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Dedicated people improving the health of patients through unsurpassed diagnostic insights. Quest Diagnostics Incorporated Annual Report 1998
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Page 1: quest diagnostics 98annualreport

Dedicated people improving the health of patients

through unsurpassed diagnostic insights.

Quest Diagnostics Incorporated

Annual Report 1998

Page 2: quest diagnostics 98annualreport

2

QualityThe patient comes first in everythingwe do. Our passion is to provideevery patient and every customerwith services and products ofuncompromising quality — errorfree, on time, every time. We dothat by dedicating ourselves to therelentless pursuit of excellence inthe services we provide.

IntegrityCredibility is the key to our success; therefore, all of ourprocesses, decisions and actionsultimately are driven by integrity.We are honest and forthright in allour dealings with our customersand with each other. We areresponsible corporate citizens inthe communities we serve. Westrictly comply with the laws andregulations governing our business,not only as a legal obligation and acompetitive necessity, but becauseit is the right thing to do.

InnovationWe constantly seek innovative ways to enhance patient care andprovide value to our customers.We support the creativity, courageand persistence that transforminformation into knowledge, andknowedge into insights. We seekcontinuous advancementthroughtheadaptation of existing knowledgeas well as through experimentation,with the full understanding that welearn from our failures as well asour successes.

AccountabilityAs a company and as individuals, we accept full responsibility for ourperformance and acknowledge our accountability for the ultimateoutcome of all that we do. We strivefor continuous improvement, believing that competence, reliability,and rigorous adherence to processdiscipline are the keys to excellence.

CollaborationWe believe in teamwork and the limitless possibilities ofcollaborative energy. We achieveexcellence by putting collectivegoals ahead of personal interests.We support and encourage opencommunication and meaningfulcooperation among colleaguesfrom varying backgrounds anddisciplines. We respect individualdifferences, and we value diversity.

LeadershipWe strive to be the best at what wedo — both as a company, and asindividuals. We embrace the qualities of personal leadership —courage, competence, confidenceand a passion for surpassing expectations. We will provide growthopportunities for our employees,quality services and products to ourcustomers and superior returns toour shareholders.

Our Values

Quest Diagnostics Incorporated is one of the nation’s leading providers of

diagnostic testing, information and services with laboratories and patient service

centers across the United States. The wide variety of tests performed on human

tissue and fluids help doctors and hospitals diagnose, treat and monitor disease.

Nichols Institute conducts research, specializes in esoteric testing using genetic

screening and other advanced technologies, and manufactures and distributes

diagnostic test kits and instruments. Quest Informatics collects and analyzes laboratory,

pharmaceutical and other data to help large health care customers identify and

monitor patients who are at-risk for certain diseases.

Our Business:

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financial highlights

Quest Diagnostics Incorporated and Subsidiaries

Net revenues $ 1,458.6 $ 1,528.7

Net income (loss) before restructuringand other non-recurring charges 26.9 17.6

Net income (loss) (a) 26.9 (22.3)

Weighted average common shares outstanding – diluted 30.2 29.2

Diluted net income per common share $ 0.89 $ (0.77)

Adjusted EBITDA (b) $ 158.6 $ 153.8

(a)Includes non-recurring charges totaling

$56 million in 1997.(b)

Adjusted EBITDA represents income (loss) before income taxes, net interest expense, depreciation,

amortization and restructuring and other non-recurring charges.

1 9 9 8 1 9 9 7(in millions, except per share data)

Y E A R S E N D E D D E C E M B E R 3 1

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By most measures, 1998 was a year in which your company made solidprogress. Even as we met the challengesof growing competition and decliningclinical testing volume, we generatedstrong cash flow, extended our strategicpartnerships in new and innovativeways, aggressively managed costs, andmade significant progress towardachieving our goal of becoming a unified,customer-driven company withcommon systems, practices and valueseverywhere throughout the country.At yearend, we were well positioned to take a new strategic step to furtherimprove our prospects.

Perhaps most important for long-term success, we reinforced in 1998the commitment to our vision –“dedicated people improvingthehealthof patients through unsurpassed diagnostic insights” – by pledgingourselves to a set of ambitious andclearly quantifiable goals for instilling unsurpassed quality inevery aspect of the business.

As the information included in this report demonstrates, QuestDiagnostics has come a long, longway from the difficult years of themid-1990s. Our turnaround is succeeding. We are committed tobecoming the clear industry leaderby providing our patients and customers with services and productsof exceptional quality. In a businesswhere the quality of what we do canliterally mean the difference betweenlife and death, we are absolutelyconvinced that consistent,unsurpassedquality will provide the ultimatecompetitive edge.

SBCL AcquisitionWe announced an agreement as thisreport was going to press to acquire

the clinical laboratory business ofSmithKline Beecham plc. QuestDiagnostics has agreed to purchaseSmithKline Beecham ClinicalLaboratories(SBCL)for approximately$1.3 billion in cash and stock. Thisimportant acquisition will enable usto provide a higher level of servicefor customers and patients in a cost-constrained environment, therebyincreasing shareholder returns.

This transaction is highly strategicand timely. We are confident wehave the discipline and the focus toensure successful integration of thetwo companies. We are acquiring acompany that in many ways mirrorsour own business. Both companieshave strong reputations as well-managed operations. We share acommon commitment to quality,integrity andcompliance, and arebothdedicated to improving patient health. Combining the twocompanies will improve the quality,convenience and accessibility of ourservices; accelerate innovation ofnew tests and information products;and enable continued reduction inour costs by sharing the best practicesfrom each of our organizations. Weexpect to complete the transactionthis summer, following shareholderapproval and regulatory clearance.Upon completion, SmithKlineBeecham plc will become our largestshareholder, owning approximately29.5% of our shares.

Performance Summary

We are pleased to report that in1998, Quest Diagnostics reportednet income of $26.9 million, or $0.89per diluted share, on revenues of$1.46 billion, versus 1997 net income,adjusted to exclude special charges, of$17.6 million, or $0.60 per share, onrevenues of $1.53 billion.

As anticipated, requisition volumedeclined 7% from 1997, althoughthe rate of decline did slow over the course of the year. Given theseconditions, we are particularlypleased with our ability to generatesubstantial amounts of cash. Weended the year with $203 million of cash on hand, and generated$141 million in cash from operations.Strong cash generation reflectssignificant improvements in our billing, collection and costmanagement processes.

There are many other indicators of financial strength in our 1998 performance:

In addition to repaying $33 millionof scheduled bank debt, we prepaidan additional $20 million of debtahead of schedule,while also buyingback $13 million of our stock.

We remained firmly on track tomeet the commitment made at thetime of our spinoff from CorningIncorporated in early 1997 to reducethe cost of running our business by$180 million by the end of 2000.Through the end of 1998, weeliminated $100 million in costsunrelated to the decline in requisitionvolume, and we remain confidentthat we will meet our goal. Thesesavings are allowing us to reinvest inour business to assure long termprofitable growth.

We reduced bad debt expense from7.4% of revenues in 1997 to 6.1% in1998, steadily progressing towardour goal of 4% by the end of 2000.A major step was the conversion ofour Teterboro facility to a newbilling system, by far the largest andmost successful conversion to date.

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Chairman’s Letter

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We saw average revenue per requisitionincrease for the second consecutiveyear, following five straight years ofdeclines. Partly, this was a result of replacing low-profit business withhigher-profit business as we demon-strated our steadfast commitment to provide services only to thosecustomers from whom we are properly compensated, even if that means a decline in volume.

We made substantial progress during1998 toward addressing the Year 2000computer-programming problem.Although substantial work remains,we are on track to complete the firstphase on schedule midway through1999, which will leave the second halfof the year for testing and refine-ments. Consequently, we fully expectcore systems to be Year 2000-readybefore the end of the year. Our Year2000 work has provided the addedbenefit of accelerating efforts tostandardize billing and laboratorysystems across the country.

Nevertheless, 1998 was not withoutdisappointments. Our progresstoward standardization of systemsand practices was significant, butnot as swift as we had hoped. Also,the joint venture in Arizona, SonoraQuest Laboratories, in which we holda minority interest, encountered significant integration challengesthat hindered its first year ofoperations. Also, Nichols InstituteDiagnostics, our medical productssubsidiary, encountered startup lossesassociated with the introduction ofits state-of-the-art Nichols Advantageinstrument.

Finally, the decline in the volume oftest requisitions was disappointing.Admittedly, the rate of decline

slowed in the second half; moreover,of the 7% year-over-year decline involume, about half was directlyattributable to our own consolidationof facilities and to our decision toreduce unprofitable business. Still,we do not intend to shrink our way to success, and we continue topursue top line growth through thestrategic acquisition of SBCL andthe active development of new highgrowth businesses.

Strategic Partnerships

Your company intensified efforts tobecome the preferred partner withlarge buyers of health care services.We made important inroads withinthe highly competitive field of hospital testing, which accounts for nearly 55% of the $30-plusbillion market in clinical testing. In part, our success comes fromviewing traditional competitors as potential partners, and providingways we can profitably work togetherto reduce their lab testing costs whilesimultaneously improving quality.

Over time, we have come to realizethere is no “one-size-fits-all” model ofcollaboration; each situation is uniqueand requires creative approaches,ranging from outsourcing routinetesting to fully integrated joint ventures. Some of the partnershipssuccessfully established in 1998include:

Joint ventures with UPMC HealthSystem in western Pennsylvania and Unity Health in St. Louis, bothleading hospital network and healthcare providers in their respectiveregions;

Partnerships through which weprovide multiple clinical services to

5

1996

1997

1998

1995

Adjusted EBITDA*

$177 million

$166 million

$154 million

$159 million

1996

1997

1998

1995

Cash and Cash Equivalents at End of Year

$ 36 million

$ 42 million

$162 million

$203 million

1996

1997

1998

1995

Debt at End of Year

$1,208 million

$ 536 million

$ 515 million

$ 465 million

1996

1997

1998

1995

Bad Debt as Percentage of Net Revenues

*Adjusted EBITDA; excludes restructuring charge and other special charges

9.4%

6.9%

7.4%

6.1%

Page 6: quest diagnostics 98annualreport

the highly regarded hospitals of theJohns Hopkins Health System inMaryland and Sutter Health Systemsin California. During the year weestablished or renewed long-termsupply arrangements with morethan 100 hospitals and hospitalsystems;

A long-term contract with OxfordHealth Plans to manage a network oflaboratory service providers, as wellas provide lab services, for its 1.75million members. We will providenetwork management services usingQuestNet, an innovative new productdeveloped during the past year; and

A partnership with Premier Inc., a leading group purchasing organization for hospitals, throughwhich Quest Diagnostics obtainedan exclusive 10-year contract to provide strategic services forPremier members and affiliates.

Historically, our primary avenueinto the hospital testing market hasbeen the highly specialized esoterictesting provided by our NicholsInstitute. We are proud that in 1998Nichols Institute became the firstclinical laboratory in North Americato receive ISO 9001 Certification.This internationally recognizedstandard of quality encompasses themanagement and document controlsystems for design, development andperformance of diagnostic labtesting, information and services.Other Quest Diagnostics labs arepursuing certification, and weare intent on replicating NicholsInstitute’s success throughout ourcompany. Indeed, that achievementhelped set the tone for the company-wide emphasis on quality excellencethat was reinvigorated in the fall

and will be our primary focus in thenew year.

Our Quality Journey

We began “Our Quality Journey” by establishing some exceptionallyambitious quality challenges that wefully intend to meet by the end of2002. The only way we can achievethem is through a fundamentallydifferent approach to doing businessbased on quality excellence – througheducation and training in the principles of quality management,through rigorous process discipline,and through performance-basedcompensation linked directly to ourcompany-wide goals. Here is whatwe have set out to accomplish:

Improve Employee Satisfaction:Our goal is to reduce voluntaryemployee turnover from almost16% to 10% in 2000 and 7% by the end of 2002. We estimate that voluntary turnover is costing ourcompany at least $60 million eachyear in terms of recruitment, trainingand inefficient operations. Increasedretention willhave a significant impacton the quality of our work and oursuccess at managing expenses.

Improve Customer Satisfaction: Each quarter, we survey our customersto determine their levelof satisfactionwith our service. For the past fouryears, our results have improved,but only marginally.

Using benchmarks and measuresprovided by outside specialists, wehave set specific numerical goals for improvement for each of thenext four years. The bottom line:Satisfactory is not acceptable. Weintend to become the benchmarkfor quality in our industry.

Achieve Six Sigma Medical Quality: The ultimate measure of our serviceto customersandclients is the accuracyof our medical test results and reports.Generally speaking, our industry hasbeen comfortable with an accuracyrate above 90%. We have established a new goal of Six Sigma– an accuracyrate of 99.99966% or only 3.4 errorsper million – which approaches error-free testing and reporting. We fullyintend to become the first in ourindustry to achieve this goal.

Deliver Bottom Line Growth:Our goal is to more than doubleoperating profit (EBITA) by 2002.That means we must continue to remove costs while restoringprofitable growth to the top line.

These four goals are interrelated.We must achieve the first three:increased employee satisfaction,greater customer satisfaction, anddramatically improved medicalquality, to enable us to meet thefinancial goal.

To help us accelerate growth andimprove organizational effectiveness,we made two senior-level appoint-ments in January. We added adistinguished health care industryveteran, Dr. Surya Mohapatra, asSenior Vice President and ChiefOperating Officer. In this newposition, Surya, who comes to us after nearly 18 years at PickerInternational, will be responsiblefor all facets of our core clinicallaboratory testing business. Inaddition, Jim Chambers has accepteda new assignment as Senior VicePresident and Chief Growth Officer.He will lead the integration ofSBCL and Quest Diagnostics, whilecontinuing to spearhead our efforts togrow beyond our traditional business.

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Meeting the Challenges of 1999

The four quality challenges representan ambitious agenda. We are fullycommitted to meeting these newchallenges, while continuing tobuild on the initiatives that gainedmomentum in 1998.

During 1999:

• We will begin the process ofbringing Quest Diagnostics andSBCL together;• We will maintain and intensifyour efforts to standardize practices,policies and priorities across thecompany;• We will continue to manage costsaggressively;• We will complete preparations toensure our information technologysystems are Year 2000-ready; • Despite a difficult environmentcharacterized by ever-changing government regulations andrequirements, we remain committedto maintaining our status as theindustry leader in compliance;• We will maintain our focus onraising revenue per requisition byproviding higher value to cost-sensitivecustomers in a highly fragmented,competitive environment; • We will continue to seek outprofitable partnerships with largebuyers of health services as wepursue new growth opportunities to offset continuing declines in our traditional markets; and

• We will reestablish top linegrowth at Quest Diagnostics andcontinue strong cash generation.

In short, 1999 promises a year fullof challenges for your company, butone in which we have the opportunityto move far beyond the solid recordof accomplishments wehaveestablishedduring our first two years as a publiccompany. We are convinced thatour attention is focused on the rightgoals: providing quality services forour customers and patients, anexceptional working environmentfor our dedicated employees, and a strong return on our shareholders’investment. By maintaining anunswerving focus on these criticalareas, we can look forward toreporting another year of strongperformance improvement in thenew year.

7

Kenneth W. FreemanChairman and Chief Executive Officer

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peoplededicated

8

The 15,000 employees of Quest Diagnostics are our most

valuable resource. Across the country, every day, they put

their hearts and souls into their work. Why? They know that

every time they collect a specimen, transport it to one of our

laboratories, perform testing or report the results back to

a physician, someone’s life may depend on the job they do.

During the 1980s and early 1990s, our company grew through

acquisitions. Employees came from many predecessor companies.

Today, they are all building a common company-wide culture

at Quest Diagnostics, based on shared values and best practices,

with a single-minded focus on quality that starts with

understanding our customers’ expectations. For many of

our employees, it is not enough merely to help patients

during work hours. Our national volunteer program, called

“reach!” (remember every act can help), enables our

employees to contribute to the communities in which they

live and work, thereby helping to improve the lives of those

who use our services every day.

Clockwise,from top: Mervat Ayad, Cytogenetics Laboratory Manager, Nichols Institute; Brian Wade, Systems Analyst, Clinical Studies Center, San

Juan Capistrano; Jose Martinez, Customer Service Rep, Nichols Institute; Joan Zou, Forensic Certifier, San Diego; Nina Green, Operations Leader,

San Diego; Maria Ortega, Project Manager, Lab Operations, Teterboro; Phil McGill, Shipping and Receiving Supervisor, San Diego; Clarence Johnson,

Courier, Denver; Estela Comba, Lab Support Supervisor, Nichols Institute; and Sylvia Harrison, Courier, San Diego.

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Most medical care decisions simply are not made without

laboratory test results. The thousands of different clinical tests

we perform help doctors and large health care organizations

diagnose, treat and monitor the health of patients. In 1998,

some of the biggest buyers of health care services entrusted

their patients to our care—household names like Johns

Hopkins Health System, Oxford Health Plans, Premier Inc.,

Sutter Health, Unity Health and UPMC Health System

(formerly University of Pittsburgh Medical Center). Why did

these demanding customers partner with Quest Diagnostics?

First and foremost, because they have confidence that our

quality is second to none. (It is no coincidence that our

Nichols Institute was the first laboratory in North America to

receive ISO 9001 quality process certification.) Our expert

medical staff is on call for consultations to help treating

physicians diagnose their most difficult cases—24 hours a day,

365 days a year. Our courier service helps hospital partners

reduce overall turnaround time for outpatient testing, giving

doctors and their patients precious time to consider more

treatment options. Every patient expects and deserves the

best medical care. Quest Diagnostics provides a vital link.

10

patientsimproving the health of

Clockwise, from top: Ellen Simonson, Customer Service Technical Representative, Denver; Jayshri Kapadia, Client Services, Teterboro;

Tess Eusebio, Clinical Toxicology Supervisor, Teterboro; Ralph J. Partridge, Jr., Inventory Control Clerk, Billing Data Entry, Horsham;

Amy Verrinder, Sales Support Specialist, San Diego; Raymond Gambino, M.D., Chief Medical Officer Emeritus, Teterboro; Brenda Ellison, Data Entry

Operator, Histology, Horsham.

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insights

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through unsurpassed diagnostic

Knowledge plus experience yields insights. We offer insights

that improve patient care in a variety of ways. At the world-

renowned Nichols Institute, our specialty laboratory and

research and development center, insights emerge from our

review of a steady stream of cases that are rarely seen anywhere

else. Nichols Institute is the “laboratory’s laboratory,” drawing

unusual cases not only from Quest Diagnostics’ own network,

but also from hospital labs and other independent labs. At

Quest Informatics, insights come from our ability to detect

patterns in vast databases containing hundreds of millions

of ordinary test results. Managed care providers and

pharmaceutical companies use this valuable information

resource to identify patients at risk for certain diseases

for early treatment. Our insights enable us to help bring

patients the benefits of new technology. Since the 1970s,

Nichols Institute has been a leader in tests for breast tumor

markers—tests not only to diagnose disease, but to help

physicians manage therapy by predicting a patient’s response

to a given treatment. In 1998, Quest Diagnostics became the

first national laboratory to offer the HercepTest assay,

approved by the FDA to identify women who are likely to

benefit from Herceptin, a new monoclonal antibody therapy

for metastatic breast cancer developed by Genentech, Inc.

Clockwise, from top: Michael Samoszuk, M.D., Medical & Scientific Director, Oncology, Nichols Institute; Michael Lewinski, Ph.D., Scientific Director,

Infectious Diseases, Nichols Institute; Delbert Fisher, M.D., Chief Science Officer, Nichols Institute; Avelino Diao, Molecular Microbiology Lab Supervisor,

Nichols Institute Reference Laboratory; Raj Pandian, Ph.D., Science Leader, Nichols Institute Reference Laboratory; Scott Todd, Human Resources Manager,

Nichols Institute; Salli Schwartz, Supervisor, Referral Testing, Horsham; Geoffrey Gottlieb, M.D., Dermatopathologist, Teterboro; and Candice Miller, Quest

Informatics Business Leader.

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Board of Directors

Kenneth D. BrodyFounding PartnerWinslow Partners LLCWashington, District of Columbia

William F. BuehlerVice ChairmanXerox CorporationStamford, Connecticut

Van C. CampbellVice ChairmanCorning IncorporatedCorning, New York

Mary A. CirilloExecutive Vice PresidentManaging DirectorBankers Trust Company New York, New York

Kenneth W. FreemanChairman and Chief Executive Officer Quest Diagnostics IncorporatedTeterboro, New Jersey

Dan C. Stanzione, Ph.D.President of Bell Laboratories, Executive Vice President and Chief Operating OfficerLucent Technologies IncorporatedMurray Hill, New Jersey

Gail R. Wilensky, Ph.D.John M. Olin Senior FellowProject HOPEBethesda, Maryland

Executive Officers

Kenneth W. FreemanChairman andChief Executive Officer

Surya N. Mohapatra, Ph.D.Senior Vice PresidentChief Operating Officer

James D. ChambersSenior Vice PresidentChief Growth Officer

Gerald C. MarroneSenior Vice PresidentChief Information Officer

Kurt R. FischerVice PresidentHuman Resources

Robert A. HagemannVice PresidentChief Financial Officer

Bernard L. Kasten, M.D.Vice PresidentChief Laboratory Officer

Raymond C. MarierVice PresidentGeneral Counsel

C. Kim McCarthyVice President Government Relations and Services

Alister W. ReynoldsVice PresidentStrategic Planning

Paul J. TrainaVice PresidentCompliance

David M. ZeweVice PresidentSales

Major Facilities

Regional Laboratories:

San Diego, California Wallingford, Connecticut Denver, Colorado Deerfield Beach, Florida Wood Dale, Illinois Baltimore, Maryland Cambridge, Massachusetts Auburn Hills, Michigan Lincoln, Nebraska Teterboro, New Jersey Portland, Oregon Horsham, Pennsylvania Pittsburgh, Pennsylvania Irving, Texas

Nichols Institute San Juan Capistrano, California

Nichols Institute DiagnosticsSan Juan Capistrano, California

Patient Service Centers located across the United StatesFor the center nearest you, please call: 1-800-225-7483 or visit our web site:www.questdiagnostics.com

Affiliated Equity Ventures (% ownership):

Associated Clinical Laboratories (54%)Erie, Pennsylvania Partners: Hamot HealthFoundation, Saint Vincent HealthCenter

Quest Diagnostics Venture LLC (51%)Pittsburgh, PennsylvaniaPartner: UPMC Health System (formerly known as University ofPittsburgh Medical Center)

Quest Diagnostics of Missouri LLC (51%)St. Louis, MissouriPartner: Unity Health

Sonora Quest Laboratories LLC (49%)Phoenix, Arizona Partner: Samaritan Health System

National Imaging Associates (27%)Saddle River, New Jersey

Home Access Health Corporation (13%)Hoffman Estates, Illinois

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Investor Information

Common StockShares in Quest DiagnosticsIncorporated (ticker symbol:“DGX”) are listed on the New YorkStock Exchange. Options on QuestDiagnostics shares are traded on theChicago Board Options Exchange.

Corporate HeadquartersOne Malcolm AvenueTeterboro, New Jersey 07608Telephone: 201-393-5000

Annual MeetingThe next annual meeting of share-holders is scheduled to be held inlate June, 1999 in New York City. Aproxy statement is expected to bemailed to shareholders during May,1999.

Additional InformationAll inquiries should be addressedto: Investor Relations DepartmentQuest Diagnostics IncorporatedOne Malcolm AvenueTeterboro, New Jersey 07608Telephone: 201-393-5030

Annual Report on Form 10-KA copy of the Quest Diagnostics1998 Annual Report on Form 10-K,filed with the Securities andExchange Commission, is containedin this Annual Report, starting afterpage 14. Additional copies areavailable without charge by contactingthe Investor Relations Department.

Internet AccessCorporate news releases, our annualreport, Forms 10-K and 10-Q andother information about the company are available throughQuest Diagnostics’ web site on theInternet: http://www.questdiagnostics.com

Transfer Agent and RegistrarHarris Trust and Savings Bank311 West Monroe StreetChicago, Illinois 60606Telephone: 312-461-6001

For the hearing impaired, HarrisBank has a TelecommunicationsDevice for the Deaf (TDD) telephone. The listing is HarrisBank Hearing Impaired Telephone:TDD 312-461-5633.

Report change of address to Harris Bank at the above address.

Quest Diagnostics does not pay anydividends on common stock.

‘Safe Harbor’ Statement under the PrivateSecurities Litigation Reform Act of 1995 The statements in this AnnualReport which are not historical factsor information are forward-lookingstatements. These forward-lookingstatements involve risks and uncer-tainties that could cause the out-come to be materially different.Certain of these risks and uncertain-ties are listed in the 1998 Form 10-KAnnual Report. These risks anduncertainties include heightenedcompetition, impact of changes in payor mix, adverse actions bygovernmental and other third-partypayors, the impact upon QuestDiagnostics’ collection rates or general or administrative expensesresulting from compliance withMedicare administrative policies,adverse results from pending governmental investigations, reduction in tests ordered by exist-ing customers, material increases inpremiums for insurance coverage,denial of licensure, computer orother system failures, developmentof technologies that substantiallyalter the practice of medicine andchanges in interest rates.

Compliance Quest Diagnostics is committed tothe highest ethical standards andcomplying with all applicable lawsand regulations that govern its business operations, including thosethat apply to reimbursement fortesting under the federal Medicareand Medicaid programs.

Quest Diagnostics requires that allemployees abide by these laws, rulesand regulations and provides annu-al compliance training for allemployees. Quest Diagnostics iscommitted to protecting the healthand safety of its employees as well asthe environmental resources of thecommunities in which it operates.

The Raymond Gambino Quality Award The purpose of the RaymondGambino Quality Award is toencourage and recognize qualityexcellence within QuestDiagnostics. The award is namedfor Quest Diagnostics’ distinguishedChief Medical Officer Emerituswhose long career includes serviceas Director of Laboratories andChief Pathologist at St. Luke’s-Roosevelt Hospital in New York Cityas well as a tenured professorship ofpathology at the ColumbiaUniversity College of Physicians andSurgeons.

1998 Recipients: Denver, ColoradoHorsham, Pennsylvania San Diego, California

1998 Challenger:Cambridge, Massachusetts

TrademarksQUEST, QUESTNET, QUEST DIAGNOSTICSand the associated Logo are trade/servicemarksof Quest Diagnostics Incorporated. QUICK-STREP and CHEM-SCREEN are registered ser-vicemarks of CLMP, INC. SMARTECH is a trade-mark of CLMP, Inc. NICHOLS INSTITUTE is aservicemark and NICHOLS ADVANTAGE is atrademark of Quest Diagnostics Incorporated.QUICK-INTRAOPERATIVE and QUICK-PAK aretrademarks of Nichols Institute Diagnostics, Inc.QUEST INFORMATICS is a servicemark ofQuest Diagnostics Incorporated.

HercepTest is a trademark of Dako Corporation.Herceptin is a trademark of Genentech, Inc.

Neither this report nor any statement contained herein is furnished in connection withany offering of securities or for the purpose ofpromoting or influencing the sale of securities.

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Quest Diagnostics IncorporatedOne Malcolm AvenueTeterboro, New Jersey 07608

www.questdiagnostics.com

Annual Report without 10K: MI0532Annual Report: MI0533


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