996:

Years of Vesting Service	Vested Interest
Less than 2	0	%
2 or more	100	%

Notwithstanding the preceding, (i) a Participant who was an active Employee or who was on an authorized leave of absence as of August 16, 1999 automatically shall be 100% vested in his Prior ESOP Employer Stock Sub-Account; and (ii) a Participant who terminated employment prior to August 16, 1999 with fewer than two Years of Vesting Service (taking into account only Years of Vesting Service credited for periods of employment on or after December 31, 1996), and who subsequently returns as an Employee after August 16, 1999 prior to incurring a five-year Period of Severance beginning immediately after the date his employment terminated, automatically shall become 100% vested in his Prior ESOP Employer Stock Sub-Account as of the date of his reemployment.

                              (C) A Participant shall have a vested interest in the following percentage of his Prior ESOP Employer Contributions Sub-Account, taking into account all Years of Vesting Service:

Years of Vesting Service	Vested Interest
Less than 3	0%
3 or more	100%

                              (D) An AML-East Plan Participant or an AML-West Plan Participant shall have a vested interest in the following percentage of his Prior Employer Match Sub-Account:

Years of Vesting Service	Vested Interest
0	0%
1	25%
2	50%
3	100%

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                              (E) A Unilab Plan Participant shall have a vested interest in the following percentage of his Prior Unilab Employer Contribution Sub-Account:

Years of Vesting Service	Vested Interest
0	0%
1	10%
2	20%
3	50%
4	100%

                              (F) A LabOne (k) Plan Participant shall have a vested interest in the following percentage of his Prior LabOne Employer Match Sub Account:

Years of Vesting Service	Vested Interest
Less than 3	0%
3 or more	100%

                              (G) A LabOne Pension Plan Participant shall have a vested interest in the following percentage of his Prior LabOne Money Purchase Plan Sub-Account:

Years of Vesting Service	Vested Interest
Less than 5	0%
5 or more	100%

                              (H) Notwithstanding the preceding provisions of this Section 5.5(b)(2), a Participant shall be 100% vested in his entire Individual Account upon termination of employment after the attainment of his Normal Retirement Age.

                    (3) (A) If a Participant’s employment terminates for any reason other than retirement under Section 5.1, disability under Section 5.2, death under Section 5.3 or reduction-in-force under Section 5.5(a) at a time when he has no vested interest in his Prior ESOP Employer Stock Sub-Account and/or his Prior ESOP Employer Contributions Sub-Account, the Committee nonetheless shall treat the Participant as if he had received a distribution of his Prior ESOP Employer Stock Sub-Account and/or his Prior ESOP Employer Contributions Sub-Account on the date his employment terminated and shall forfeit the Participant’s entire Prior ESOP Employer Stock Sub-Account and/or his entire Prior ESOP Employer Contributions Sub-Account as soon as administratively feasible after the date his

45

employment terminated. If the former Participant returns as an Employee prior to incurring a five-year Period of Severance beginning immediately after the date his employment terminated, his Prior ESOP Employer Stock Sub-Account and/or his Prior ESOP Employer Contributions Sub-Account, determined as of the date of forfeiture, shall be fully restored to him as soon as administratively feasible after his reemployment. In such case, the Participant’s Individual Account shall be restored first out of Forfeitures for such Plan Year and, if such Forfeitures are insufficient to restore such Individual Account, the Employer shall make a special contribution to the extent necessary so that the Participant’s Individual Account is fully restored.

                              (B) If the employment of an AML-East Plan Participant or an AML-West Plan Participant terminates for any reason other than retirement under Section 5.1, disability under Section 5.2, death under Section 5.3 or reduction-in-force under Section 5.5(a) at a time when he is not fully vested in his Prior Employer Match Sub-Account, then the Committee shall follow the procedure set forth in clause (i) or that set forth in clause (ii) below, as appropriate:

                                        (i) If the Participant had no vested interest in his Prior Employer Match Sub-Account at the time of his termination of employment, the Committee nonetheless shall treat the Participant as if he had received a distribution on the date his employment terminated and shall forfeit the Participant’s entire Prior Employer Match Sub-Account as soon as administratively feasible after the date his employment terminated. If such a Participant returns as an Employee prior to incurring a five-year Period of Severance, his Prior Employer Match Sub-Account, determined as of the date of his deemed distribution, shall be fully restored to him as soon as administratively feasible after his reemployment.

                                                  If the Participant had a 25% or 50% vested interest in his Prior Employer Match Sub-Account at the time of his termination of employment and if he receives a distribution of such vested interest before he incurs a five-year Period of Severance, the remaining portion of his Prior Employer Match Sub-Account shall be forfeited as soon as administratively feasible after the date of distribution. If such a Participant returns as an Employee prior to incurring a five-year Period of Severance and if he repays the full amount of the distribution paid to him by reason of his termination of employment no later than the fifth anniversary of the date of his reemployment, then his Prior Employer Match Sub-Account,

46

determined as of the date of the distribution of his vested interest, shall be fully restored to him as soon as administratively feasible after such repayment is made.

                                        A Participant’s Prior Employer Match Sub-Account shall be restored first out of Forfeitures for such Plan Year and, if such Forfeitures are insufficient to restore such Prior Employer Match Sub-Account, the Employer shall make a special contribution to the extent necessary so that the Participant’s Prior Employer Match Sub-Account is fully restored.

                              (ii) If the Participant had a 25% or 50% vested interest in his Prior Employer Match Sub-Account at the time of his termination of employment and if he does not receive a distribution of such vested interest before he incurs a five-year Period of Severance, the remaining portion of his Prior Employer Match Sub-Account shall be forfeited as soon as administratively feasible after such five-year Period of Severance has been incurred.

                    (C) If the employment of a Unilab Plan Participant terminates for any reason other than retirement under Section 5.1, disability under Section 5.2, death under Section 5.3 or reduction-in-force under Section 5.5(a) at a time when he is not fully vested in his Prior Unilab Employer Contribution Sub-Account, then the Committee shall follow the procedure set forth in clause (i) or that set forth in clause (ii) below, as appropriate:

                              (i) If the Participant had no vested interest in his Prior Unilab Employer Contribution Sub-Account at the time of his termination of employment, the Committee nonetheless shall treat the Participant as if he had received a distribution on the date his employment terminated and shall forfeit the Participant’s entire Prior Unilab Employer Contribution Sub-Account as soon as administratively feasible after the date his employment terminated. If such a Participant returns as an Employee prior to incurring a five-year Period of Severance, his Prior Unilab Employer Contribution Sub-Account, determined as of the date of his deemed distribution, shall be fully restored to him as soon as administratively feasible after his reemployment.

                                        If the Participant is partially vested in his Prior Unilab Employer Contribution Sub-Account at the time of his termination of employment and if he receives a distribution of his vested interest before he incurs a five-year Period of Severance, the remaining portion of his Prior Unilab Employer Contribution Sub-Account shall be forfeited as soon as administratively feasible after the date of distribution. If such a Participant returns as an

47

Employee prior to incurring a five-year Period of Severance and if he repays the full amount of the distribution paid to him by reason of his termination of employment no later than the fifth anniversary of the date of his reemployment, then his Prior Unilab Employer Contribution Sub-Account, determined as of the date of the distribution of his vested interest, shall be fully restored to him as soon as administratively feasible after such repayment is made.

                                        A Participant’s Prior Unilab Employer Contribution Sub-Account shall be restored first out of Forfeitures for such Plan Year and, if such Forfeitures are insufficient to restore such Prior Unilab Employer Contribution Sub-Account, the Employer shall make a special contribution to the extent necessary so that the Participant’s Prior Unilab Employer Contribution Sub-Account is fully restored.

                              (ii) If the Participant is partially vested interest in his Prior Unilab Employer Contribution Sub-Account at the time of his termination of employment and if he does not receive a distribution of such vested interest before he incurs a five-year Period of Severance, the remaining portion of his Prior Unilab Employer Contribution Sub-Account shall be forfeited as soon as administratively feasible after such five-year Period of Severance has been incurred.

          (c) In the event a Participant who terminated his employment with an Employer is reemployed as an Employee prior to receiving a distribution of his Individual Account, he shall not be entitled to a distribution as provided in this Section 5.5 due to such termination, but shall be entitled to a distribution as determined herein upon any subsequent termination of employment for any reason.

5.6 Method of Payment

          (a) Normal Form

                    The normal form of distribution under the Plan is a lump sum and the remainder of this Section shall not be applicable to a Participant whose normal form is a lump sum. All Participants are subject to this paragraph except such Participants as described in the next paragraph who have a portion of their Individual Account attributable to a money purchase pension plan which was merged with this Plan. Lump sum payments from investments held in the Employer Stock Fund may be distributed in cash or in Employer Stock, at the election of the Participant. In the absence of a valid election on the part of the Participant, payments from

48

investments held in the Employer Stock Fund shall be distributed in cash. Lump sum payments from other investments shall be made only in cash.

                    Notwithstanding the above, for a CPF Pension Plan Participant and a LabOne Pension Plan Participant, the automatic form for a married Participant is a qualified joint and survivor annuity with one-half of the Participant’s lifetime amount payable after his death to his surviving spouse. The automatic form for an unmarried Participant is a single life annuity. A CPF Pension Plan Participant and a LabOne Pension Plan Participant shall be subject to (b), (c), (d) and (e) of this Section.

          (b) Election Procedures

                    (1) No less than seven and no more than 90 days (180 days after December 31, 2007) before distribution of a Participant’s benefit commences, each Participant and his spouse (if any) shall be given a written notice to the effect that if the Participant is married on the date of commencement of payments, benefits will be payable in the form of a “qualified joint and survivor annuity” under subsection (d) unless the Participant, with the consent of his spouse, elects to the contrary prior to the commencement of payments. Consent of the spouse is not required for an election under (c)(3) unless the Beneficiary is not the spouse. The notice shall describe, in a manner intended to be understood by the Participant and his spouse, the terms and conditions of the qualified joint and survivor annuity, the financial effect of the election of an optional form or absence of election, the rights of the Participant to elect an optional form or to revoke such an election, and the rights of the Participant’s spouse to consent to an election of an optional form. In addition, the notice shall inform the Participant that he has 30 days to elect whether to have benefits paid in an optional form.

                    (2) During the 90-day period (180-day period after December 31, 2007) ending on the day his distribution commences, each Participant may elect to have his benefit hereunder paid under the normal form or any one of the options set forth in subsection (c) in lieu of the automatic form provided for in subsection (a).

                    (3) A Participant who desires to have his benefit hereunder paid under one of the optional methods provided in subsection (c) shall make such an election by making an Appropriate Request. An election by a Participant to receive his retirement benefit under any of the optional methods of payment as provided in subsection (c) may be revoked by such Participant at any time and any number of times during the 90-day period (180-day period after

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December 31, 2007) ending on the day his benefit payments commence. After retirement benefit payments have commenced, no elections or revocations of an optional method will be permitted under any circumstances.

          (c) Available Options

                    (1) Monthly, quarterly or annual installments from the Trust Fund over a period not to exceed the lesser of (A) 10 years, or (B) the life expectancy of the Participant or the joint life expectancies of the Participant and his Beneficiary, in either case determined at the time payments commence. Life expectancies shall be determined when payments commence and shall not thereafter be recalculated. Installment payments shall be made pro-rata from the various Sub-Accounts within the Participant’s Individual Account.

                    (2) An annuity contract, purchased from an insurance company (or similar source) by the Committee utilizing the value of the vested portion of the Participant’s Individual Account, which provides for equal monthly payments over the Participant’s lifetime and which contains such other terms and provisions as may be approved in writing by such Participant.

                    (3) An annuity contract, purchased from an insurance company (or similar source) by the Committee utilizing the value of the vested portion of the Participant’s Individual Account, which provides for equal monthly payments over the Participant’s lifetime and for such monthly payments (or one-half thereof or after December 31, 2007, three-quarters thereof) to be continued after his death to the Participant’s designated Beneficiary over the lifetime of the Beneficiary. If the designated Beneficiary is not living at the death of the Participant, no additional benefit shall be payable hereunder. Such annuity contract shall contain such other terms and provisions as may be approved in writing by the electing Participant.

                    (4) An annuity contract, purchased from an insurance company (or similar source) by the Committee utilizing the value of the vested portion of the Participant’s Individual Account, which provides for equal monthly payments over the Participant’s lifetime and in the event of his death before 120 monthly payments have fallen due, such payments shall be continued to the Participant’s designated Beneficiary until the remainder of the 120 monthly payments have been paid. Such annuity contract shall contain such other terms and provisions as may be approved in writing by the electing Participant. (This optional method shall not be available to a Beneficiary.)

          (d) Qualified Joint and Survivor Annuity

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                    If a Participant is married on the date distribution of his Individual Account commences, a joint and survivor annuity with one-half of the Participant’s lifetime amount payable after his death to his surviving spouse (to whom he was married on the date payments to the Participant first commenced) as his Beneficiary must be elected or another joint and survivor annuity described in (c)(3) must be elected in lieu thereof or the Participant’s spouse must consent in writing to any other form elected. Such consent shall acknowledge its effect and be witnessed by a Committee member (or an authorized representative) or a notary public. Spousal consent is not required if there is no spouse, the spouse cannot be located or under such other circumstances as may be prescribed by regulations. Any spousal consent shall only be applicable to the spouse granting such consent.

5.7 Cash-Outs; Consent

          (a) (1) Effective for distributions payable on or after March 28, 2005, if a Participant retires under Section 5.1, becomes disabled under Section 5.2 or terminates employment under Section 5.5 and the value of the vested portion of his Individual Account (as determined under Section 5.10) does not exceed $1,000 as of the first date thereafter upon which such Individual Account is valued for purposes of determining if it exceeds $1,000, the Committee shall direct the Trustee to distribute to the Participant such amount in accordance with Section 5.6(a) as soon as administratively feasible following such valuation date. If the value of the vested portion of such a Participant’s Individual Account exceeds $1,000 upon such valuation date, but is $1,000 or less as of any subsequent date upon which such Individual Account is valued for purposes of determining if it exceeds $1,000, the Committee shall direct the Trustee to distribute to the Participant such amount in accordance with Section 5.6(a) as soon as administratively feasible following such valuation date.

                    (2) If a Participant dies under Sections 5.3 or 5.4 and the value of the vested portion of his Individual Account (as determined under Section 5.10) does not exceed $5,000 as of the first date thereafter upon which such Individual Account is valued for purposes of determining if it exceeds $5,000, the Committee shall direct the Trustee to distribute to the Participant’s Beneficiary such amount in accordance with Section 5.6(a) as soon as administratively feasible following such valuation date. If the value of the vested portion of such a Participant’s Individual Account exceeds $5,000 upon such valuation date, but is $5,000 or less as of any subsequent date upon which such Individual Account is valued for purposes of

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determining if it exceeds $5,000, the Committee shall direct the Trustee to distribute to the Participant’s Beneficiary such amount in accordance with Section 5.6(a) as soon as administratively feasible following such valuation date.

          (b) If a Participant becomes disabled under Section 5.2 or terminates employment under Section 5.5 and the value of the vested portion of his Individual Account (as determined under Section 5.10) exceeds $1,000 (and such value exceeds $1,000 as of each subsequent date upon which such Individual Account is valued for purposes of determining if it exceeds $1,000), then no distribution shall be made prior to the Participant’s “required beginning date” under Section 5.9(f)(5) unless he consents to the making of such distribution through an Appropriate Request. Distribution shall commence no later than 90 days from the date the consent of the Participant is obtained. The Participant shall be given a notice of the right to defer any distribution until his “required beginning date” under Section 5.9(f)(5). Such notification shall be addressed no less than 30 days and no more than 90 days prior to the date distribution commences. Notwithstanding the preceding sentence, distribution may commence less than 30 days after the notification was addressed, as long as the notification informs the Participant that he has a right to a period of at least 30 days after receiving the notice to consider the decision of whether or not to elect a distribution.

5.8 Benefits to Minors and Incompetents

          (a) In case any person entitled to receive payment under the Plan shall be a minor, the Committee, in its discretion, may distribute such payment in any one or more of the following ways:

                    (1) By payment thereof directly to such minor;

                    (2) By application thereof for the benefit of such minor;

                    (3) By payment thereof to either parent of such minor or to any person who shall be legally qualified and shall be acting as guardian of the person or the property of such minor, provided the parent or adult person to whom any amount shall be paid shall have advised the Committee in writing that he will hold or use such amount for the benefit of such minor.

          (b) In the event a person entitled to receive payment under the Plan is physically or mentally incapable of personally receiving and giving a valid receipt for any payment due (unless prior claim therefor shall have been made by a duly qualified legal representative of such person), such payment in the discretion of the Committee may be made to the spouse, son,

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daughter, parent, brother or sister of the recipient or to any other person who is responsible for the welfare of such recipient.

          (c) Any payments made under subsections (a) or (b) shall, to the extent of the payments, fully discharge the obligations of the Committee and the Plan to any other person making a claim hereunder with respect to such payments.

5.9 Payment of Benefits

          (a) Except as provided in subsection (b), in the event a Participant’s Individual Account shall be due and payable under this Article V and the Participant has not elected otherwise in accordance with the Plan, any payment of benefits to the Participant shall begin not later than 60 days after the close of the Plan Year in which occurs the latest of:

                    (1) the date on which the Participant attains age 65;

                    (2) the 10th anniversary of the date in which the Participant commenced participation in the Plan; and

                    (3) termination of employment of the Participant with the Employer.

          (b) The requirements of subsections (b) – (e) of this Section 5.9 will apply for purposes of determining required minimum distributions for calendar years beginning with the 2003 calendar year. The requirements of subsections (b) – (e) will take precedence over any inconsistent provisions of the Plan. All distributions required under subsections (b) – (e) will be determined and made in accordance with the Treasury regulations under Code Section 401(a)(9).

          (c) (1) The Participant’s entire interest will be distributed, or begin to be distributed, to the Participant no later than the Participant’s “required beginning date.”

                    (2) If the Participant dies before distributions begin, the Participant’s entire interest will be distributed, or begin to be distributed, no later than as follows:

                              (A) If the Participant’s surviving spouse is the Participant’s sole “designated beneficiary,” then, except as provided in paragraph (4) below, distributions to the surviving spouse will begin by December 31 of the calendar year immediately following the calendar year in which the Participant died, or by December 31 of the calendar year in which the Participant would have attained age 70½, if later.

                              (B) If the Participant’s surviving spouse is not the Participant’s sole “designated beneficiary,” then, except as provided in paragraph (4) below, distributions to the

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“designated beneficiary” will begin by December 31 of the calendar year immediately following the calendar year in which the Participant died.

                              (C) If there is no “designated beneficiary” as of September 30 of the year following the year of the Participant’s death, the Participant’s entire interest will be distributed by December 31 of the calendar year containing the fifth anniversary of the Participant’s death.

                              (D) If the Participant’s surviving spouse is the Participant’s sole “designated beneficiary” and the surviving spouse dies after the Participant but before distributions to the surviving spouse begin, this paragraph (2), other than subparagraph (A), will apply as if the surviving spouse were the Participant.

                    For purposes of this paragraph (2) and subsection (e), distributions are considered to begin on the Participant’s “required beginning date” (or, if subparagraph (D) applies, the date distributions are required to begin to the surviving spouse under subparagraph (A)). If distributions under an annuity purchased from any insurance company irrevocably commence to the Participant before the Participant’s “required beginning date” (or to the surviving spouse before the date distributions are required to begin to the surviving spouse under subparagraph (A)), the date distributions are considered to begin is the date distributions actually commence.

                    (3) Unless the Participant’s interest is distributed in the form of an annuity purchased from an insurance company or in a single sum on or before the “required beginning date,” as of the first “distribution calendar year” distributions will be made in accordance with subsections (d) and (e) of this Section 5.9. If the Participant’s interest is distributed in the form of an annuity purchased from an insurance company, distributions thereunder will be made in accordance with the requirements of Code Section 401(a)(9) and the Treasury regulations.

                    (4) Notwithstanding paragraph (2), if a Participant dies before distributions begin and there is a “designated beneficiary,” distribution to the “designated beneficiary” is not required to begin by the date specified in paragraph (2), but the Participant’s entire interest will be distributed to the designated beneficiary by December 31 of the calendar year containing the fifth anniversary of the Participant’s death. If the Participant’s surviving spouse is the Participant’s sole “designated beneficiary” and the surviving spouse dies after the Participant but before distributions to either the Participant or the surviving spouse begin, this paragraph (4) will

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apply as if the surviving spouse were the Participant. This paragraph shall apply to distributions in the form of a lump sum.

          (d) (1) During the Participant’s lifetime, the minimum amount that will be distributed for each “distribution calendar year” is the lesser of:

                              (A) the quotient obtained by dividing the “Participant’s account balance” by the distribution period in the Uniform Lifetime Table in section 1.401(a)(9)-9 of the Treasury regulations, using the Participant’s age as of the Participant’s birthday in the “distribution calendar year”; or

                              (B) if the Participant’s sole “designated beneficiary” for the “distribution calendar year” is the Participant’s spouse, the quotient obtained by dividing the “Participant’s account balance” by the number in the Joint and Last Survivor Table in section 1.401(a)(9)-9 of the Treasury regulations, using the Participant’s and spouse’s attained ages as of the Participant’s and spouse’s birthdays in the “distribution calendar year.”

               (2) Required minimum distributions will be determined under this subsection (d) beginning with the first “distribution calendar year” and up to and including the “distribution calendar year” that includes the Participant’s date of death.

          (e) (1) (A) If the Participant dies on or after the date distributions begin and there is a “designated beneficiary,” the minimum amount that will be distributed for each “distribution calendar year” after the year of the Participant’s death is the quotient obtained by dividing the “Participant’s account balance” by the longer of the remaining life expectancy of the Participant or the remaining life expectancy of the Participant’s “designated beneficiary,” determined as follows:

                                        (i) The Participant’s remaining life expectancy is calculated using the age of the Participant in the year of death, reduced by one for each subsequent year.

                                        (ii) If the Participant’s surviving spouse is the Participant’s sole “designated beneficiary,” the remaining life expectancy of the surviving spouse is calculated for each “distribution calendar year” after the year of the Participant’s death using the surviving spouse’s age as of the spouse’s birthday in that year. For “distribution calendar years” after the year of the surviving spouse’s death, the remaining life expectancy of the surviving spouse is calculated using the age of the surviving spouse as of the spouse’s birthday in the calendar year of the spouse’s death, reduced by one for each subsequent calendar year.

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                                        (iii) If the Participant’s surviving spouse is not the Participant’s sole “designated beneficiary,” the “designated beneficiary’s” remaining life expectancy is calculated using the age of the beneficiary in the year following the year of the Participant’s death, reduced by one for each subsequent year.

                              (B) If the Participant dies on or after the date distributions begin and there is no “designated beneficiary” as of September 30 of the year after the year of the Participant’s death, the minimum amount that will be distributed for each “distribution calendar year” after the year of the Participant’s death is the quotient obtained by dividing the “Participant’s account balance” by the Participant’s remaining life expectancy calculated using the age of the Participant in the year of death, reduced by one for each subsequent year.

                    (2) (A) Except as provided in subsection (c)(4), if the Participant dies before the date distributions begin and there is a “designated beneficiary,” the minimum amount that will be distributed for each “distribution calendar year” after the year of the Participant’s death is the quotient obtained by dividing the “Participant’s account balance” by the remaining life expectancy of the Participant’s “designated beneficiary,” determined as provided in paragraph (1).

                              (B) If the Participant dies before the date distributions begin and there is no “designated beneficiary” as of September 30 of the year following the year of the Participant’s death, distribution of the Participant’s entire interest will be completed by December 31 of the calendar year containing the fifth anniversary of the Participant’s death.

                              (C) If the Participant dies before the date distributions begin, the Participant’s surviving spouse is the Participant’s sole “designated beneficiary,” and the surviving spouse dies before distributions are required to begin to the surviving spouse under subsection (c)(2)(A), this paragraph (2) will apply as if the surviving spouse were the Participant.

          (f) For purposes of this Section 5.9, the following words and phrases shall have the meanings indicated:

                    (1) Designated beneficiary – The individual who is designated as the Beneficiary under Section 2.3 of the Plan and is the “designated beneficiary” under Code Section 401(a)(9) and section 1.401(a)(9)-1, Q&A 4, of the Treasury regulations.

                    (2) Distribution calendar year – A calendar year for which a minimum distribution is required. For distributions beginning before the Participant’s death, the first

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“distribution calendar year” is the calendar year immediately preceding the calendar year that contains the Participant’s “required beginning date.” For distributions beginning after the Participant’s death, the first distribution calendar year is the calendar year in which distributions are required to begin pursuant to subsection (c)(2). The required minimum distribution for the Participant’s first “distribution calendar year” will be made on or before the Participant’s “required beginning date.” The required minimum distribution for other “distribution calendar years,” including the required minimum distribution for the “distribution calendar year” in which the Participant’s “required beginning date” occurs, will be made on or before December 31 of that “distribution calendar year.”

                    (3) Life expectancy – Life expectancy as computed by use of the Single Life Table in section 1.401(a)(9)-9 of the Treasury regulations.

                    (4) Participant’s account balance – The account balance as of the last valuation date in the calendar year immediately preceding the “distribution calendar year” (valuation calendar year), increased by the amount of any contributions made and allocated or forfeitures allocated to the account balance as of dates in the valuation calendar year after the valuation date, and decreased by distributions made in the valuation calendar year after the valuation date. The account balance for the valuation calendar year includes any amounts rolled over or transferred to the Plan either in the valuation calendar year or in the “distribution calendar year” if distributed or transferred in the valuation calendar year.

                    (5) Required beginning date – The April 1 of the calendar year following the later of (A) the calendar year in which the Participant attains age 70½, or (B) the calendar year in which the Participant retires. Notwithstanding the preceding sentence, the “required beginning date” of a Participant who is a “five-percent owner” (as defined in Code Section 416(i)) with respect to the Plan Year ending in the calendar year in which the Participant attains age 70½ is the April 1 of the calendar year following the calendar year in which the Participant attains age 70½.

5.10 Valuation of Accounts

          (a) All distributions hereunder made on or after October 2, 2006 shall be based upon the value of the Participant’s Individual Account as determined under this Section 5.10. All distributions hereunder made prior to October 2, 2006 shall be based on the value of the

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Participant’s Individual Account as determined under the provisions of this Plan as in effect on the date of such distribution.

                    The value of a Participant’s Individual Account upon a distribution hereunder shall be the sum of paragraphs (1)-(27) below, where:

                    (1) is the product of (A) the closing Net Asset Value of the Fidelity Contrafund on the Valuation Date, and (B) the number of shares of such fund allocated to the Participant’s Individual Account as of such Valuation Date;

                    (2) is the product of (A) the closing Net Asset Value of the Fidelity Diversified International Fund on the Valuation Date, and (B) the number of shares of such fund allocated to the Participant’s Individual Account as of such Valuation Date;

                    (3) is the product of (A) the closing Net Asset Value of the Fidelity Equity-Income Fund on the Valuation Date, and (B) the number of shares of such fund allocated to the Participant’s Individual Account as of such Valuation Date;

                    (4) is the product of (A) the closing Net Asset Value of the Fidelity Freedom Income Fund on the Valuation Date, and (B) the number of shares of such fund allocated to the Participant’s Individual Account as of such Valuation Date;

                    (5) is the product of (A) the closing Net Asset Value of the Fidelity Freedom 2000 Fund on the Valuation Date, and (B) the number of shares of such fund allocated to the Participant’s Individual Account as of such Valuation Date;

                    (6) is the product of (A) the closing Net Asset Value of the Fidelity Freedom 2005 Fund on the Valuation Date, and (B) the number of shares of such fund allocated to the Participant’s Individual Account as of such Valuation Date;

                    (7) is the product of (A) the closing Net Asset Value of the Fidelity Freedom 2010 Fund on the Valuation Date, and (B) the number of shares of such fund allocated to the Participant’s Individual Account as of such Valuation Date;

                    (8) is the product of (A) the closing Net Asset Value of the Fidelity Freedom 2015 Fund on the Valuation Date, and (B) the number of shares of such fund allocated to the Participant’s Individual Account as of such Valuation Date;

                    (9) is the product of (A) the closing Net Asset Value of the Fidelity Freedom 2020 Fund on the Valuation Date, and (B) the number of shares of such fund allocated to the Participant’s Individual Account as of such Valuation Date;

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                    (10) is the product of (A) the closing Net Asset Value of the Fidelity Freedom 2025 Fund on the Valuation Date, and (B) the number of shares of such fund allocated to the Participant’s Individual Account as of such Valuation Date;

                    (11) is the product of (A) the closing Net Asset Value of the Fidelity Freedom 2030 Fund on the Valuation Date, and (B) the number of shares of such fund allocated to the Participant’s Individual Account as of such Valuation Date;

                     (12) is the product of (A) the closing Net Asset Value of the Fidelity Freedom 2035 Fund on the Valuation Date, and (B) the number of shares of such fund allocated to the Participant’s Individual Account as of such Valuation Date;

                    (13) is the product of (A) the closing Net Asset Value of the Fidelity Freedom 2040 Fund on the Valuation Date, and (B) the number of shares of such fund allocated to the Participant’s Individual Account as of such Valuation Date;

                    (14) is the product of (A) the closing Net Asset Value of the Fidelity Freedom 2045 Fund on the Valuation Date, and (B) the number of shares of such fund allocated to the Participant’s Individual Account as of such Valuation Date;

                    (15) is the product of (A) the closing Net Asset Value of the Fidelity Freedom 2050 Fund on the Valuation Date, and (B) the number of shares of such fund allocated to the Participant’s Individual Account as of such Valuation Date;

                    (16) is the product of (A) the closing Net Asset Value of the Fidelity Growth & Income Portfolio on the Valuation Date, and (B) the number of shares of such fund allocated to the Participant’s Individual Account as of such Valuation Date;

                    (17) is the product of (A) the closing Net Asset Value of the Fidelity Low Priced Stock Fund on the Valuation Date, and (B) the number of shares of such fund allocated to the Participant’s Individual Account as of such Valuation Date;

                    (18) is the product of (A) the closing Net Asset Value of the Fidelity OTC Portfolio on the Valuation Date, and (B) the number of shares of such fund allocated to the Participant’s Individual Account as of such Valuation Date;

                    (19) is the product of (A) the closing Net Asset Value of the Fidelity Puritan Fund on the Valuation Date, and (B) the number of shares of such fund allocated to the Participant’s Individual Account as of such Valuation Date;

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                    (20) is the product of (A) the closing Net Asset Value of the Fidelity Spartan U.S. Equity Index Fund on the Valuation Date, and (B) the number of shares of such fund allocated to the Participant’s Individual Account as of such Valuation Date;

                    (21) is the product of (A) the closing Net Asset Value of the Fidelity U.S. Bond Index Fund on the Valuation Date, and (B) the number of shares of such fund allocated to the Participant’s Individual Account as of such Valuation Date;

                    (22) is the product of (A) the closing Net Asset Value of the Lord Abbett Small-Cap Value Fund (Class Y) on the Valuation Date, and (B) the number of shares of such fund allocated to the Participant’s Individual Account as of such Valuation Date;

                    (23) is the number of shares of the Managed Income Portfolio II Class 3 allocated to the Participant’s Individual Account as of such Valuation Date; and

                    (24) is the product of (A) the closing Net Asset Value of the T. Rowe Price Institutional Large-Cap Growth Fund on the Valuation Date, and (B) the number of shares of such fund allocated to the Participant’s Individual Account as of such Valuation Date;

                    (25) is the product of (A) the per unit value of the Employer Stock Fund on the Valuation Date, and (B) the number of units of such fund allocated to the Participant’s Individual Account as of such Valuation Date;

                    (26) is the product of (A) the per unit Value of Employer Stock Fund on the Valuation Date, and (B) the number of units of such fund allocated to the Participant’s Individual Account as of such Valuation Date;

                    (27) effective prior to December 30, 2006, is the product of (A) the closing Net Asset Value of the Corning Stock Fund and the Covance Stock Fund on the Valuation Date, and (B) the number of shares of such funds allocated to the Participant’s Individual Account as of such Valuation Date.

5.11 Direct Rollovers

          (a) Notwithstanding any provision of the Plan to the contrary that would otherwise limit a distributee’s election under this Section, a distributee may elect, at the time and in the manner prescribed by the Committee, to have any portion of an eligible rollover distribution paid directly to an eligible retirement plan specified by the distributee in a direct rollover.

          (b) (1) An “eligible rollover distribution” is any distribution of all or any portion of the balance to the credit of the distributee, except that an eligible rollover distribution does not

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include: any distribution that is one of a series of substantially equal periodic payments (not less frequently than annually) made for the life (or life expectancy) of the distributee or the joint lives (or joint life expectancies) of the distributee and the distributee’s designated beneficiary, or for a specified period of ten years or more; any distribution to the extent such distribution is required under Section 401(a)(9) of the Code; and any hardship distribution. For purposes of the preceding sentence, a portion of a distribution shall not fail to be an “eligible rollover distribution” merely because the portion consists of after-tax employee contributions which are not includible in gross income. However, such portion may be paid only to an individual retirement account or annuity described in Code Section 408(a) or (b), or to a qualified defined contribution plan described in Code Section 401(a) or 403(a) that agrees to separately account for amounts so transferred, including separately accounting for the portion of such distribution which is includible in gross income and the portion of such distribution which is not so includible.

                    (2) An “eligible retirement plan” is an individual retirement account described in Code Section 408(a), an individual retirement annuity described in Code Section 408(b), an annuity plan described in Code Section 403(a), a qualified retirement plan described in Code Section 401(a), an eligible deferred compensation plan described in Code Section 457(b) which is maintained by an eligible employer described in Code Section 457(e)(1)(A), or an annuity contract described in Code Section 403(b), that accepts the distributee’s eligible rollover distribution.

                    (3) A “distributee” includes an employee or former employee. In addition, the employee’s or former employee’s surviving spouse and the employee’s or former employee’s spouse or former spouse who is the alternate payee under a qualified domestic relations order, as defined in Code Section 414(p), are distributees with regard to the interest of the spouse or former spouse. Effective for distributions after December 31, 2007, a distributee shall also include a non-spouse Beneficiary. However, for purposes of a distribution to a non-spouse beneficiary, an eligible retirement plan, as described in Section 5.11(b)(2) of the Plan, shall be limited to an individual retirement account described in Code Section 408(a) or an individual retirement annuity as described in Code Section 408(b).

                    (4) A “direct rollover” is a payment by the Plan to the eligible retirement plan specified by the distributee.

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5.12 Payment to Alternate Payee Under QDRO

          (a) Notwithstanding any other provision of this Plan, once the Committee determines that a domestic relations order is a qualified domestic relations order (“QDRO”) within the meaning of ERISA Section 206(d)(3), unless the QDRO specifically provides otherwise, the alternate payee specified in the QDRO may, through an Appropriate Request, elect to receive a distribution of the amount assigned to the alternate payee in the QDRO in accordance with Section 5.6(a). The Committee shall direct the Trustee to distribute to the alternate payee such amount as soon as administratively feasible following receipt of an Appropriate Request made by the alternate payee.

          (b) Effective November 1, 2003, and notwithstanding any other provision of the Plan, upon receipt of an executed QDRO, upon receipt of a joinder that references the Plan, or upon direction provided the Plan’s recordkeeper by the Committee, the Plan’s recordkeeper shall place a disbursement restriction upon the Participant’s Individual Account. The scope and duration of such disbursement restriction shall be determined by procedures adopted by the Committee and applied in a uniform and nondiscriminatory manner.

          (c) Effective November 1, 2003, an administrative charge, in an amount determined by the Committee, may be imposed on the Individual Account of a Participant who is subject to a domestic relations order received on or after such date and on the separate account established on behalf of the alternate payee specified in the order. Such charge shall be imposed pursuant to procedures adopted by the Committee and applied in a uniform and nondiscriminatory manner.

5.13 Distribution Upon Severance from Employment

          Effective January 1, 2002, a Participant’s Employee Regular Pre-Tax Sub-Account and Employee Pre-Tax Catch-Up Sub-Account may be distributed upon a “severance from employment,” as such term is defined under Code Section 401(k)(2)(B)(i)(I). However, such a distribution shall be subject to the other provisions of the Plan regarding distributions. The preceding provisions shall apply in the case of a “severance from employment” which occurs before January 1, 2002 or on or after such date.

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ARTICLE VI
LOANS AND WITHDRAWALS

6.1 Loans to Participants

          A Participant who is a “party in interest” as defined in ERISA Section 3(14) may, by making an Appropriate Request, request a loan from the Trust Fund. The following additional rules shall apply:

          (a) Loans shall be made available to all eligible Participants on a reasonably equivalent basis; provided, however, that the Committee shall retain the power to approve or decline a loan and may make reasonable distinctions based upon creditworthiness, other obligations of the Participant, state laws affecting payroll deductions, and any other factors that may adversely affect the Employer’s ability to deduct loan repayments from a Participant’s pay.

          (b) A Participant may only have one loan outstanding at any time. For purposes of this subsection (b), a loan that is deemed in default under subsection (h) shall be treated as outstanding.

          (c) The minimum new loan amount shall be $1,000. If a Participant’s Individual Account balance is insufficient to support the minimum loan amount loan because of the maximum loan restrictions set forth below, no loan shall be made. The maximum amount of any loan, when added to the outstanding balance of any existing loan from this Plan, shall be the lesser of (1) and (2):

                    (1) $50,000 reduced by the excess of the highest outstanding balance of loans from the Plan during the one-year period ending on the day before the date the loan is made over the outstanding balance of loans from the Plan on the date the loan is made.

                    (2) One-half of the value of the vested portion of the Participant’s Individual Account on the date the loan is made.

                    For purposes of this subsection (c), a loan that is deemed in default under subsection (h) shall be treated as an existing loan, and interest accrued on such loan since it was deemed in default shall be considered part of the outstanding balance of such loan.

          (d) All loans shall be repayable over a period of not more than five years, except that a loan used by the Participant to acquire any dwelling unit which within a reasonable time is to

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be used (determined at the time the loan is made) as a principal residence of the Participant shall be repayable over a period of not more than 10 years.

          (e) Each loan shall be secured by one-half of the value of the vested portion of the Participant’s Individual Account balance; shall bear interest at a rate of one percent (1%) above the Prime Rate in effect on the last day of the calendar quarter coincident with or next preceding the calendar quarter in which the loan is applied for; shall be repaid in accordance with a reasonable repayment schedule requiring substantially level payments of principal and interest; and shall be evidenced by a written promissory note setting forth the terms of the loan. A Participant may prepay the entire outstanding loan balance without penalty. Except for an outstanding loan upon a Participant’s retirement, Total and Permanent Disability or termination of employment pursuant to subsection (i), all loans shall be repaid by payroll deduction.

          (f) There may be an administrative charge imposed on each new loan in an amount determined by the Committee.

          (g) Each loan shall be considered a separate investment option of the Individual Account of the Participant. Notwithstanding Section 4.1(c), when a loan is made, the amount of the loan shall be withdrawn from sub-accounts within the Participant Individual Account among the separate Investment Options in which each sub-account is invested and transferred to a segregated loan account maintained in his name. The loan amount shall be withdrawn from the sub-accounts within the Individual Account in the following order: (1) the Partnership Sub-Account; (2) the Pre-1999 Cash Match Sub-Account; (3) the Post-1999 Cash Match Sub-Account; (4) the Pre-1999 Stock Match Sub-Account; (5) the Post-1999 Stock Match Sub-Account; (6) the vested portion of the Prior Employer Match Sub-Account; (7) the vested portion of the Prior ESOP Employer Stock Sub-Account; (8) the vested portion of the Prior ESOP Employer Contributions Sub-Account; (9) the vested portion of the Prior Unilab Employer Contribution Sub-Account; (10) the Prior LabOne Money Purchase Plan Sub-Account or the Prior LabOne Employer Match Sub-Account as applicable; (11) the ESOP Diversification Sub-Account; (12) the Rollover Sub-Account; (13) the Prior Plan Rollover Sub-Account; (14) the Money Purchase Pension Plan Sub-Account; (15) the Prior Plan Employer Contribution Sub-Account; (16) the Prior Profit Sharing Sub-Account; (17) the Prior Plan Employer Qualified Sub-Account; (18) the Qualified Nonelective Contribution Sub-Account; (19) the Employee Regular Pre-Tax Sub-Account; (20) the Employee Pre-Tax Catch-Up Sub-Account; (21) the

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Employee After-Tax Sub-Account; (22) Vested Employer Stock Dividend Sub-Account; and (23) Vested Money Purchase Plan Dividend Sub-Account. Within each sub-account, the loan amount shall be withdrawn from the separate Investment Options on a pro-rata basis based on the Participant’s outstanding Investment Option specification. Payments of principal and interest against a loan shall thereafter be allocated ratably among the sub-accounts from which the loan was withdrawn and invested in accordance with a Participant’s outstanding Investment Option specification.

          (h) In the event a Participant defaults on a loan from this Plan, the Plan shall not foreclose on so much of the Participant’s Individual Account as is given as collateral for the loan until a distributible event occurs under the Plan. For purposes of this Plan and subject to subsection (j), a Participant shall be deemed to be in default on a loan if he fails to make any installment payment within 90 days after the due date for such payment. Except for purposes of subsection (c), upon default, interest on the outstanding loan balance shall cease to accrue.

          (i) In the event of the retirement, Total and Permanent Disability, death, or termination of employment of a Participant, the unpaid balance of any outstanding loan to such Participant, together with accrued interest, shall be immediately due and payable and shall be satisfied out of the Participant’s Individual Account prior to distribution (notwithstanding the provisions of Section 12.5) if not satisfied by payment in full prior to such distribution. Notwithstanding the preceding sentence, effective October 1, 2000, upon the retirement, Total and Permanent Disability or termination of employment of a Participant with an outstanding loan, such Participant may elect to make loan payments out of his own personal funds under such procedures as have been adopted by the Committee.

          (j) If an Employee who has an outstanding loan incurs a leave of absence, ceases loan repayment, and his rate of pay (after income and employment tax withholding) is not sufficient to meet the required repayment under the terms of the loan, then the Committee shall not deem that a default has occurred for a period equal to the lesser of (1) the length of the leave of absence, or (2) one year. Upon the end of the period set forth in the preceding sentence, the term of the Employee’s loan will be extended by the length of such period (but in no event beyond the applicable maximum term set forth in subsection (d)), and the Employee’s loan payments shall be reamortized over the remaining period of repayments. Notwithstanding the preceding provisions, loan repayments during a period of qualified military service will be

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suspended under this Plan as permitted under Code Section 414(u)(4). When an Employee returns from the military service, the term of the Employee’s loan will be extended by the length of the service (even if such extended repayment period exceeds the applicable maximum term set forth in subsection (d)), and the Employee’s loan payments shall be reamortized over the remaining period of repayments.

          (k) The Committee shall apply the provisions of this Section in a uniform and nondiscriminatory manner which is not inconsistent with Department of Labor regulations at 29 C.F.R. §2550.408b-1.

          (l) A married CPF Pension Plan Participant or a married LabOne Pension Participant may not make a loan under this Section 6.1 unless, during the 90-day period ending on the date on which the loan is secured, his spouse has filed a written consent with the Committee, consenting to such loan, which consent shall be notarized, or witnessed by a member of the Committee, and shall acknowledge the effect of the loan. The preceding sentence also shall apply to a married AML-West Plan Participant who makes a loan under this Section 6.1 before May 1, 2003 and to a married Unilab Plan Participant who makes a loan under this Section 6.1 before May 1, 2004.

          (m) Loans associated with Hurricane Katrina for an affected Participant shall be subject to the following rules:

                    (1) The loan must be made after August 24, 2005 and no later than December 31, 2007.

                    (2) Sections 6.1(c)(1) and (2) shall not be applicable and the maximum loan shall be the lesser of $100,000 or the vested portion of the Participant’s Individual Account on the date the loan is made.

                    (3) Notwithstanding the preceding, if a Participant has an outstanding loan during the period from August 24, 2005 through December 31, 2006, any loan payments due on or after August 25, 2005 through December 31, 2006 may be deferred for one year (with subsequent repayments adjusted) and the loan period may be extended for the period of delay.

6.2 Hardship Withdrawals

          (a) Upon making an Appropriate Request, and with the approval of the Committee, a Participant shall be allowed to withdraw all or part of the value of his Individual Account which is available under subsection (e) while still employed by the Employer. Withdrawn amounts may

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not be repaid to the Trust Fund. Withdrawals shall be charged against the sub-accounts within the Individual Account in the following order: (1) the Vested Employer Stock Dividend Sub-Account (2) the Employee After-Tax Sub-Account; (3) the Rollover Sub-Account; (4) the Prior Plan Rollover Sub-Account; (5) the ESOP Diversification Sub-Account; (6) the Employee Regular Pre-Tax Sub-Account; (7) the Employee Pre-Tax Catch-Up Sub-Account; (8) the Pre-1999 Cash Match Sub-Account; (9) the Pre-1999 Stock Match Sub-Account; (10) the vested portion of the Prior Employer Match Sub-Account; (11) the vested portion of the Prior ESOP Employer Stock Sub-Account; (12) the vested portion of the Prior ESOP Employer Contributions Sub-Account; (13) the vested portion of the Prior Unilab Employer Contribution Sub-Account; (14) the Prior LabOne Employer Match Sub-Account; (15) the Prior Profit Sharing Sub-Account; (16) the Partnership Sub-Account; (17) the Prior Plan Employer Contribution Sub-Account; and (18) the Prior Plan Employer Qualified Sub-Account. Within each sub-account, withdrawals shall be charged against the separate Investment Options on a pro-rata basis based on the Participant’s outstanding Investment Option specification.

          (b) A Participant may only make a withdrawal under this Section 6.2 if the withdrawal is made on account of an immediate and heavy financial need of the Participant, as determined under subsection (c)(1), and is necessary to satisfy the financial need, as determined under subsection (c)(2). The determination of the existence of financial hardship and the amount necessary to be withdrawn to satisfy the immediate financial need created by the hardship shall be made by the Committee in a uniform and nondiscriminatory manner, in accordance with the standards and restrictions set forth in subsection (c) below. A Participant requesting a withdrawal hereunder may be required to submit whatever documentation the Committee, in its sole discretion, deems necessary to establish the existence of financial hardship and the amount necessary to be withdrawn to satisfy the financial need created by the hardship.

          (c) (1) Immediate and heavy financial need. A withdrawal will be considered to be made on account of an immediate and heavy financial need of the Participant for purposes of subsection (b) only if it is for:

                              (A) Expenses for (or necessary to obtain) medical care that would be deductible under Code Section 213(d) (determined without regard to whether the expenses exceed 7.5% of adjusted gross income);

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                              (B) Costs directly related to the purchase of a principal residence for the Participant (excluding mortgage payments);

                              (C) Payment of tuition, related educational fees, and room and board expenses, for up to the next 12 months of post-secondary education for the Participant, his spouse, children, or dependents (as defined in Code Section 152 without regard to Code Sections 152(b)(1), (b)(2) and (d)1)(B);

                              (D) Payments necessary to prevent the eviction of the Participant from his principal residence or foreclosure on the mortgage of the Participant’s principal residence;

                              (E) Payments for burial or funeral expenses for the Participant’s deceased parent, spouse, children, or dependents (as defined in Code Section 152 without regard to Code Section 152(d)(1)(B);

                              (F) Expenses for the repair of damage to the Participant’s principal residence that would qualify for the casualty deduction under Code Section 165 (determined without regard to whether the loss exceeds 10% of adjusted gross income); or

                              (G) Expenses associated with the Participant’s hardship resulting from Hurricane Katrina provided such withdrawal is made on or after August 24, 2005 and no later than December 31, 2007 and it is not in an amount greater than $100,000.

                         (2) Amount necessary to satisfy the need. A withdrawal will be considered to be in an amount necessary to satisfy a Participant’s need under paragraph (1) for purposes of subsection (b) only if:

                              (A) It does not exceed the amount of the need under paragraph (1) above;

                              (B) The Participant has obtained all non-hardship distributions and non-taxable loans he is eligible for and is able to provide collateral for under any plan the Employer may sponsor (including this Plan);

                              (C) The Participant may not make any Employee Pre-Tax Contributions under Section 3.1 for a period of six months after his withdrawal, nor may he make any other elective contributions to any Employer plan as described in Treasury Regulation §1.401(k)-1(d)(2)(iv)(B)(4); and

                              (D) If a withdrawal is made pursuant to Section 6.2(c)(1)(G), then the requirements of Section 6.2(c)(2) shall not be applicable.

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                                        Notwithstanding subparagraphs (A) through (C), a Participant’s withdrawal may be considered to be in an amount necessary to satisfy a need under paragraph (1) if it satisfies a method prescribed by the Commissioner of Internal Revenue under Treasury Regulation §1.401(k)-1(d)(2)(iv)(C).

                              (E) After December 31, 2007, a Participant may make a hardship withdrawal under this Section 6.2 for the reasons described in Sections 6.2(c)(1)(A), (C) and (E) as it relates to the Participant’s primary Beneficiary in the same manner as a hardship withdrawal for a spouse or other dependent. Said hardship withdrawal must satisfy all requirements of this Section.

          (d) In addition to the amount necessary to meet the immediate financial need created by the hardship, the Participant may, at his election, also withdraw any amount necessary to cover withholding for federal income tax purposes.

          (e) A Participant’s hardship withdrawal under this Section 6.2 shall be limited to the aggregate of all his Employee Pre-Tax Contributions made prior to the withdrawal (excluding earnings thereon allocated to his Employee Pre-Tax Sub-Account as of a date after December 31, 1988), reduced by the amount of any prior withdrawal of such Employee Pre-Tax Contributions, plus the value of his Employee After-Tax Sub-Account, the value of his Rollover Sub-Account, the value of his Prior Plan Rollover Sub-Account; the value of the ESOP Diversification Sub-Account, the value of his Pre-1999 Cash Match Sub-Account, the value of his Pre-1999 Stock Match Sub-Account, the value of the vested portion of his Prior Employer Match Sub-Account, the value of the vested portion of his Prior ESOP Employer Stock Sub-Account, the value of the vested portion of his Prior ESOP Employer Contributions Sub-Account, the value of the vested portion of his Prior Unilab Employer Contribution Sub-Account, the value of his Prior Profit Sharing Sub-Account, the value of his Partnership Sub-Account, the value of his Prior Plan Employer Contribution Sub-Account, and the value of his Prior Plan Employer Qualified Sub-Account.

6.3 Non-Hardship Withdrawals

          (a) In addition to the withdrawals available under Section 6.2, but no more than once in any 12-month period, a Participant shall be allowed to withdraw all or part of the value of his Employee After-Tax Sub-Account for any reason. Notwithstanding the preceding sentence, an AML-East Plan Participant shall be allowed to make up to two withdrawals from his Employee

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After-Tax Sub-Account in any 12-month period. Within the Employee After-Tax Sub-Account, withdrawals shall be charged against the separate Investment Options on a pro-rata basis based on the Participant’s outstanding Investment Option specification.

          (b) Effective January 1, 2002, in addition to the withdrawals available under Section 6.2, a Participant shall be allowed to withdraw all or part of the value of the vested portion of his Individual Account upon attainment of age 59½. Withdrawals shall be charged against the sub-accounts within the Individual Account in the following order: (1) Vested Employer Stock Dividend Sub-Account; (2) the Employee After-Tax Sub-Account; (3) the Rollover Sub-Account; (4) the Prior Plan Rollover Sub-Account; (5) the ESOP Diversification Sub-Account; (6) the Employee Regular Pre-Tax Sub-Account; (7) the Qualified Nonelective Contribution Sub-Account; (8) the Employee Pre-Tax Catch-Up Sub-Account; (9) the Pre-1999 Cash Match Sub-Account; (10) the Post-1999 Cash Match Sub-Account; (11) the Pre-1999 Stock Match Stock Match Sub-Account; (12) the Post-1999 Stock Match Sub-Account; (13) the Prior Employer Match Sub-Account; (14) the vested portion of the Prior ESOP Employer Stock Sub-Account; (15) the vested portion of the Prior ESOP Employer Contributions Sub-Account; (16) the vested portion of the Prior Unilab Employer Contribution Sub-Account; (17) the Prior LabOne Employer Match Sub-Account, (18) the Prior Profit Sharing Sub-Account; (19) the Partnership Sub-Account; (20) the Prior Plan Employer Contribution Sub-Account; and (21) the Prior Plan Employer Qualified Sub-Account.

          (c) In addition to the withdrawals available under Section 6.2, a MedPlus Plan Participant, a LabPortal Plan Participant, an AML-East Plan Participant, an AML-West Plan Participant, a Unilab Plan Participant, or a LabOne 401(k) Plan Participant shall be allowed to withdraw all or part of the value of his Prior Plan Rollover Sub-Account for any reason. Within the Prior Plan Rollover Sub-Account, withdrawals shall be charged against the separate Investment Options on a pro-rata basis based on the Participant’s outstanding Investment Option specification.

          (d) Any withdrawal elected pursuant to this Section 6.3 shall be made through an Appropriate Request. Any withdrawal elected under this Section 6.3 shall be paid as soon as administratively feasible following receipt of the Appropriate Request. Withdrawn amounts may not be repaid to the Trust Fund.

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          (e) Notwithstanding any other provision of this Section 6.3, (1) in no event may a CPF Pension Plan Participant be allowed to make a withdrawal from his Money Purchase Pension Plan Sub-Account or may a LabOne Pension Plan Participant be allowed to make a withdrawal from his Prior LabOne Money Purchase Plan Sub-Account.

6.4 Withdrawal of Dividends

          (a) In accordance with uniform procedures established by the Committee, a Participant:

                    (1) may elect on a quarterly basis to receive a direct payment of cash dividends on Employer Stock otherwise allocable to his or her Individual Account; or

                    (2) may reinvest such dividends, in which case they shall be allocated to his or her Individual Account.

                    In the event a Participant who has not made an election under Article V to commence receiving distribution of his or her Individual Account does not file an election pursuant to this Section 6.4(a)(1), the Participant will be deemed to have elected reinvestment in accordance with subsection (2) above. If a Participant has made an election under Article V to commence receiving distribution of his or her Individual Account which is pending during the ten (10) business day period which begins fifteen (15) business days prior to the dividend payment date, and does not file an election pursuant to this Section 6.4(a)(1), the Participant will be deemed to have elected reinvestment in accordance with subsection (2) above only with respect to the portion of his or her Individual Account which is not being distributed. If a Participant has made a request for a hardship withdrawal pursuant to Section 6.2 which is pending during the ten (10) business day period which begins fifteen (15) business days prior to the dividend payment date or has had a hardship withdrawal approved during such period, the Participant will be deemed to have elected a direct cash payment in accordance with subsection (1) above for that quarterly dividend payment and such election will remain in effect for future dividend payments until changed.

                    In no event shall any distribution of dividends paid into the Trust Fund be made pursuant to this Section 6.4 later than ninety (90) days following the end of the Plan Year in which dividends were paid into the Trust Fund.

                    Stock dividends shall be reinvested in the Employer Stock Fund.

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          (b) A Participant’s election to receive direct payment of dividends under Section 6.4(a)(1) must be made during the ten (10) business day period which begins fifteen (15) business days prior to the dividend payment date. The dividends with respect to which a Participant may elect a direct payment under Section 6.4(a)(1) are 100% of the cash dividends on shares of Employer Stock in the Employer Stock Fund and allocated to the Participant’s Individual Account as of the record date for the dividend (which, for Plan purposes, shall be determined on the “ex dividend date,” e.g., three (3) business days prior to the record date), provided, however, that the total cash dividend that would be payable if the Participant elected a direct payment of 100% of dividends subject to his or her election must equal or exceed a de minimis amount. The initial de minimis amount is $10.

          (c) Any election under this Section 6.4 shall continue in effect until revoked prospectively by the Participant. Any such election or revocation shall be made at such time and in such manner as the Committee shall specify.

          (d) If, with respect to any cash dividends declared on shares of Employer Stock, the Board or Committee authorizes the direct payment under Section 6.4(a)(1) of less than 100% of such cash dividends, the Participant may elect, in accordance with uniform procedures established by the Committee, a direct payment under this Section 6.4 of any percentage permitted by the Board or Committee.

6.5 Certain Dividends

          (a) Cash dividends on Employer Stock which are received on a Participant’s Prior LabOne Employer Match Sub-Account, Prior ESOP Employer Contribution Sub-Account, Prior Employer Match Sub-Account and Prior Unilab Employer Contribution Sub-Account which are allocated to the Employer Stock Fund shall be directed the Vested Employer Stock Dividend Sub-Account when received by the Trust and shall become 100% vested upon receipt.

          (b) Cash dividends on Employer Stock which are received on a Participant’s Prior LabOne Money Purchase Plan Sub-Account which are allocated to the Employer Stock Fund shall be directed the Vested Money Purchase Plan Dividend Sub-Account when received by the Trust and shall become 100% vested upon receipt.

6.6 Qualified Reservist Distribution

          (a) Upon making an Appropriate Request, a Participant who is a member of a reserve component or is ordered or called to active duty for a period in excess of 179 days or an

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indefinite period shall be allowed to withdraw all or part of the value of his Individual Account attributable to part or all of his Employee Pre-tax Contributions.

          (b) In order to be eligible for a distribution described in (a) above, the Participant must be ordered or called to active duty after September 11, 2001 and before December 31, 2007.

          (c) The distribution under this Section must be made during the period beginning on the date of such order or call and ending no later than the close of the period of active duty.

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ARTICLE VII
TRUST FUND

7.1 Contributions

          Contributions by the Employer and Participants as provided for in Article III shall be paid over to the Trustee. All Contributions by the Employer shall be irrevocable, except as otherwise provided in this Plan and may be used only for the exclusive benefit of the Participants and their Beneficiaries.

7.2 Trustee

          The Corporation will maintain an agreement with the Trustee whereunder the Trustee will receive, invest and administer as a trust fund Contributions made under this Plan in accordance with the Trust Agreement.

          Such Trust Agreement is incorporated by reference as a part of the Plan, and the rights of all persons entitled to benefits hereunder are subject to the terms of the Trust Agreement. The Trust Agreement specifically provides, among other things, for the investment and reinvestment of the Fund and the income thereof, the management of the Fund, the responsibilities and obligations of the Trustee, removal of the Trustee and appointment of a successor, accounting by the Trustee and the disbursement of the Fund.

          Subject to a Participant’s Investment Option specification, the Trustee shall, in accordance with the terms of such Trust Agreement, accept and receive all sums of money paid to it from time to time by the Employer, and shall hold, invest, reinvest, manage and administer such moneys and the increment, increase, earnings and income thereof as a trust fund for the exclusive benefit of the Participants and their Beneficiaries and for the payment of reasonable expenses of administering the Plan.

7.3 Employer Stock Fund

          The Employer Stock Fund shall be invested in the common stock of the Employer, provided such stock qualifies as qualifying employer securities within the meaning of ERISA Section 407(d)(5). The portion of the Plan comprised of the Employer Stock Fund shall be an employee stock ownership plan under Code Section 4975(e)(7) which shall include the share distribution requirements of Code Section 409(h) and the participant pass through voting rights required under Code Section 409(e). The level of Plan assets invested in such fund shall be

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determined by Participant’s Investment Option specifications, and may consist of up to 100% of all Plan assets.

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ARTICLE VIII
FIDUCIARIES

8.1 General

          Each Fiduciary who is allocated specific duties or responsibilities under the Plan or any Fiduciary who assumes such a position with the Plan shall discharge his duties solely in the interest of the Participants and Beneficiaries and for the exclusive purpose of providing such benefits as stipulated herein to such Participants and Beneficiaries, or of defraying reasonable expenses of administering the Plan. Each Fiduciary in carrying out such duties and responsibilities shall act with the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent person acting in a like capacity and familiar with such matters would use in exercising such authority or duties.

          A Fiduciary may serve in more than one Fiduciary capacity and may employ one or more persons to render advice with regard to his Fiduciary responsibilities. If the Fiduciary is serving as such without compensation, all expenses reasonably incurred by such Fiduciary shall be reimbursed by the Employer or, at the Corporation’s direction, from the assets of the Trust.

          A Fiduciary may allocate any of his responsibilities for the operation and administration of the Plan. In limitation of this right, a Fiduciary may not allocate any responsibilities as contained herein relating to the management or control of the Fund except (1) through the employment of an investment manager as provided in Section 8.4 and in the Trust Agreement relating to the Fund, or (2) to the extent Participants specify their own Investment Options.

8.2 Corporation

          The Corporation established and maintains the Plan for the benefit of its Employees and those of participating Employers and of necessity retains control of the operation and administration of the Plan. The Corporation is the “administrator” of the Plan within the meaning of ERISA Section 3(16)(A). The Corporation in accordance with specific provisions of the Plan has, as herein indicated, delegated certain of these rights and obligations to the Employer, the Trustee and the Committee and these parties shall be solely responsible for these, and only these, delegated rights and obligations.

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8.3 Employer

          The Employer shall indemnify each member of the Board of Directors, the Committee, and any of its employees to whom any fiduciary responsibility with respect to the Plan is allocated or delegated, from and against any and all liabilities, costs and expenses incurred by such persons as a result of any act or omission to act in connection with the performance of their fiduciary duties, responsibilities and obligations under the Plan and under ERISA, except for liabilities and claims arising from such fiduciary’s willful misconduct or gross negligence. For such purpose, the Employer may obtain, pay for and keep current a policy or policies of insurance. Where such policy or policies of insurance are purchased, there shall be no right to indemnification under this Section 8.3, except to the extent of any deductible amount under the policy or policies or with regard to covered claims in excess of the insured amount. No Plan assets may be used for any indemnification.

          The Employer shall supply such full and timely information for all matters relating to the Plan as (a) the Committee, (b) the Trustee, and (c) the accountant engaged on behalf of the Plan by the Corporation may require for the effective discharge of their respective duties.

8.4 Trustee

          The Trustee, in accordance with the Trust Agreement, shall have authority to manage the Fund, except that (1) the Committee may in its discretion employ at any time and from time to time an investment manager (as defined in section 3(38) of ERISA) to direct the Trustee with respect to all or a designated portion of the assets comprising the Fund, and (2) Participants may specify their own Investment Options.

8.5 Committee

          The Board shall appoint a Benefits Administration Committee of not less than three persons to hold office during the pleasure of the Corporation. No compensation shall be paid members of the Committee from the Fund for service on such Committee.

          The Committee shall choose from among its members a chairman and a secretary. Any action of the Committee shall be determined by the vote of a majority of its members. Either the chairman or the secretary may execute any certificate or other written direction on behalf of the Committee.

          The Committee shall hold meetings upon such notice, at such place or places and at such time or times as the Committee may from time to time determine. Meetings may be called by the

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chairman or any two members. A majority of the members of the Committee at the time in office shall constitute a quorum for the transaction of business. The Committee may also act by written consent in lieu of a meeting.

          A Committee member may resign at any time by giving written notice of his resignation to the Corporation at least thirty days in advance, unless the Corporation shall accept shorter notice. The Board shall appoint replacement Committee members. Any Committee member who was employed by the Employer when appointed to the Committee shall automatically be deemed to have resigned from the Committee effective as of the date he ceases to be employed by the Employer, unless the Corporation shall affirmatively act to keep said member on the Committee.

          Nothing herein shall prevent a Committee member from being a Participant, or from acting on Plan matters which affect himself by virtue of affecting all Participants generally. However, a Committee member shall not act on any matter which affects himself specially. If application of the preceding sentence results in there not being a quorum to act on any matter, the Corporation shall appoint the necessary number of temporary Committee members to take the action.

          The Committee may add, change or delete the available Investment Options at any time.

          In accordance with the provisions hereof, the Committee has been delegated certain administrative functions relating to the Plan with all powers necessary to enable it properly to carry out such duties.

          The Committee shall have discretionary authority to construe the Plan, and to determine, consistent with the terms of the Plan, all questions that may arise thereunder relating to (a) the eligibility of individuals to participate in the Plan, (b) the amount of benefits to which any Participant or Beneficiary may become entitled hereunder, and (c) any situation not specifically covered by the provisions of the Plan. The determination of the Committee shall be final and binding on all interested parties. All disbursements by the Trustee, except for the ordinary expenses of administration of the Fund or the reimbursement of reasonable expenses at the direction of the Corporation as provided herein, shall be made upon, and in accordance with, the written directions of the Committee. When the Committee is required in the performance of its duties hereunder to administer or construe, or to reach a determination under any of the provisions of the Plan, it shall do so on a uniform, equitable and nondiscriminatory basis.

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8.6 Claims for Benefits

          All claims for benefits under the Plan shall be submitted to the Committee which shall have the responsibility for determining the eligibility of any Participant or Beneficiary for benefits. All claims for benefits shall be made in writing and shall set forth the facts which such Participant or Beneficiary believes to be sufficient to entitle him to the benefit claimed. The Committee may adopt forms for the submission of claims for benefits in which case all claims for benefits shall be filed on such forms. The Committee shall provide Participants and Beneficiaries with all such forms.

          Upon receipt by the Committee of a claim for benefits, it shall determine all facts which are necessary to establish the right of an applicant to benefits under the provisions of the Plan and the amount thereof as herein provided. The claimant shall be notified in writing by the Committee of its decision with respect to such claimant’s claim within 90 days after the receipt of written request for benefits.

          If any claim for benefits is denied, the notice shall be written in a manner calculated to be understood by the claimant and shall include:

(a) The specific reason or reasons for the denial;

(b) Specific references to the pertinent Plan provisions on which the denial is based;

(c) A description of any additional material or information necessary for the applicant to perfect the claim and an explanation why such material or information is necessary;

(d) An explanation of the Plan’s claim review procedures; and

(e) A statement of the claimant’s right to bring a civil action under ERISA Section 502(a) following denial of his appeal.

          If special circumstances require an extension of time for processing the initial claim, a written notice of the extension and the reason therefor shall be furnished to the claimant by the Committee before the end of the initial 90-day period. In no event shall such extension exceed 180 days after the receipt of the initial claim for benefits.

8.7 Denial of Benefits – Review Procedure

          In the event a claim for benefits is denied, the claimant or his duly authorized representative, at the claimant’s sole expense, may appeal the denial by filing a written request for review with the Committee within 60 days of the receipt of written notice of denial or 60 days from the date such claim is deemed to be denied. In pursuing such appeal, the claimant or

79

his duly authorized representative may review pertinent Plan documents, and may submit issues and comments in writing.

          The decision on review shall be made by the Committee within 60 days of receipt of the request for review, unless special circumstances require an extension of time for processing, in which case a decision shall be rendered as soon as possible, but not later than 120 days after receipt of a request for review. If such an extension of time is required, written notice of the extension shall be furnished to the claimant before the end of the original 60-day period, and such extension notice shall indicate the special circumstance requiring an extension of the time and the date by which the Committee expects to render a decision. The decision on review shall be in writing, shall be written in a manner calculated to be understood by the claimant, and shall include:

(a) The specific reason or reasons for the denial;

(b) Specific references to the pertinent Plan provisions on which the denial is based;

(c) A statement that the claimant is entitled to receive, upon request and free of charge, reasonable access to and copies of all documents, records or other information relevant to the claimant’s claims; and

(d) A statement of the claimant’s right to bring a civil action under ERISA Section 502(a).

          If the decision on review is not furnished within the time specified above, the claim shall be deemed denied on review. The decision of the Committee upon review will be final and binding on all parties.

8.8 Records

          All acts and determinations of the Committee shall be duly recorded by the secretary thereof and all such records, together with such other documents as may be necessary in exercising its duties under the Plan shall be preserved in the custody of such secretary. Such records and documents shall at all times be open for inspection and for the purpose of making copies by any person designated by the Corporation. The Committee shall provide such timely information, resulting from the application of its responsibilities under the Plan, as needed by the Trustee and the accountant engaged on behalf of the Plan by the Corporation, for the effective discharge of their respective duties.

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8.9 Missing Persons

          If the Trustee is unable to make payment to any Participant or other person to whom a payment is due under the Plan because it cannot ascertain the identity or whereabouts of such Participant or other person after reasonable efforts have been made to identify or locate such person (including a notice of the payment so due mailed to the last known address of such Participant or other person as shown on the records of the Employer), such payment and all subsequent payments otherwise due to such Participant or other person shall be treated as forfeited three (3) years after the date such payment first became due; provided, however, that such payment and any subsequent payments shall be reinstated retroactively no later than sixty (60) days after the date on which the Participant or other person is identified or located.

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ARTICLE IX
AMENDMENT AND TERMINATION OF THE PLAN

9.1 Amendment of the Plan

          The Chief Executive Officer, the President and the Vice President of Human Resources, and any other officer of the Corporation who is authorized by the Board of Directors, shall have the right at any time, with approval of the Board, to amend the Plan in whole or in part, including retroactively to the extent necessary. Notwithstanding the preceding sentence, (a) for amendments effective prior to October 16, 2001, such Board approval shall not be required for (i) any technical or clarifying amendment deemed necessary or appropriate to facilitate the administration, management or interpretation of the Plan or to conform the Plan thereto or to qualify and maintain the Plan as a plan meeting the requirements of the Code or any other applicable law, or (ii) any amendment adding or modifying an operational provision resulting from a corporate transaction (e.g., service-related issues); and (b) for amendments effective on or after October 16, 2001, such Board approval shall not be required for (i) any amendment that does not increase the benefits under the Plan or otherwise increase the Corporation’s costs with respect to the Plan, or (ii) after December 31, 2006, the participation in the Plan as a participating employer of any organization whether or not it is affiliated with the Corporation. The duties, powers and liability of the Trustee hereunder shall not be increased without its written consent. The amount of benefits which at the later of the adoption or effective date of such amendment shall have accrued for any Participant or Beneficiary hereunder shall not be adversely affected thereby. No such amendment shall have the effect of revesting in the Employer any part of the principal or income of the Fund. No amendment may eliminate or reduce any early retirement benefit or subsidy that continues after retirement or optional form of benefit. Unless expressly provided for in an amendment, it shall not affect the rights and obligations of any Participant who terminated employment prior to the effective date of the amendment.

9.2 Termination of the Plan

          The Corporation expects to continue the Plan indefinitely, but continuance is not assumed as a contractual obligation and each Employer reserves the right at any time by action of its board of directors to terminate the Plan as applicable to itself. If an Employer terminates or

82

partially terminates the Plan or permanently discontinues its Contributions at any time, each Participant affected thereby shall be then fully vested in his Individual Account.

          In the event of termination of the Plan by an Employer, the Committee shall value the Fund as of the date of termination. That portion of the Fund applicable to any Employer for which the Plan has not been terminated shall be unaffected. The Individual Accounts of the Participants and Beneficiaries affected by the termination, as determined by the Committee, shall continue to be administered as a part of the Fund or distributed to such Participants or Beneficiaries pursuant to Section 5.6 as the Committee, in its sole discretion, shall determine. Any distributions upon plan termination of amounts attributable to Employee Pre-Tax Contributions and amounts held in a Participant’s Prior Plan Employer Qualified Sub-Account shall only be made to the extent permissible by Code Section 401(k)(10).

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ARTICLE X
PROVISIONS RELATIVE TO EMPLOYERS INCLUDED IN PLAN

10.1 Method of Participation

          Any organization, whether or not it is affiliated with the Corporation, may, with the consent of the Corporation, adopt the Plan. In order for an organization that is not affiliated with the Corporation under Code Sections 414(b), (c), (m) or (o) to adopt the Plan, appropriate action is required by the board of directors (or other governing body) of such adopting organization and by a duly-authorized officer of the Corporation. An affiliated organization shall adopt the Plan pursuant to an authorized signature under Section 9.1 of the Plan. Any unaffiliated organization which becomes a party to the Plan shall thereafter promptly deliver to the Corporation hereof a certified copy of the resolutions or other documents evidencing its adoption of the Plan and also a written instrument showing the Corporation’s approval of such organization’s becoming a party to the Plan.

10.2 Withdrawal

          Any one or more of the Employers included in the Plan may withdraw from the Plan at any time by giving six months advance notice in writing to the Board and the Committee (unless a shorter notice shall be agreed to by the Board) of its or their intention to withdraw. Upon receipt of notice of any such withdrawal, the Committee shall certify to the Trustee the equitable share of such withdrawing Employer in the Fund (to be determined by the Committee).

          The Trustee shall thereupon set aside from the Fund then held by it such securities and other property as it shall, in its sole discretion, deem to be equal in value to such equitable share. If the Plan is to be terminated with respect to such Employer, the amount set aside shall be dealt with in accordance with the provisions of Section 9.2. If the Plan is not to be terminated with respect to such Employer, the Trustee shall pay such amount to such trustee as may be designated by such withdrawing Employer, and such securities and other property shall thereafter be held and invested as a separate trust of the Employer which has so withdrawn, and shall be used and applied according to the terms of a new agreement and declaration of trust between the Employer so withdrawing and the trustee so designated.

          Neither the segregation of the Fund assets upon the withdrawal of an Employer, nor the execution of any new agreement and declaration of trust pursuant to any of the provisions of this

84

Section 10.2, shall operate to permit any part of the corpus or income of the Fund to be used for or diverted to purposes other than for the exclusive benefit of Participants and Beneficiaries or to defray reasonable costs of administering the Plan and Trust.

85

ARTICLE XI
TOP-HEAVY PROVISIONS

11.1 Determination of Top-Heavy

          (a) (1) The Plan will be considered a Top-Heavy Plan for any Plan Year if as of the Determination Date (A) the value of the Individual Accounts of Participants who are Key Employees as of such Determination Date exceeds 60% of the value of the Individual Accounts of all Participants determined as of such Determination Date, excluding former Key Employees (the “60% Test”) or (B) the Plan is part of a Required Aggregation Group which is Top-Heavy. Notwithstanding the results of the 60% Test, the Plan shall not be considered a Top-Heavy Plan for any Plan Year in which the Plan is a part of a Required or Permissive Aggregation Group which is not Top-Heavy.

                    (2) For purposes of the 60% Test,

                              (A) all distributions made from Individual Accounts within the one-year period ending on the Determination Date (or, in the case of any distribution made for any reason other than separation from service, death, or disability, within the five-year period ending on the Determination Date) shall be taken into account;

                              (B) if any Participant is a non-Key Employee with respect to the Plan for any Plan Year, but such Participant was a Key Employee with respect to the Plan for any prior Plan Year, the Individual Account of such Participant shall not be considered; and

                              (C) If a Participant has not performed any service for the Employer or any Affiliate which maintains the Plan at any time during the one-year period ending on the Determination Date, the Individual Account of such Participant shall not be considered.

          (b) Minimum Allocations: Notwithstanding Sections 4.3 and 4.4, for any Plan Year during which the Plan is a Top-Heavy Plan, the rate of Employer Matching Contributions and Discretionary Contributions for such Plan Year allocated to the Individual Accounts of Participants who are non-Key Employees and who remain employed by the Employer (or any Affiliate) at the end of the Plan Year (regardless of any such Participant’s hours of service or level of compensation during the Plan Year) shall be not less than the lesser of:

                    (1) three percent (3%) of such non-Key Employee Participant’s Section 415 Compensation; or

86

                    (2) the highest aggregate percentage of Section 415 Compensation at which Employer Matching Contributions, Discretionary Contributions, and Employee Pre-Tax Contributions are made (or required to be made) and allocated under Article IV for any Key Employee for the Plan Year.

          If a Participant is covered by more than one defined contribution plan on account of his employment with the Employer and/or any Affiliate, the minimum allocation required by this Section shall be determined by aggregating the allocations under all such plans.

          (c) Impact on Minimum Benefits where Employer Maintains Both Defined Benefit and Defined Contribution Plans: If the Employer (or any Affiliate) maintains a defined benefit plan in addition to this defined contribution plan, both of which are Top-Heavy, then:

                    (1) in the case of non-Key Employee Participants covered only by the defined benefit plan, the minimum benefit under the defined benefit plan shall be provided; and

                    (2) in the case of non-Key Employee Participants not covered by the defined benefit plan or covered by both plans, a minimum allocation of five percent (5%) of such non-Key Employee Participant’s Section 415 Compensation shall be provided. If a Participant is covered by more than one defined contribution plan on account of his employment with the Employer and/or any Affiliate, the minimum allocation required by this Section shall be determined by aggregating the allocations under all such defined contribution plans.

11.2 Top-Heavy Definitions

          Determination Date – With respect to any Plan Year, the last day of the preceding Plan Year.

          Key Employee – Any Employee or former Employee who at any time during the Plan Year containing the Determination Date is or was (1) an officer of the Employer having annual Section 415 Compensation for such Plan Year which is in excess of $130,000 (as adjusted pursuant to Code Section 416(i)(1)(A)) (but in no event shall the number of officers taken into account as Key Employees exceed the lesser of (A) 50 or (B) the greater of 3 or 10% of all employees); (2) a five-percent owner of the Employer; or (3) a one-percent owner of the Employer who has annual Section 415 Compensation of more than $150,000. For purposes of determining five-percent and one-percent owners, neither the aggregation rules nor the rules of subsections (b), (c) and (m) of Code Section 414 apply. Beneficiaries of an Employee acquire the character of the Employee who performed services for the Employer. Also, inherited benefits

87

will retain the character of the benefits of the Employee who performed services for the Employer. A non-Key Employee is any Employee who is not a Key Employee, or who is a former Key Employee.

          Permissive Aggregation Group – Each employee pension benefit plan maintained by the Employer (or any Affiliate) which is considered part of the Required Aggregation Group, plus one or more other employee pension benefit plans maintained by the Employer (or any Affiliate) that are not part of the Required Aggregation Group but that satisfy the requirements of Section 401(a)(4) and Section 410 of the Code when considered together with the Required Aggregation Group.

          Required Aggregation Group – Each employee pension benefit plan maintained by the Employer (or any Affiliate), whether or not terminated, in which a Key Employee participates in the Plan Year containing the Determination Date or any of the four preceding Plan Years, and each other employee pension benefit plan maintained by the Employer (or any Affiliate), whether or not terminated, in which no Key Employee participates but which during the same period enables any employee pension benefit plan in which a Key Employee participates to meet the requirements of Code Section 401(a)(4) or 410.

88

ARTICLE XII
MISCELLANEOUS

12.1 Governing Law

          The Plan shall be construed, regulated and administered according to the laws of the state of New Jersey, except in those areas preempted by the laws of the United States of America.

12.2 Construction

          The headings and subheadings in the Plan have been inserted for convenience of reference only and shall not affect the construction of the provisions hereof. In any necessary construction, the masculine shall include the feminine and the singular the plural, and vice versa.

12.3 Administration Expenses

          The expenses of administering the Fund and the Plan may be paid either by the Employer or from the Fund, as directed by the Corporation.

12.4 Participant’s Rights; Acquittance

          No Participant in the Plan shall acquire any right to be retained in the Employer’s employ by virtue of the Plan, nor, upon his dismissal, or upon his voluntary termination of employment, shall he have any right or interest in and to the Fund other than as specifically provided herein. The Employer shall not be liable for the payment of any benefit provided for herein. All benefits hereunder shall be payable only from the Fund.

12.5 Spendthrift Clause

          Except as provided by a qualified domestic relations order within the meaning of ERISA Section 206(d)(3) and, except pursuant to certain judgments and settlements under ERISA Section 206(d)(4), none of the benefits, payments, proceeds, or distributions under this Plan shall be subject to the claim of any creditor of a Participant or a Beneficiary hereunder or to any legal process by any creditor of a Participant or Beneficiary. Neither a Participant nor Beneficiary shall have any right to alienate, commute, anticipate, or assign any of the benefits, payments, proceeds or distributions under this Plan.

12.6 Merger, Consolidation or Transfer

          In the event of the merger or consolidation of the Plan with another plan or transfer of assets or liabilities from the Plan to another plan, each then Participant or Beneficiary shall not, as a result of such event, be entitled on the day following such merger, consolidation or transfer

89

under the termination of the Plan provisions to a lesser benefit than the benefit he was entitled to on the day prior to the merger, consolidation or transfer if the Plan had then terminated.

          The Trustee possesses the specific authority to enter into merger agreements or direct transfer of asset agreements with the trustees of other retirement plans described in Code Section 401(a), including any elective transfer, and to accept the direct transfer of plan assets, or to transfer plan assets, as a party to any such agreement, upon written direction of the Committee.

12.7 Mistake of Fact

          Notwithstanding anything herein to the contrary, upon the Employer’s request, a Contribution which was made by a mistake of fact, or conditioned upon initial qualification of the Plan or upon the deductibility of the Contribution under Code Section 404, may be returned to the Employer by the Trustee within one (1) year after the payment of the Contribution, the denial of the qualification or the disallowance of the deduction (to the extent disallowed), whichever is later. For purposes of the preceding sentence, all contributions to the Plan made before receipt of a favorable determination letter on qualification from the Internal Revenue Service shall be conditioned on the Plan’s initial qualification, and all contributions, whenever made, shall be conditioned on their deductibility under Code Section 404.

12.8 Counterparts

          The Plan and the Trust Agreement may be executed in any number of counterparts, each of which shall constitute but one and the same instrument and may be sufficiently evidenced by any one counterpart.

12.9 Transitional Rule

          Notwithstanding any provision in this Plan to the contrary, no contribution by or on behalf of any Participant shall be made under this Plan for any period during which any contribution by or on behalf of such Participant is made while such Participant is a participant in a Merged Plan.

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ARTICLE XIII
ADOPTION OF THE PLAN

          Anything herein to the contrary notwithstanding, this amended and restated Plan is adopted and maintained under the condition that it is qualified by the Internal Revenue Service under Code Section 401(a) and that the Trust hereunder is exempt under Code Section 501(a).

          As evidence of its adoption of the Plan, Quest Diagnostics Incorporated (DE) has caused this instrument to be signed by its authorized officer this ___ day of __________, ______, effective as of January 1, 2007, except as otherwise provided herein.

ATTEST:	QUEST DIAGNOSTICS INCORPORATED (DE)
	By:	(SEAL)
	(Title)

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Appendix A

The Effective Date for each Employer is set forth below:

Employer	Effective Date
Quest Diagnostics Incorporated (DE)	October 1, 1973
Quest Diagnostics Incorporated (MI)	May 1, 1990
Quest Diagnostics LLC (CT)	January 1, 1994
Quest Diagnostics of Pennsylvania Inc. (DE)	July 1, 1993
MetWest Inc. dba Quest Diagnostics	April 1, 1994
Quest Diagnostics LLC (MA)	March 1, 1995
Quest Diagnostics Incorporated (MD)	January 1, 1995
Nichols Institute Diagnostics (CA)	January 1, 1995
Quest Diagnostics Incorporated (CA)	January 1, 1995
Quest Diagnostics LLC (IL)	January 1, 1999
Quest Diagnostics Clinical Laboratories, Inc. (DE) (f/k/a SmithKline Beecham Clinical Laboratories, Inc.)	August 16, 1999
MedPlus, Inc.	January 1, 2002
Quest Diagnostics Venture LLC (PA)	November 15, 1997
Diagnostic Laboratory of Oklahoma	January 13, 2001
Quest Diagnostics Nichols Institute Inc.	January 1, 2003
Quest Diagnostics Incorporated (NV)	January 1, 2003
Associated Pathologists, Chartered	January 1, 2003
Associated Diagnostic Pathologists, Inc.	January 1, 2007
LabOne, Inc.	January 1, 2007

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Appendix B

The Merger Date for each Merged Plan is set forth below:

Name	Merger Date
Advance Medical & Research Center, Inc. Retirement Plan	May 1, 1990
Continental Bio Clinical Laboratory Service, Inc. Profit Sharing and Retirement Savings Plan	January 1, 1992
Statlab, Inc. Retirement Plan	March 1, 1993
CPF/MetPath Savings and Retirement Plan	July 1, 1993
Clinical Pathology Facility, Inc. Pension Plan	July 1, 1993
DeYor Laboratories 401(k) Profit Sharing Plan and Trust	January 1, 1994
The Profit Sharing Plan and Trust Agreement for Employees of MetWest Inc.	April 1, 1994
Maryland Medical Laboratory, Inc. 401(k) Profit Sharing Plan and Trust	January 1, 1995
Nichols Institute 401(k) Plan	January 1, 1995
Podiatric Pathology Laboratories, Inc. Profit Sharing Plan	January 1, 1995
MedPlus, Inc. 401(k) Plan	January 2, 2002
LabPortal, Inc. 401(k) Plan	July 1, 2002
AML-East 401(k) Plan	January 3, 2003
APL Healthcare Group Inc. Profit Sharing and 401(k) Plan	January 3, 2003
Clinical Diagnostics Services 401(k) Plan	June 2, 2003
Unilab 401(k) Plan	January 2, 2004
LabOne, Inc. Profit Sharing 401(k) Plan	March 1, 2007
LabOne, Inc. Money Purchase Pension Plan	March 1, 2007

          There are several different Merger Dates for Participants who were former participants in the Damon Plan, depending on the Damon Corporation entity with which such former participant was employed before transferring to an Employer:

93

Name of Entity	Merger Date
American Health Resources, Inc.	January 1, 1994
Damon Clinical Laboratories, Inc. (FL)	January 1, 1994
Damon Clinical Laboratories, Inc. (MA) – Connecticut locations	January 1, 1994
Damon Clinical Laboratories, Inc. (PA)	January 1, 1994
Damon Clinical Laboratories, Inc. (TX) – Kansas and Missouri locations	January 1, 1994
Damon Corporation	January 1, 1994
Health Care Laboratories, Inc.	January 1, 1994
Damon Clinical Laboratories, an Illinois general partnership	March 1, 1994
Damon Clinical Laboratories, Inc. (AZ)*	April 1, 1994
Damon Clinical Laboratories, Inc. (TX) – All locations other than Kansas and Missouri*	April 1, 1994
Damon Clinical Laboratories – Houston, Inc.*	April 1, 1994
New York Damon Clinical Laboratories, Inc.	April 1, 1994
Damon Clinical Laboratories, Inc. (MA) – All locations other than Connecticut**	May 1, 1994
Damon Clinical Laboratories – Pittsburgh, Inc.	June 1, 1994

*	As of January 1, 1994, individuals who had been employed with these entities became employees of MetWest Inc., but continued to participate in the Damon Plan through March 31, 1994.
**	As of January 1, 1994, individuals who had been employed with this entity became employees of MetPath New England Inc., but continued to participate in the Damon Plan through April 30, 1994.

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Appendix C

          All distributions under the Plan made on or after January 2, 2001 and prior to March 1, 2002 shall be based upon the value of the Participant’s Individual Account as determined under the provisions of this Appendix C.

          (a)  The value of a Participant’s Individual Account upon a distribution hereunder shall be the sum of paragraphs (1)-(12) below, where:

                    (1) is the product of (A) the closing Net Asset Value of the Fidelity Contrafund on the Valuation Date, and (B) the number of shares of such fund allocated to the Participant’s Individual Account as of such Valuation Date;

                    (2) is the product of (A) the closing Net Asset Value of the Fidelity Diversified International Fund on the Valuation Date, and (B) the number of shares of such fund allocated to the Participant’s Individual Account as of such Valuation Date.

                    (3) is the product of (A) the closing Net Asset Value of the Fidelity Equity-Income Fund on the Valuation Date, and (B) the number of shares of such fund allocated to the Participant’s Individual Account as of such Valuation Date;

                    (4) is the product of (A) the closing Net Asset Value of the Fidelity Growth & Income Portfolio on the Valuation Date, and (B) the number of shares of such fund allocated to the Participant’s Individual Account as of such Valuation Date;

                    (5) is the product of (A) the closing Net Asset Value of the Fidelity Low Priced Stock Fund on the Valuation Date, and (B) the number of shares of such fund allocated to the Participant’s Individual Account as of such Valuation Date;

                    (6) is the product of (A) the closing Net Asset Value of the Fidelity Magellan Fund on the Valuation Date, and (B) the number of shares of such fund allocated to the Participant’s Individual Account as of such Valuation Date;

                    (7) is the product of (A) the closing Net Asset Value of the Fidelity OTC Portfolio on the Valuation Date, and (B) the number of shares of such fund allocated to the Participant’s Individual Account of such Valuation Date;

                    (8) is the product of (A) the closing Net Asset Value of the Fidelity Puritan Fund on the Valuation Date, and (B) the number of shares of such fund allocated to the Participant’s Individual Account as of such Valuation Date;

95

                    (9) is the product of (A) the closing Net Asset Value of the Fidelity Spartan U.S. Equity Index Fund on the Valuation Date, and (B) the number of shares of such fund allocated to the Participant’s Individual Account as of such Valuation Date;

                    (10) is the product of (A) the closing Net Asset Value of the Fidelity U.S. Bond Index Fund on the Valuation Date, and (B) the number of shares of such fund allocated to the Participant’s Individual Account as of such Valuation Date;

                    (11) is the number of shares of the Managed Income Portfolio allocated to the Participant’s Individual Account as of such Valuation Date; and

                    (12) is the product of (A) the per unit value of the Employer Stock Fund, the Corning Stock Fund and the Covance Stock Fund on the Valuation Date, and (B) number of units of such fund allocated to the Participant’s Individual Account as of such Valuation Date.

96

EX-10.40

Exhibit 10.40

CONFIDENTIAL

Letter of Agreement between
SmithKline Beecham Corporation
And
Quest Diagnostics Incorporated

This Letter of Agreement (“LOA”), effective as of January 1, 2008, is made between SmithKline Beecham Corporation d/b/a GlaxoSmithKline with a primary address at 2301 Renaissance Blvd, King of Prussia, PA 19406USA, together with its affiliates (“GlaxoSmithKline” or “GSK”) and Quest Diagnostics Incorporated, with a primary address at 3 Giralda Farms, Madison, NJ 07940 together with its affiliates (“Quest Diagnostics”) together “the Parties”, to revise the relationship previously established in the Amended and Restated Global Clinical Trials Agreement dated December 19, 2002 (hereinafter “Previous Agreement”). “Affiliates” for purposes of this LOA shall include any corporation or non-corporate entity which controls, is controlled by, or is under common control with a Party to this LOA.

1.      The Parties agree that Quest Diagnostics shall continue to provide services (hereinafter “Services” as defined in the Previous Agreement) in accordance with the terms of the Previous Agreement and as supplemented by the new business terms covered in Exhibit A, attached hereto, while the Parties, in good faith, draft and negotiate a comprehensive new Global Clinical Trials Agreement (“Agreement”).

2.      This LOA is not intended to take the place of the Agreement, but to implement the business terms contained on Exhibit A while the Agreement is negotiated and executed. This LOA shall remain in effect until the earlier of (i) the execution of the Agreement by the Parties or (ii) March 31, 2008, which date may be extended by the mutual agreement of the Parties. Upon its full execution, the Agreement shall supersede this LOA and the Previous Agreement.

3.      During the term of this LOA, should any dispute arise between the Parties involving conflict or interpretation of a term or condition of the Previous Agreement and a term or condition of this LOA, the disputing party shall promptly notify the other party of the disputed term and the Parties shall negotiate in good faith to resolve the dispute. Notice of the dispute shall be in writing to the following individuals:

For Quest Diagnostics:
Daniel P. Megronigle
3 Giralda Farms
Madison, NJ 07940
Phone 973-520-2086 For GlaxoSmithKline:
Paula M. Russella
2301 Renaissance Blvd., #510, RN0410
King of Prussia, PA 19406
Phone: 610-787-3281

SMITHKLINE BEECHAM CORPORATION	QUEST DIAGNOSTICS INCORPORATED
By:	By:
Name Printed:	Name Printed:
Title:	Title:
Date:	Date:
Letter of Agreement
GlaxoSmithKline and Quest Diagnostics Incorporated

Page 1 of 11

EXHIBIT A

I.	Term of Agreement
	It is agreed by the Parties that the Agreement shall be effective January 1, 2008 and shall continue through December 31, 2014.
II.	Compensation
	The Parties agree that the “Most Favored Nations (MFN”) pricing status provisions [established under Section XV(1) and XV(1)(i)] from the Previous Agreement shall be of no further force or effect as of January 1, 2008. Any references to the MFN status shall be void.
	Further, Section # XV of the Previous Agreement shall be of no further force or effect for any studies contracted after December 31, 2007. However, items #4 through #15 of Section XV of the Previous Agreement shall continue to apply to any studies contracted before December 31, 2007.
	1.      Billing and Payment Terms. Quest Diagnostics will provide a proposal to GlaxoSmithKline based on the Fee Schedule attached hereto as Attachment #1. Quest Diagnostics will bill GlaxoSmithKline for Services once per month. Charges will be billed at the rates agreed to in the applicable Task Description, subject to any adjustments for inflation and exchange rates permitted under the Task Description or this LOA. Laboratory testing services requested by GlaxoSmithKline that are not included in Attachment #1 shall be billed at Quest Diagnostics’ then-current general fee schedule, subject to any applicable discounts (*) from Quest Diagnostics current list prices, unless otherwise agreed in writing by the Parties. It is a MATERIAL TERM of this Agreement that GlaxoSmithKline shall pay all undisputed invoiced amounts within thirty (30) days of receipt of an invoice for Services.
	2.	Payments:
		2.1       US payments shall be made by wire transfer or check payable to Quest Diagnostics Incorporated, Tax ID Number 38-2084239:

If payment by check:	If payment is by Bank Transfer/Wire Transfer:
Quest Diagnostics Incorporated	Send to: Bank of America
Clinical Trials USA	ABA Routing Number:
13747 Collection Center Drive	Account Number:
Chicago, IL 60693	Swift Number
	Telex Number:
	*Please identify the invoice numbers being paid.

2.2	UK payments shall be made in the currency agreed to by the parties by check or bank transfer (check payable to Quest
	Diagnostics Limited, VAT Registration Number GB 731 5475 39):

Letter of Agreement
GlaxoSmithKline and Quest Diagnostics Incorporated

____________________________________

* Confidential treatment has been requested. The redacted material has been separately filed with the Commission.

Page 2 of 11

If payment is by Cheque:	If payment is by Bank Transfer:
Non US Dollar currencies:	HSBC Bank
Quest Diagnostics Ltd	City of London Corporate Office
Unit B-1 – Parkway West	8 Canada Square, London
Cranford Lane	E14 5XL, United Kingdom
Heston Middlesex
England TW5 9QA	Swift Code:
US Dollars:	Non US Dollar and Non Euro Deposits:
Quest Diagnostics Limited	Account: Quest Diagnostics Limited
PO Box 13318	Sort Code:	Number:
Newark	IBAN#
NJ 07101-3318
USA	Euro Deposits:
	Account: Quest Diagnostics Limited
	Sort Code:	Number:
	IBAN#
	US Dollar Deposits:
	Account: Quest Diagnostics Limited
	Sort Code:	Number:
	IBAN#

3. Fee Increases. Quest Diagnostics may increase fees for its Services provided hereunder * to offset any increased costs of operations by providing written notice to GlaxoSmithKline.

Any such increase shall not exceed *.       .

4. *. The * is designed to provide GlaxoSmithKline with * in *. The * shall apply to all studies contracted by the Parties as of *. Quest Diagnostics will offer a * to current studies . This * will apply to * and excludes * by Quest Diagnostics Laboratory or any of its affiliates. The * shall be applied as a * on each invoice for testing services rendered during the preceding month.

5. *. GlaxoSmithKline shall earn * of * following adjustment for *. The * shall exclude *.

The * is as follows:

*	*
*	*
*	*

The * shall be payable by March 31 of the following calendar year.

The * will continue through the term of the Agreement, although the Parties will negotiate in good faith * to adjust the * for calendar years *. Until the parties reach such agreement, the * shall apply.

6. *: A total of * is available to apply against * for the period *, reduced by any * earned in *, provided the following criteria are met:

Letter of Agreement
GlaxoSmithKline and Quest Diagnostics Incorporated

____________________________________

* Confidential treatment has been requested. The redacted material has been separately filed with the Commission.

Page 3 of 11

•In any single calendar year (between * and *) if the * (*) is above *, GSK can apply * of the * as defined above as a * by March 31 of the following calendar year.

The* of * in aggregate will be reduced by the total amount of * earned by GSK in *. e.g. If the * amounts to * in * and * in *, the total * available for the period will be * in aggregate *.

III. Exclusivity Clause

The Parties agree that the Exclusivity Clause [Section III(1)-(4)] and the Exclusivity Audits [section XVI(3)] of the Previous Agreement shall be of no further force or effect. As of the Effective Date, Quest Diagnostics shall be a “Principal Provider” of global central laboratory services for GSK. As Principal Provider, Quest Diagnostics shall support all of GSK’s annual global central laboratory needs and shall be awarded all laboratory testing in connection with *, with the exception of GSK clinical studies in the following specific areas:

*

However, as a Principal Provider GlaxoSmithKline shall provide Quest Diagnostics *, and GSK shall have the absolute right to *.

• If * cause the * to fall below *, Quest Diagnostics reserves the right to *.

• * applies only to new studies that have not already been * by Quest Diagnostics.

IV. Miscellaneous. The following are some of the additional terms discussed by the Parties that will be further negotiated for inclusion in the Agreement. Other terms may also be included by agreement of the Parties:

a) Relationship Management:

     (i) Relationship Metrics. In addition to Operational Metrics, Quest Diagnostics and GSK will mutually agree to a Scorecard of Relationship Metrics inclusive of financial, development economics and operational satisfaction measures. Attachment #2 hereto contains Potential Key Performance Metrics. The Parties shall mutually agree to a maximum of 12 metrics from this list as well as agree to the frequency of the metrics.

     (ii) Steering Committee. In support of the Strategic relationship between the Parties a Business Steering Committee shall be established to foster best practices, creative alternatives and forward thinking. This committee will be charged with and responsible for the periodic review of all aspects of the Strategic Relationship to ensure business goals and objectives are achieved.

b) Quest Diagnostics Strategic Investments:

            Quest Diagnostics is in the planning phases of * into a * which will be targeted to open in the *.

                 • Quest Diagnostics is willing to establish a joint team with GSK to identify and review mutually beneficial collaboration opportunities to drive growth.

Letter of Agreement
GlaxoSmithKline and Quest Diagnostics Incorporated

____________________________________

* Confidential treatment has been requested. The redacted material has been separately filed with the Commission.

Page 4 of 11

     • Quest Diagnostics will establish a new laboratory facility in India no later than the second quarter of 2008 to begin to support GSK off-shore operations.

     • Quest Diagnostics will enhance the quality of its Information Technology and sample management services pursuant to Quest Diagnostics’ June 4, 2007 proposal.

Quest Diagnostics will restructure its existing * through key performance indicators agreed upon with GSK, including * and improvements to process flow and communications.

Letter of Agreement
GlaxoSmithKline and Quest Diagnostics Incorporated

____________________________________

* Confidential treatment has been requested. The redacted material has been separately filed with the Commission.

Page 5 of 11

Attachment #1

2008 Fee Schedule

	Proposed RoW		Proposed Americas
Test
11-DEHYDROTHROMBOXANE-B2	*	*	*	*
ACTH, PLASMA	*	*	*	*
ADIPONECTIN	*	*	*	*
ALBUMIN CREATININE RATIO	*	*	*	*
ALCOHOL (ETHYL), URINE	*	*	*	*
ALDOLASE	*	*	*	*
ALPHA-1-ACID GLYCOPROTEIN	*	*	*	*
AMMONIA, PLASMA	*	*	*	*
AMYLASE, SERUM	*	*	*	*
ANA TITER & PATTERN	*	*	*	*
APOLIPOPROTEIN A1	*	*	*	*
APOLIPOPROTEIN B	*	*	*	*
APOLIPOPROTEIN C3	*	*	*	*
APPT/PROTHROMBIN TIME WITH INR	*	*	*	*
BETA-2 MICROGLOBULIN	*	*	*	*
BONE ALKALINE PHOSOPHATASE	*	*	*	*
BRAIN NATRIURETIC PEPTIDE	*	*	*	*
CA 19-9	*	*	*	*
CARDIO CRP	*	*	*	*
CD40L, SOLUBLE	*	*	*	*
CHEMISTRY ANALYTE	*	*	*	*
CHEMISTRY PANEL	*	*	*	*
CHEMZYME PLUS	*	*	*	*
CHLAMYDIA TRACHOMATIS PCR	*	*	*	*
CHORIONIC GONADOTROPIN, QUALITATIVE	*	*	*	*
CK-MB	*	*	*	*
CMV IGM ANTIBODY	*	*	*	*
COMPLEMENT COMPONENT C3	*	*	*	*
COMPLEMENT COMPONENT C4	*	*	*	*
COMPLETE BLOOD COUNT	*	*	*	*
CORTISOL, SERUM (immunoassay)	*	*	*	*
CORTISOL,FREE, 24HR URINE (immunoassay)	*	*	*	*
C-PEPTIDE	*	*	*	*
C-REACTIVE PROTEIN	*	*	*	*
CREATININE	*	*	*	*
CREATININE CLEARANCE	*	*	*	*
CREATININE, RANDOM URINE	*	*	*	*
CREATININE, URINE	*	*	*	*
CYSTATIN C, SERUM	*	*	*	*

Letter of Agreement
GlaxoSmithKline and Quest Diagnostics Incorporated

____________________________________
* Confidential treatment has been requested. The redacted material has been separately filed with the Commission.

Page 6 of 11

	Proposed RoW		Proposed Americas
	*	*	*	*
Test
DERMATAN SULFATE	*	*	*	*
DIGOXIN	*	*	*	*
DIHYDROTESTOSTERONE	*	*	*	*
DNA (DS) ANTIBODIES	*	*	*	*
DNA EXTRACTION/AUTOPREP	*	*	*	*
DRUG ABUSE W/ALCOHOL	*	*	*	*
EGFR, ELISA	*	*	*	*
ESTRADIOL	*	*	*	*
FATTY ACIDS, FREE	*	*	*	*
FERRITIN	*	*	*	*
FIBRINOGEN	*	*	*	*
FOLATE, SERUM	*	*	*	*
FREE KAPPA & LAMBDA LIGHT CHAINS	*	*	*	*
FRUCTOSAMINE	*	*	*	*
FSH	*	*	*	*
GAD ANTIBODIES	*	*	*	*
GLUCOSE, PLASMA	*	*	*	*
GLUCOSE, URINE RANDOM	*	*	*	*
H. PYLORI ANTIBODY (IGG)	*	*	*	*
H. PYLORI ANTIBODY (IGM)	*	*	*	*
HAPTOGLOBIN	*	*	*	*
HCV RNA QUANT, PCR	*	*	*	*
HDL CHOLESTEROL	*	*	*	*
HDL SUBCLASSES	*	*	*	*
HELICOBACTER PYLORI ANTIBODY (IGA)	*	*	*	*
HEMATOCRIT	*	*	*	*
HEMOGLOBIN	*	*	*	*
HEMOGLOBIN A1C	*	*	*	*
HEMOGRAM	*	*	*	*
HEPATITIS A AB TOTAL	*	*	*	*
HEPATITIS A IGM ANTIBODY	*	*	*	*
HEPATITIS B CORE AB	*	*	*	*
HEPATITIS B CORE IGM	*	*	*	*
HEPATITIS B SURFACE AB	*	*	*	*
HEPATITIS B SURFACE ANTIGEN W/	*	*	*	*
CONFIRMATION
HEPATITIS BE AB	*	*	*	*
HEPATITIS BE AG	*	*	*	*
HEPATITIS C ANTIBODY	*	*	*	*
HER2, ELISA	*	*	*	*
HER-2/NEU FISH	*	*	*	*
HETEROPHILE, MONO SCREEN	*	*	*	*
HIV-1 AB WESTERN BLT	*	*	*	*
HIV-1 RNA 1.5 ULTRA	*	*	*	*

Letter of Agreement
GlaxoSmithKline and Quest Diagnostics Incorporated

____________________________________
* Confidential treatment has been requested. The redacted material has been separately filed with the Commission.

Page 7 of 11

	Proposed RoW		Proposed Americas
	*	*	*	*
Test
HIV-1 RNA BY PCR (1.5) QUANT	*	*	*	*
HIV-1/HIV-2 AB SCREEN	*	*	*	*
HIV-2 ANTIBODY WB	*	*	*	*
HPV DNA (HIGH RISK)	*	*	*	*
HTLV I/II ANTIBODY	*	*	*	*
IGE, SERUM	*	*	*	*
IMMUNOFIXATION, SERUM	*	*	*	*
IMMUNOFIXATION, URINE	*	*	*	*
IMMUNOGLOBULIN A	*	*	*	*
IMMUNOGLOBULIN AP	*	*	*	*
IMMUNOGLOBULIN G	*	*	*	*
IMMUNOGLOBULIN M	*	*	*	*
IMMUNOGLOBULIN Mp	*	*	*	*
IMMUNOGLOBULIN SERUM	*	*	*	*
IMMUNOREACTIVE INSULIN (LINCO RIA)	*	*	*	*
INSULIN (IMMULITE)	*	*	*	*
INTERLEUKIN-6 HIGHLY SENSITIVE	*	*	*	*
IRON, TOTAL, IBC & SATURATION	*	*	*	*
LACTATE DEHYDROGENASE ISOENZYMES	*	*	*	*
LDL Calculation	*	*	*	*
LIPASE SERUM (when ordered with a Chem panel)	*	*	*	*
LIPID PANEL	*	*	*	*
LIPID PANEL (BETA QUANT)	*	*	*	*
LIPOPROTEIN (A)	*	*	*	*
LITHIUM	*	*	*	*
Lp-PLA2 ACTIVITY, COLORIMETRIC - GSK ONLY	*	*	*	*
LUTEINIZING HORMONE	*	*	*	*
LYMPHOCYTE SUBSET PANEL 2 (CD4/CD8)	*	*	*	*
LYMPHOCYTE SUBSET PANEL 3	*	*	*	*
MICROALBUMIN, RANDOM URINE	*	*	*	*
MMP-9 EIA (TOTAL)	*	*	*	*
MULTISPOT HIV 1/2	*	*	*	*
NEISSERIA GONORRHOEAE PCR	*	*	*	*
N-TELOPEPTIDE (U)	*	*	*	*
PAP, LIQUID-BASED	*	*	*	*
PARATHYROID HORMONE	*	*	*	*
PARTIAL THROMBOPLASTIN TIME, ACTIVATED	*	*	*	*
PEPSINOGEN I	*	*	*	*
PHENYTOIN	*	*	*	*
POTASSIUM, URINE	*	*	*	*
PROGESTERONE	*	*	*	*
PROINSULIN	*	*	*	*
PROLACTIN	*	*	*	*

GlaxoSmithKline –Letter of Agreement
Date: January 1, 2008

_____________________________________
* Confidential treatment has been requested. The redacted material has been separately filed with the Commission.

Page 8 of 11

	Proposed RoW		Proposed Americas
	*	*	*	*
Test
PROTEIN ELECTROPHORESIS, SERUM (SERUM	*	*	*	*
PEP)
PROTEIN ELECTROPHORESIS, URINE (URINE PEP)	*	*	*	*
PROTEIN TOTAL, URINE	*	*	*	*
PROTEIN/CREATININE RATIO, URINE	*	*	*	*
PROTHROMBIN TIME WITH INR	*	*	*	*
PSA FREE & TOTAL	*	*	*	*
PSA, TOTAL (Centaur)	*	*	*	*
RECOMBIGEN HIV-1	*	*	*	*
RETICULOCYTE CELL COUNT	*	*	*	*
RHEUMATOID FACTOR	*	*	*	*
RPR (MONITOR)	*	*	*	*
SALICYLATE	*	*	*	*
T-3 UPTAKE	*	*	*	*
T-4 (THYROXINE) TOTAL	*	*	*	*
T-4 (THYROXINE), FREE	*	*	*	*
TESTOSTERONE, TOTAL	*	*	*	*
THEOPHYLLINE	*	*	*	*
THYROID STIMULATING HORMONE	*	*	*	*
TRIGLYCERIDES	*	*	*	*
TRIIODOTHYRONINE, FREE	*	*	*	*
TRIIODOTHYRONINE, TOTAL	*	*	*	*
TROPONIN I	*	*	*	*
URINALYSIS W/UROBILINOGEN	*	*	*	*
URINALYSIS, MACROSCOPIC	*	*	*	*
URINALYSIS, MICROSCOPIC	*	*	*	*
URINALYSIS, ROUTINE	*	*	*	*
VALPROIC ACID	*	*	*	*
VITAMIN B12	*	*	*	*
VITAMIN B12/FOLIC ACID	*	*	*	*

GlaxoSmithKline –Letter of
Agreement Date: January 1, 2008

_____________________________________
* Confidential treatment has been requested. The redacted material has been separately filed with the Commission.

Page 9 of 11

Other Fees
* Fees		RoW	Americas
	2008 Quest	2009 Quest	2008Quest	2009 Quest
	Proposal	Proposal	Proposal	Proposal
Project Management	*	*	*	*
Data Management	*	*	*	*
Logistics	*	*	*	*
Management
Total	*	*	*	*
* Fees
	Quest	Quest Proposal
	Proposal
Project Management	*	*
Data Management	*	*
Logistics	*	*
Kits
	RoW	Americas
	2008 Quest	2009 Quest
	Proposal	Proposal
*-* components	*	*
*-* components	*	*
<* components	*	*
Quest *
(Americas only)	Americas	Americas
*	*	*
Storage
	RoW	Americas
In	*	*
Maintenance	*	*
Pull	*	*

GlaxoSmithKline –Letter of
Agreement Date: January 1, 2008

_____________________________________
* Confidential treatment has been requested. The redacted material has been separately filed with the Commission.

Page 10 of 11

Attachment #2
		Potential Key Performance Metrics
					Implementation
Category	Performance Metric	Qualifier	Target		Status
Protocol	Approval of CLW within	Percentage of studies that	100	%	*
Initiation	agreed specified	receive CLW approval by date
	timeline in CLW	specified in CLW
Site Initiation	On-time study start	Percentage of kits to first site per	100	%	*
		study delivered on time
Site Support	Data query turn-	Percentage within 24 hours: time	100	%	*
Services	around-time	of receipt of data query to date
		closed on database
Lab Operations	Turn-around-time for	Percentage of samples received	100	%	*
	sample receipt	in lab within 36 hours of
		collection time.
Lab Operations	Percentage of test	The elapsed time from when the	100	%	*
	reported within	specimen is received in the
	expected turn around	laboratory until the analytical
	time	result is approved and released
		into TopCat and available for
		reporting to the Investigator site.
Lab Operations	Percentage of tests not	Percentage of tests not	0	%	*
	performed/not	performed/not reportable by
	reportable	reason
Lab Operations	Percentage of	Percentage of samples shipped	100	%	*
	shipments/samples	on time as per defined timelines
	shipped on time to third
	party
Lab Operations	Number of lost	Number of lost samples	0		*
	samples	(internally and externally) by
		reason
Data	Complete Data Set	Percentage of data	95	%	*
Management	delivered on time and	transmissions delivered on time
	defect free	error free (number of
		resubmissions)
Financial	Budget reconciliation to	Variance between budgeted vs	95	%	*
Management	plan	actual costs
Financial	Comparison of	Variance between budgeted vs	95	%	*
Management	budgeted to actual	actual costs
	transportation costs
Financial	Days sales outstanding	Percentage of invoices paid	100	%	*
Management		within 30 days

GlaxoSmithKline –Letter of Agreement Date:
January 1, 2008

_____________________________________
* Confidential treatment has been requested. The redacted material has been separately filed with the Commission.

Page 11 of 11

EX-10.41

Exhibit 10.41

AMENDMENT DATED AS OF AUGUST 17, 2007 TO THE
AMERIPATH GROUP HOLDINGS, INC. 2006 STOCK OPTION AND RESTRICTED
STOCK PURCHASE PLAN (THE “PLAN”)

WHEREAS, on May 31, 2007, AmeriPath Group Holdings, Inc. (“AmeriPath”) became a wholly-owned subsidiary of Quest Diagnostics Incorporated (“Quest Diagnostics”) through a merger (the “Merger”) of a wholly-owned subsidiary of Quest Diagnostics into AmeriPath.

WHEREAS, pursuant to the Agreement and Plan of Merger dated as of April 15, 2007 (the “Merger Agreement”) among Quest Diagnostics, Ace Acquisition Corporation and AmeriPath, on May 31, 2007, each option to purchase shares of AmeriPath granted under the Plan that was vested as of the closing (a “Vested Stock Option”) was cashed out based on the intrinsic value of the vested options. The cash payment was equal to (1) $6.67 (the difference between the transaction value of $10.17 per share minus the exercise price of such Vested Option of $3.50) multiplied by (2) the number of shares of AmeriPath covered by such Vested Stock Option, less (3) any applicable withholding taxes.

WHEREAS, under the Merger Agreement, each option to purchase shares granted under the Plan that was not vested as of the closing was converted into a non-qualified option to purchase Quest Diagnostics Common Stock pursuant to a formula intended to preserve the intrinsic value of such option. Under the conversion formula, each unvested option to acquire one share of AmeriPath was converted into a non-qualified option to acquire 0.2092 of a share of Quest Diagnostics Common Stock, with the exercise price being adjusted by dividing the previous AmeriPath exercise price ($3.50) by 0.2092, resulting in an exercise price of $16.73.

WHEREAS, the Corporation desires to approve an amendment to the Plan to provide that each option outstanding under the Plan as of June 1, 2007 shall vest on a change of control (as defined below), which amendment was approved on August 17, 2007 by the Compensation Committee of the Board of Directors of Quest Diagnostics.

NOW, THEREFORE, the Plan is amended by the addition of the following Section 6.3 effective as of June 1, 2007:

6.3 VESTING ON A CHANGE OF CONTROL. Each option outstanding on June 1, 2007 will vest on a change of control provided that the option holder is employed by Quest Diagnostics on the date of the change of control. In all other respects, each option outstanding under the Plan on June 1, 2007 remains subject to the same terms and conditions as were contained in the Plan as in effect on May 31, 2007 and the stock option agreement evidencing the option. The term “change of control” shall mean and shall be deemed to occur if and when:

1

(i) Any person (as such term is used in Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as amended) is or becomes the beneficial owner, directly or indirectly, of securities of Quest Diagnostics representing 40% or more of the combined voting power of Quest Diagnostics’ then outstanding securities; or

(ii) The individuals who, as of June 1, 2007, constituted Quest Diagnostics’ Board of Directors (the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board; provided, however, that any individual (other than any individual whose initial assumption of office is in connection with an actual or threatened election contest (as such term is used in Rule 14a-11 of Regulation A promulgated under the Exchange Act)), becoming a director subsequent to June 1, 2007, whose election, or nomination for election by the stockholders of Quest Diagnostics, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board, shall be considered as though such individual was a member of the Incumbent Board; or

(iii) Shareholders of Quest Diagnostics approve an agreement providing for (a) a transaction in which Quest Diagnostics will cease to be an independent publicly owned corporation, or (b) the sale or other disposition of all or substantially all of Quest Diagnostics’ assets, or (c) a plan of partial or complete liquidation of Quest Diagnostics

2

EX-21.1

Exhibit 21.1

Quest Diagnostics Incorporated (DE)
(Incorporated on December 12, 1990 in Delaware; FEIN No. 16-1387862)

Subsidiaries, Joint Ventures and Affiliates

100%	Quest Diagnostics Holdings Incorporated (f/k/a SBCL, Inc.) (DE)
	100%	Quest Diagnostics Clinical Laboratories, Inc. (f/k/a SmithKline Beecham Clinical
		Laboratories, Inc.) (DE)
		(33-l/3%)  Compunet Clinical Laboratories (OH)
		(44%)	Mid America Clinical Laboratories (IN)
		(51%)	Diagnostic Laboratory of Oklahoma LLC (OK)
100%	Quest Diagnostics Incorporated (MD)
	100%	Diagnostic Reference Services Inc. (MD)
		100%	Pathology Building Partnership (MD) (gen. ptnrshp.)
100%	Quest Diagnostics Incorporated (MI)
100%	Quest Diagnostics Investments Incorporated (DE)
	100%	Quest Diagnostics Finance Incorporated (DE)
100%	Quest Diagnostics LLC (IL)
100%	Quest Diagnostics LLC (MA)
100%	Quest Diagnostics LLC (CT)
100%	Quest Diagnostics Nichols Institute (f/k/a Quest Diagnostics Incorporated) (CA)
100%	Quest Diagnostics of Pennsylvania Inc. (DE)
	51%	Quest Diagnostics Venture LLC (PA)
	53.5%	Associated Clinical Laboratories (PA) (gen. ptnrshp.)
		100%	North Coast General Services, Inc. (PA)
100%	Quest Diagnostics of Puerto Rico, Inc. (PR)
100%	Quest Diagnostics Receivables Inc. (DE)
100%	Quest Diagnostics Ventures LLC (DE)
100%	American Medical Laboratories, Incorporated (DE)
	100%	AML Inc. (DE)
		100%	Quest Diagnostics Nichols Institute, Inc. (f/k/a Medical Laboratories Corporation)
			(VA)
		100%	Quest Diagnostics Incorporated (NV)
			100%	APL Properties Limited Liability Company (NV)
100%	DPD Holdings, Inc. (DE)
	100%	MetWest Inc. (DE)
		100%	Diagnostic Path Lab, Inc. (TX)
		100%	Quest Diagnostics Provider Network, LLC (CO)
			49%	Sonora Quest Laboratories LLC (AZ)
100%	Enterix Inc. (DE)
	100%	Enterix (Australia) Pty Limited (Australia)
		100%	Enterix Pty Limited (Australia)
			100%	Enterix UK Limited (UK)

100%	Focus Technologies Holding Company (DE)
	100%	Focus Diagnostics, Inc. (DE)
100%	HemoCue, Inc. (CA)
100%	QDI Acquisition AB (Sweden)
	100%	POCT Holding AB (Sweden)
		100%	HemoCue Holding AB (Sweden)
			100%	HemoCue AB (Sweden)
				100%	HemoCue Oy (Finland)
			100%	HemoCue GmbH (Germany)
			99.7%	HemoCue AG (Switzerland) (remaining 0.3% held in trust for HemoCue
				Holding AB)
			100%	Biotest Medizintechnik GmbH (Germany)
			100%	HemoCue Diagnostics B.V. (The Netherlands)
			100%	HC Diagnostics, Limited (UK)
100%	Lab Portal, Inc. (DE)
100%	LabOne, Inc. (MO)
	100%	ExamOne World Wide, Inc. (PA)
			100%	ExamOne World Wide of NJ, Inc. (NJ)
	100%	Systematic Business Services, Inc. (MO)
			100%	Scan Tech Solutions, LLC (MO)
	100%	LabOne, L.L.C. (KS)
	100%	Central Plains Holdings, Inc. (KS)
	100%	Lab One Canada, Inc. (Ontario)
			100%	ExamOne Canada, Inc. (Ontario)
				100%	Rapid-Med Plus Franchise Corporation (Ontario)
	100%	LabOne of Ohio, Inc. (DE)
	100%	Osborn Group Inc. (DE)
			100%	Intellisys, Inc. (GA)
100%	Lifepoint Medical Corporation (DE)
	100%	C&S Clinical Laboratory, Inc. (d/b/a Clinical Diagnostic Services) (NJ)
100%	MedPlus, Inc. (OH)
	100%	Worktiviti, Inc. (f/k/a Universal Document Management Systems, Inc.) (OH)
	100%	Valcor Associates Inc. (PA)
100%	Unilab Corporation (DE)
	100%	FNA Clinics of America, Inc. (f/k/a Unilab Acquisition Corporation) (DE)
100%	Nichols Institute Diagnostics (CA)
100%	Nichols Institute Diagnostics Limited (UK)
100%	Nichols Institute Diagnostika GmbH (Germany)
100%	Nichols Institute International Holding B.V. (Netherlands)
	100%	Nichols Institute Diagnostics B.V. (Netherlands)
	100%	Nichols Institute Diagnostics SARL (France)
100%	Nomad Massachusetts, Inc. (MA)
	100%	Quest Diagnostics Mexico, S.A. de C.V. (f/k/a Laboratorios Clinicos de Mexico, S.A. de
		C.V.) (Mexico)
	100%	Laboratorio de Analisis Biomedicos, S.A. (Mexico)
100%	Quest Diagnostics do Brasil Ltda. (Brazil)
100%	Quest Diagnostics India Private Limited (India)

2

100%	Quest Diagnostics Limited (UK)
	100%	The Pathology Partnership plc (UK)
19.9%	Clinical Genomics Pty Ltd. (Australia)
100%	AmeriPath Group Holdings, Inc. (DE)
	100%	AmeriPath Holdings, Inc. (DE)
		100%	AmeriPath Intermediate Holdings, Inc. (DE)
			100%	AmeriPath, Inc. (DE)
				100%	AmeriPath 5.01(a) Corporation (TX)
				100%	AmeriPath Cincinnati, Inc. (OH)
				100%	AmeriPath Cleveland, Inc. (OH)
				100%	AmeriPath Consolidated Labs, Inc. (FL)
				100%	AmeriPath Florida, LLC (DE)
				100%	AmeriPath Hospital Services Florida, LLC (DE)
				100%	AmeriPath Indemnity, Ltd. (Cayman Islands)
				100%	AmeriPath Indiana, LLC (IN)
				100%	AmeriPath, LLC (DE)
					100%	AmeriPath Texas, LP
				100%	AmeriPath Kentucky, Inc. (KY)
				100%	AmeriPath Lubbock 5.01(a) Corporation (TX)
				100%	AmeriPath Lubbock Outpatient 5.01(a) Corporation (f/k/a Simpson
					Pathology 5.01(a) Corporation) (TX)
				100%	AmeriPath Marketing USA, Inc (FL)
				100%	AmeriPath Michigan, Inc. (MI)
				100%	AmeriPath Mississippi, Inc. (MS)
				100%	AmeriPath New York, LLC (DE)
				100%	AmeriPath North Carolina, Inc. (NC)
				100%	AmeriPath Ohio, Inc. (DE)
					100%	AmeriPath Youngstown Labs, Inc. (OH)
				100%	AmeriPath PAT 5.01(a) Corporation (TX)
				100%	AmeriPath Pennsylvania, LLC (PA)
				100%	AmeriPath Philadelphia, Inc. (NJ)
				100%	AmeriPath San Antonio 5.01(a) Corporation (TX)
				100%	AmeriPath SC, Inc. (SC)
				100%	AmeriPath Severance 5.01(a) Corporation (TX)
				100%	AmeriPath Texarkana 5.01(a) Corporation (TX)
				100%	AmeriPath Wisconsin, LLC (WI)
				100%	AmeriPath Youngstown, Inc. (OH)
				100%	Anatomic Pathology Services, Inc. (OK)
				100%	API No. 2, LLC (DE)
				100%	Arlington Pathology Association 5.01(a) Corporation (TX)
				100%	Dermatopathology Services, Inc. (AL)
				100%	DFW 5.01(a) Corporation (TX)
				100%	Diagnostic Pathology Management Services, LLC (OK)
				100%	Kailash B. Sharma, M.D., Inc. (GA)
				100%	NAPA 5.01(a) Corporation (TX)
				100%	Nuclear Medicine and Pathology Associates (GA)
				100%	Ocmulgee Medical Pathology Association, Inc. (GA)
				100%	O’Quinn Medical Pathology Association, LLC (GA)

3

100%	PCA of Denver, Inc. (TN)
100%	PCA of Nashville, Inc. (TN)
100%	PCA Southeast II, Inc. (TN)
100%	Peter G. Klacsmann, M.D., Inc. (GA)
100%	Sharon G. Daspit, M.D., Inc. (GA)
100%	Shoals Pathology Associates, Inc. (AL)
100%	Specialty Laboratories, Inc. (CA)
100%	Strigen, Inc. (UT)
	100%	Arizona Pathology Group, Inc. (AZ)
	100%	Regional Pathology Consultants, LLC (UT)
	100%	Rocky Mountain Pathology, LLC (UT)
100%	TID Acquisition Corp. (DE)
100%	TXAR 5.01(a) Corporation (TX)

Additional Entities Consolidated for Accounting Purposes

A. Bernard Ackerman, M.D. Dermatopathology, PC (NY)

AmeriPath Consulting Pathology Services, P.A. (NC)

AmeriPath Indianapolis, P.C. (IN)

AmeriPath Institute of Urological Pathology, PC (MI)., (f/k/a J.J. Humes M.D. and Assoc.)

AmeriPath Milwaukee, S.C. (WI)

AmeriPath Pittsburgh, P.C. (PA)

Colorado Diagnostic Laboratory, LLC (CO)

Colorado Pathology Consultants, P.C. (CO)

Consulting Pathologists of Pennsylvania, P.C. (PA)

Dermatopathology of Wisconsin, S.C. (WI)

Diagnostic Pathology Services, P.C. (OK)

Institute for Dermatopathology, P.C. (PA)

Jill A. Cohen, M.D., Inc. (AZ)

Kilpatrick Pathology, P.A. (NC)

Rose Pathology Associates, P.C. (CO)

Southwest Diagnostic Laboratories, P.C. (CO)

St. Luke’s Pathology Associates, P.A. (KS)

Tulsa Diagnostics, P.C. (OK)

4

EX-23.1

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (Nos. 333-143867-33, 333-109062, 333-74114, 333-64806 and 333-54310) and Form S-8 (Nos. 333-143889, 333-136196, 333-136195, 333-10355, 333-60758, 333-85713, 333-74103, 333-66177, 333-60477, 333-17077, 333-17079 and 333-17083) of Quest Diagnostics Incorporated of our report dated February 22, 2008 relating to the financial statements, financial statement schedule and the effectiveness of internal control over financial reporting, which appears in this Form 10-K.

/s/ PricewaterhouseCoopers LLP

PricewaterhouseCoopers LLP
Florham Park, New Jersey
February 22, 2008

EX-31.1

Exhibit 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Surya N. Mohapatra, certify that:
1.	I have reviewed this annual report on Form 10-K of Quest Diagnostics Incorporated;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
	a)	designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
	b)	designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
	c)	evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
	d)	disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
	a)	all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
	b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

February 22, 2008
By	/s/ Surya N. Mohapatra
	Surya N. Mohapatra, Ph.D.
	Chairman of the Board, President and
	Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Robert A. Hagemann, certify that:
1.	I have reviewed this annual report on Form 10-K of Quest Diagnostics Incorporated;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
	a)	designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
	b)	designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
	c)	evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
	d)	disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
	a)	all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
	b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

February 22, 2008
By	/s/ Robert A. Hagemann
	Robert A. Hagemann
	Senior Vice President and
	Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO 18 U.S.C. § 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

          Pursuant to 18 U.S.C. § 1350, the undersigned certifies that, to the best of my knowledge, the Annual Report on Form 10-K for the period ended December 31, 2007 of Quest Diagnostics Incorporated, as being filed with the Securities and Exchange Commission concurrently herewith, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. § 78m or 78o(d)) and that the information contained in the Annual Report fairly presents, in all material respects, the financial condition and results of operations of Quest Diagnostics Incorporated.

Dated:	February 22, 2008	/s/ Surya N. Mohapatra
		Surya N. Mohapatra, Ph.D.
		Chairman of the Board, President and
		Chief Executive Officer

EX-32.2

Exhibit 32.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO 18 U.S.C. § 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

          Pursuant to 18 U.S.C. § 1350, the undersigned certifies that, to the best of my knowledge, the Annual Report on Form 10-K for the period ended December 31, 2007 of Quest Diagnostics Incorporated, as being filed with the Securities and Exchange Commission concurrently herewith, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. § 78m or 78o(d)) and that the information contained in the Annual Report fairly presents, in all material respects, the financial condition and results of operations of Quest Diagnostics Incorporated.

Dated:	February 22, 2008	/s/ Robert A. Hagemann
		Robert A. Hagemann
		Senior Vice President and
		Chief Financial Officer