1. Quest Diagnostics
Incorporated
1996
Annual Report
Answers.

2. CHAIRMAN’S LETTER
This has been a truly historic year for Quest
Diagnostics Incorporated.
In the space of twelve months, we have launched a
new company with a new name, a focused strategy, a
clear mission and a compelling vision of our essential
role in providing answers for health care: answers
for patients, answers for partners, answers for
better health care decisions.
We are excited about Quest Diagnostics and the
opportunities which it presents. The model for
driving the successful turnaround of our company
starts with our employees. Satisfied employees will
yield satisfied customers, which in turn, will yield
satisfied shareholders. We are creating a culture that
focuses on our customers as our number one priority.
We believe this is the fundamental way to create
shareholder value.

3. immunoassay, cytogenetics and mole-
Last year at this time, we were together to reach agreement with the
cular diagnostic testing.
Corning Clinical Laboratories and Department of Justice to settle out-
Corning Nichols Institute, units of standing charges relating to the busi-
With annual revenues of just over
Corning Incorporated’s health ser- ness practices of Damon Corporation
$1.6 billion, we are a leader in the
vices businesses. In the spring of that predated Corning’s acquisition of
independent laboratory testing indus-
1996, Corning’s Board of Directors Damon in 1993. The charges were
try. As we go about solidifying our
decided to spin off our business and settled for $119 million, for which we
leadership, we remain committed to
our sister operation, Corning were fully reimbursed by Corning.
the proposition that the patient
Pharmaceutical Services, which has We made great progress in resolving
comes first in everything we do. We
been renamed Covance Inc., as two outstanding government legal issues
carefully chose the name “Quest
separate, completely independent prior to the spin-off, and Corning is
Diagnostics” to signify our dedication
publicly-owned companies. We select- committed to reimburse us for any
to the continuing pursuit of unex-
ed our new name: Quest Diagnostics settlement costs arising from the few
celled quality in our core testing and
Incorporated and each Corning outstanding identified governmental
our relentless search for new knowl-
shareholder received one share of issues that remain.
edge and medical insights. Our new
Quest Diagnostics for every eight
name is closely linked with a new set
shares of Corning stock. In the course of the spin-off, our com-
of values to which our people aspire: pany also took a $445 million write-
Quality, Integrity, Innovation,
Today, Quest Diagnostics encompass- down for goodwill, an accounting
Accountability, Collaboration, and
es almost 18,000 employee-owners adjustment to value our laboratory
Leadership.
who, in the words of our corporate assets at estimated fair market value
vision, are “Dedicated people improv- rather than their amortized acquisi-
The Spin-Off
ing the health of patients through tion price. This special charge has no
In a business environment increasing-
unsurpassed diagnostic insights.” Last impact on the company’s cash posi-
ly marked by tougher competition
year we processed approximately 60 tion or our overall financial strength.
and intense price pressure from gov-
million requests from more than
1996 In Review
ernment agencies and managed care
75,000 customers for testing and
The past year was one of dramatic
systems, the spin-off from Corning
analysis of human fluids and tissues.
changes and significant progress.
offers the twin benefits of focus and
Quest Diagnostics covers the entire
flexibility. As an independent compa-
gamut of laboratory testing, all the
After nearly a decade of unabated
ny operating in a turbulent industry,
way from the bedside to highly eso-
growth, the company experienced a
management is now in a stronger
teric specialized testing. At our 17
period of near free-fall in 1994 and
position to act swiftly and aggressively
regional laboratories and 14 branch
1995. In 1996, we moved to stabilize
to meet the challenges and seize
facilities across the U.S., the bulk of
the business. The decline has slowed,
upon new opportunities.
our activity is “routine” testing,
and we have stabilized; now at the
including blood counts, Pap smears,
midpoint of our turnaround, our goal
Throughout the spin-off process,
pregnancy testing, cholesterol levels,
is to increase profitability in the face
Corning lived up to its promise to
AIDS-related tests, and substance
of intense market pressure.
launch our new company on solid
abuse testing. In addition, our
financial footing. Corning, in
Nichols Institute is a leading provider
We froze acquisition activity.
essence, forgave more than $700 mil-
of more complex “esoteric” testing,
Following a period in which the com-
lion of debt attributable to the labora-
serving nearly a third of the nation’s
pany had nearly doubled its size, we
tory testing business. We worked
hospitals, performing comprehensive
2

4. turned our attention to integrating We accomplished all of this, and at
We developed a clear, three-pronged
our diverse operations. the same time, took our company
strategy:
public.
We implemented a “Focus” process • To be the best supplier of the high-
Looking Ahead
that identified critical success factors est quality and lowest cost diagnostic
and began putting into place systems We began 1997 with the installation
testing, information and services;
and processes marked by rigorous of our new Board of Directors, an
attention to quality management. experienced and diverse group of out-
• To be the preferred partner with
standing leaders from the worlds of
large buyers of health care services; and
We renewed our commitment to business, technology, and goverment.
full compliance with all regulatory • To be the leading innovator for
requirements, and the Department of Our primary goal in the new year is to
diagnostic testing, information and
Health and Human Services cited our pursue the “highest quality and lowest
services.
corporate compliance program as “a cost” component of our strategy
model for the industry.” through standardization of business
Each component of the strategy is
processes and information technology,
described in detail later in this report.
We launched a major assault on our including company-wide implementa-
historic problem of bad debt expense, tion of best practices that already exist
We undertook a strategic review of
which stems from a combination of inside Quest Diagnostics. To scale the
our business, market by market. We
non-standardized billing practices and opportunity, the approximate average
believe that health care remains pri-
increasingly complex payor require- cost of processing each requisition
marily a regional business. In ten of
ments. For the year, our bad debt ranged last year from $17 at our most
our seventeen regions we are the mar-
expense averaged 6.9% of sales, down efficient lab to a high of $30. Our
ket leader. We determined that in
from 9.4% in 1995. While we have goal is to reduce our current average
those regions where we are not a
made significant progress, much work cost per requisition of approximately
strong competitor, we will act aggres-
remains in order to meet our goal of $25 by about $3 by the year 2000.
sively to fix our operations, dispose
reducing bad debt expense to 4% of The potential payoff is substantial.
of them, or seek creative ways to
sales by 2000. Each $1 we shave from the average
secure competitive leadership.
cost produces approximately $60 mil-
We began to develop a systematic lion in operating profit.
We installed a strong management
process for weeding out unprofitable team, combining experienced
accounts, disciplining ourselves to We are standardizing our approach to
Corning executives with seasoned
begin terminating high volume con- managing our customer accounts,
veterans from other health care
tracts that fail to provide a sufficient striving to better align our pricing
companies.
return for the services we provide. with the value of the services we pro-
vide. Historically, our industry, and
We restructured the organization of
We intensified our emphasis on inno- our company believed that incremen-
our company for the first time in
vation, developing more than 120 tal volume, at virtually any price,
more than ten years to align our
new test assays in our research and would generate good returns. Reality
operations with our new strategy and
development facilities at Nichols has taught us an important lesson in
assigned clear accountability for meet-
Institute. this regard.
ing the objectives essential to the suc-
cess of the strategy.
3

5. (front)
Kenneth W. Freeman,
Chairman and
Chief Executive Officer;
(back left to right)
Dr. Gregory C. Critchfield,
Senior Vice President and
At the same time, we are moving Chief Medical and
aggressively to team up with strong Science Officer;
partners in selected regions across
Don M. Hardison Jr.,
the country. An early example is the
Senior Vice President
developing relationship with the
Sales and Marketing;
world-renowned University of
Pittsburgh Medical Center to explore Douglas M. VanOort,
close collaboration in four areas: lab Senior Vice President
Operations.
testing, anatomic pathology, molecu-
lar diagnostic testing, and medical
information systems. Similar relation-
ships are in varying stages of develop-
ment in other markets.
Finally, we see promising develop-
ments in the area of scientific innova-
tion. We have just received U.S. Food
and Drug Administration approval for
the Nichols Advantage™ system, a
state-of-the-art automated medical look to the future with pride in our
provide each client; to focus our busi-
testing analyzer that will be shipped accomplishments, confidence in the
ness on markets where we are -- or
to customers starting later this year. capabilities of our people, and excite-
can become -- the market leader; and
And, we see significant opportunities ment about the opportunities that lie
to reestablish our role as the indus-
at Quest Informatics, a business that within our grasp.
try’s leading innovator.
draws upon our rich store of medical
data to create medical knowledge We hope you will join us in the turn-
We have stabilized our business. In
essential for more effective disease around of Quest Diagnostics!
1997 we expect to maintain marginal
management. profitability. Going forward, as the
benefits of our current efforts across
Our Challenges Quest Diagnostics begin translating
Our challenges are clear: to stan- into results, we anticipate accelerated
dardize the operations, processes and earnings growth.
systems of our multitude of laboratory
facilities and support services; to con- None of this will be easy. Many of our
vert unprofitable customer accounts Kenneth W. Freeman
efforts have just begun, and we fully
into profitable ones by better match- Chairman and
understand the considerable obstacles
ing our prices and the services we Chief Executive Officer
that lie before us. Nevertheless, we
4

6. We will be the
highest quality,
lowest cost
provider of
diagnostic testing,
information
and services.
Answers
for
Patients

7. Our Business ately. Some tests that rely on growing There is a cost difference of approxi-
cultures, tissue analysis or esoteric
The first element in our three prong- mately $13 per requisition between
tests that require amplifying genes
ed strategy is to be the best supplier our most efficient and least efficient
can take longer to complete.
of diagnostic testing, information and labs. Our attention is focused on mak-
services. ing operations consistent across the
In 1996, we processed approximately company by implementing best prac-
60 million requisitions for testing.
In the delivery of health care, virtu- tices in all our facilities.
After we provide the test results, we
ally nothing happens without diag-
produce invoices and begin a com-
nostic test results. Clinical laboratory Labs with leading regional market
plex process to get paid for our ser-
testing provides answers for caregivers share are typically our most profitable
vices. Payors include patients, doctors,
that lead to better decisions for and generate cash. Yet several labs
indemnity insurance companies, man-
patient care. with weak market positions are
aged care companies, hospitals, clin- unprofitable and consume cash. We
Providing these answers is a complex ics, employers and government payors are working hard to quickly return
logistical undertaking. It starts with such as Medicaid and Medicare. these labs to profitability. We are also
one of our more than 75,000 doctor- considering several strategic actions
Our History
clients completing a patient requisi- including selling labs, swapping labs
Dr. Paul Brown founded MetPath Inc.
tion for testing, and preparing the with competitors, or forming joint
in 1967 in New York City, with a new
specimen or sending the patient to ventures with other lab providers to
concept for highly automated, high
one of our 850 patient service centers establish stronger market position.
quality and low cost testing. MetPath
around the country to have blood
Billing
quickly grew to become the leading
drawn by one of our phlebotomists.
In our business, billing and getting
independent testing lab in the New
The specimens are then retrieved by
paid for testing has become more dif-
York area. Corning Incorporated pur-
our network of professional couriers
ficult than performing the testing
chased MetPath in 1982 and, in ensu-
and delivered to one of our 17
itself. Billing was established as a sepa-
ing years, grew the business primarily
regional laboratories, 14 smaller
rate corporate function late in 1995
through acquisitions. Revenues
branch labs, approximately 200 rapid-
in response to the emergence of seri-
tripled between 1991 and 1995 as
turnaround STAT labs around the
ous billing issues. We measure the
Corning led the wave of consolidation
country, or our center for specialty
health of billing ultimately by the
that radically reshaped our industry.
testing, Nichols Institute.
amount of bad debt expense we
Acquisitions brought us growth, pur- incur. Bad debt refers to tests we per-
Our labs generally process the speci-
chasing power and national market- form but don’t get paid for because
mens overnight. Unique bar-coded
ing clout. However, they also left us of missing or incorrect billing infor-
identification numbers are assigned
with a collection of highly autono- mation or, simply, non-payment.
to each requisition, and specimens
mous laboratories which varied widely During 1995, bad debt expense rose
are sent to the appropriate depart-
in the quality of their processes, the to 9.4% of total revenues.
ments to have tests performed for
cost of the testing they performed
most routine blood and urine tests.
We are now taking aggressive actions
and their management approaches.
Doctors receive results for most tests
to gain better control of our billing
the next morning electronically or
Highest Quality and Lowest Cost process. We have focused our efforts
reports are delivered by our couriers.
Today, our highest quality laborato- on standardizing our process to pro-
If testing reveals a life-threatening
ries also are our lowest cost labs. duce a claim or bill on a more timely
result, the doctor is notified immedi-
6

8. serum with HDL is loaded into a
basis. We have also selected a stan-
chemical analyzer. The whole process
dard software program called SYS as
takes about 45 minutes.
our billing system of choice for the
company.
Early last year, a doctor on our med-
ical staff approached a supplier,
Bad debt expense declined to 6.9% of
Genzyme Diagnostics, which was
revenues in 1996 as a result of treat-
working on a new reagent that could
ing billing as a process with equal
greatly simplify the HDL testing
importance to testing and reporting
process. Instead of having to cen-
results. Despite the improvement, we
trifuge the specimen, the Genzyme
feel significant pressures due to rapid-
reagent would be added to the origi-
ly changing reimbursement require-
nal serum specimen and placed
ments. The most difficult recently
directly on a high-throughput chem-
imposed requirements make us
istry analyzer. The new process,
responsible for the physician to docu-
referred to as homogeneous HDL,
ment the medical necessity of certain
takes eight minutes. Our Chemistry
tests being ordered. If the physician
Test Method Advisory Group evaluat-
orders a test but doesn’t include this
ed the new process and quickly recog-
information, then we perform the test
nized that it would produce quality
but don’t get paid.
and process improvements as well as
Standardization—An Example cost reductions through labor savings.
Let’s look at how we standardized on The Chemistry Group adopted the
a new technology for handling an process and led a phased roll-out to
important blood test that measures all of our regional laboratories.
“good cholesterol” or high density
lipoprotein (HDL) cholesterol. This Our company was the first commer-
test currently requires several labor- cial laboratory in the country to offer
intensive steps. First, a laboratory routine HDL cholesterol testing back
technologist takes the specimen and in 1977, so it’s fitting that 20 years
pipettes some serum into a separate later, Quest Diagnostics is the first
test tube. Then the technologist adds commercial laboratory to offer an
a chemical, or reagent, and spins the improved homogeneous, or direct,
Quest Diagnostics is the first
tube on a centrifuge to separate the HDL test.
lab in the country to offer a
mixture into serum with and without
direct HDL cholesterol test,
HDL. Finally, the tube containing the
thanks to an innovative
partnership with reagent sup-
plier Genzyme Diagnostics.
Here, Bernadette Chin, who
coordinated our Chemistry
Test Method Advisory
Group, is pictured with
Genzyme’s Peter Cooke.
7

10. We will be
the preferred
partner with
large buyers
of health care
services.
Answers
for
Partners

11. ciently. Ten years ago, two competing of intent with University of Pittsburgh
It isn’t enough for us to be the high-
not-for-profit hospitals in Erie, Medical Center to jointly pursue
est quality, lowest cost provider of
Pennsylvania--Hamot Health opportunities in routine lab testing,
diagnostic testing, information and
Foundation and Saint Vincent Health medical informatics, anatomic
services. To survive in the rapidly
Center—tried combining their labs, pathology and molecular diagnostics
changing world of health care, we
without success. They approached research.
must work collaboratively to become
us with the idea of partnering to
the preferred partner with large
jointly improve the quality, service In coming months we hope to
health care customers. The data we
and access of testing, and reduce the announce close affiliations with
generate in the course of performing
cost. We took over management of integrated hospital-based delivery
tens of millions of routine tests is the
the jointly-owned hospital lab, which systems, large physician groups,
raw material for knowledge that can
handled inpatient testing, and also set managed care companies, and
provide answers to managed care
up a separate commercial laboratory, group purchasing organizations. We
companies interested in learning
Associated Clinical Laboratories have completed regional marketing
more about the health of their grow-
(ACL), to do outpatient testing. strategies across the U.S. In each mar-
ing patient populations. In addition,
ket we have identified the providers
our experience in running high vol-
Over the years, some of the struct- we expect will be the likely winners in
ume, high quality labs lets us offer
ure of the partnership in Erie has a consolidating health care world. We
answers to the rapidly emerging hos-
changed. But one thing that hasn’t have put together business plans that
pital and physician networks that are
changed is the value of the partner- map out how we can join forces with
looking for ways to boost both the
ship. The hospitals have seen an these leaders to optimize the delivery
quality and efficiency of the care
improvement in quality while their of health care within the community.
they provide.
costs have declined. The average lab We are aggressively working to imple-
Hospital Networks… cost per patient admission at 571 ment these plans.
A Major Opportunity urban acute care hospitals across the
Providing Value
Hospitals account for more than half U.S. is $435; in Erie, it’s now down to
of the $30 billion laboratory testing Improving the profitability of each of
$343.
market in the U.S. Yet numerous our 75,000 accounts is a key focus and
analyses show that hospital lab costs a major challenge. With the strong
The most compelling evidence of our
are, on average, significantly higher growth of managed care over the past
success in Erie is that the partnership
than our costs. We can help hospitals few years, our industry engaged in
is growing. During 1996, an addition-
in several ways, including: managing fierce price competition, which
al 17 hospitals in northwestern
their inpatient labs for a fee and proved damaging. At the moment, we
Pennsylvania and southwestern
reducing costs; providing leading believe we lose money on the majority
New York joined the Hamot-Saint
edge specialty testing through of our managed care and many physi-
Vincent inpatient lab cooperative and
Nichols Institute; and also by partner- cian accounts. We are currently evalu-
will form several additional regional
ing to provide high quality, low cost ating the profitability of each of our
hub labs. We expect to manage these
routine testing for outpatients. Each accounts, and intend to ensure that
labs for a fee, as we do at the Hamot-
relationship is unique and requires we provide outstanding value to
Saint Vincent inpatient lab.
nurturing. the client in return for a price that
yields an appropriate profit for
In Lincoln, Nebraska, and Sioux
A Successful Partnership— Quest Diagnostics.
City, Iowa, Quest Diagnostics has a
Erie, Pennsylvania management contract to manage in-
We are helping hospitals in western To be properly compensated for the
patient and outreach labs for 25 hos-
Pennsylvania run their labs more effi- high level of service we are expect-
pitals. In December we signed a letter
10

12. ed to provide, we are selectively rene- grams and underlying systems that progress. Research shows that rigor-
gotiating our relationships. In New will enable us to pay our sales organi- ous monitoring of diabetes patients
England, for example, we were asked zation based on profitability, and have can prevent complications later on
by a large managed care organization pilot programs in certain locations and save money for the managed care
to provide services under a national this year. provider. Quest Informatics receives a
contract that was priced below our transaction fee each time a result is
cost. Because physicians in the region Turning Data Into Information sent over its electronic bridge.
are familiar with our high level of ser- The massive amounts of data generat-
vice and quality, we were able to suc- ed by our testing processes represent
cessfully renegotiate the contract away a valuable database resource for
from a capitated rate, or one in which health care companies. Our two year
we were paid a fixed monthly fee per old venture called Quest Informatics
member of the plan, to a fee-for-ser- turns our testing data into informa-
vice arrangement at a rate that tion and supplies it to large health
ensured the contract would be both care buyers that use this knowledge
profitable to us and valuable to our to help them better manage their
customer. patients’ disease states.
On the West Coast, we approached a One managed care company on the
major third party payor about raising East Coast uses this information to
its reimbursement levels for the Pap help it monitor and manage diabetic
smear, a labor-intensive cervical cancer members who are employees of a sin-
screen for women that is performed gle member company. Specifically,
by highly trained cytotechnologists. the managed care company requires
test results every time one of their
Our people went back to the third diabetic patients has a test performed
party payor and presented our num- at one of our labs. Searching through
We recently expanded our
bers, which showed we were being millions of records for a few hundred
decade-long laboratory
paid for Pap smears at a rate well test results is an information technol-
partnership with the two
below our cost. Based on our analysis, ogy challenge of the highest order.
leading hospitals in Erie, Pa.,
the payor acknowledged the fairness Quest Informatics designed a screen-
to cover an additional 17
of our position and more than ing process and an electronic bridge
hospitals in the region. Here,
doubled the reimbursement rate on connecting our mainframe comput-
Sister Catherine Manning,
Pap smears. ers to the managed care client.
President of Saint Vincent
Whenever a diabetic employee is test-
Health Center (second from
Part of the problem we have had with ed and the result is within a specified
left) and John Malone,
pricing is that our employees’ interests range, the results are transmitted
President of Hamot
haven’t always been aligned with the electronically to a disease manager
Health Foundation
company’s long-term interests. who specializes in diabetes. Now, the
(second from right), meet with
Compensation for our sales represen- managed care company can target its
Tony Geramita of
tatives was based solely on new sales resources for educating patients on
Quest Diagnostics and
volume, not profitability. That’s now diabetes to the individuals who need
Karen Case of Associated
changing. We are designing the pro- it most and then closely monitor their
Clinical Laboratories.
11

14. We will be the
leading innovator
for diagnostic
testing, information
and services.
Answers
for Better
HealthCare
Decisions

15. volume comes from outside the Quest
As a diagnostic information company, As more discovery and innovation has
Diagnostics laboratory network.
we provide answers to physicians, begun to emerge from private
health care organizations, hospitals, research firms, we also have estab-
Nichols Institute was founded in 1971
labs, and patients to help drive better lished partnerships with many of the
by Dr. Albert Nichols and a handful
decisions. We are constantly searching leading biotechnology firms in the
of fellow endocrinologists and
for new knowledge to improve those world. This gives us access to new
internists with the mission of identify-
answers. We will provide answers for technologies as they are being devel-
ing new endocrine tests, which detect
better health care decisions by devel- oped, which helps us make them
levels of specified hormones. Over
oping new tests, services and informa- available to our customers earlier. For
the years, Nichols Institute has been a
tion products, and by continually example, we helped pioneer viral
significant contributor to knowledge
improving our offerings. load HIV testing to detect small
in the diagnostic testing world and amounts of the HIV virus. The tests
A Competitive Edge: has played a major role in transfer- are performed using two types of
Nichols Institute ring academic research to the com- genetic testing: polymerase chain
Often, routine testing won’t provide mercial marketplace. Among its inno- reaction (PCR) as well as the newer
adequate answers. The scientists and vations: development of the definitive branched DNA technologies.
medical directors at Nichols Institute reference method accepted the world Through our work with Roche
in San Juan Capistrano, California over for measuring free thyroid hor- Molecular Systems for PCR and
have the ability to get at these diffi- mone, and the development of new Chiron Corp. for branched DNA, we
cult questions through highly special- tests to detect the response to treat- have worked on streamlining and
ized esoteric tests and high quality ment for HIV. improving the tests before they were
databases that give meaning to the approved by the U.S. Food and Drug
Access to Leading Researchers
results. In many cases, the specialty Administration. They are now com-
Dr. Nichols aimed to commercialize
tests performed at Nichols Institute mercially available.
leading academic research. To do this
rely on ultra-sensitive gene sequenc-
The Promise of Genetic Testing
he created an Academic Associates
ing, cell scanning, and biochemical
Program to enlist as advisors individu- Nichols Institute is working actively to
technologies which allow for the
als in academic institutions through- commercialize several promising gene
detection of minute traces of a virus
out the world who are recognized as sequencing tests. We are one of the
or mutation via amplification of the
leaders in the application of new first labs to offer a test for the Ret
cell or gene.
technologies to clinical medicine. gene, which is implicated in a syn-
Today, we carry the tradition forward drome of inherited malignancy. We
Nichols Institute performs these tests
with 57 Academic Associates who help are working actively with our
for a range of labs that are run by
us target areas of development in our Academic Associates to study the
hospitals, doctors and even our major
innovation process, develop new tests value of a test for p53, another gene
competitors—in addition to speci-
and consult with our clients. whose mutation has been connected
mens sent by our own regional facili-
to cancer.
ties. Over half of Nichols Institute’s
14

16. specialty testing methods through
Last year Nichols Institute established
the development, manufacture and
a Molecular Microbiology Department,
marketing of diagnostic test kits and
affording new reference laboratory
diagnostic testing systems. We cur-
capabilities in all areas of infectious
rently distribute test kits to over 35
disease -- including classical microbi-
countries around the world through
ology and virology, molecular micro-
an international network of wholly-
biology, serology, and immunology.
owned subsidiaries and distributors.
Today, Nichols Institute also leads the
We introduced the world’s first and
way in immunoassay methods for
only non-invasive chemiluminescence
measurement of circulating hormone
intra-operative parathyroid hormone
levels and sensitive tests to help doc-
assay with FDA clearance, allowing
tors in breast cancer prognosis.
surgeons to accurately localize hard-
Recent developments also include the
to-find tissue during surgery for
validation of blood serum tumor
quantitative hormone assessment.
marker assays to detect breast, blad-
Later this year we will begin shipping
der, prostate, lung, pancreas, liver
a new state-of-the-art product, the
and colorectal cancers, sequencing of
Nichols Advantage™ analyzer, which
the p53 gene, comprehensive prena-
economically provides a highly
tal molecular biology testing utilizing
automated and very high quality
Fluorescence in Situ Hybridization
specialized testing capability.
(FISH) technology, and the detection
Our 57 Academic
of abnormal pregnancies using chro-
Associates in leading
From the new products we develop
mosome studies.
research institutions
at Nichols Institute Diagnostics to
around the world help us
the important job our Academic
Nichols Institute Diagnostics
translate the latest medical
Associates perform in helping
Through Nichols Institute
discoveries into clinical
us transfer academic research to the
Diagnostics, we are bringing new lev-
applications for our labora-
commercial marketplace, we are
els of detection technology to physi-
tories. Jorge Leon, Ph.D.,
working hard to provide answers for
cians, hospitals, clinics and commer-
Director of Biotechnology
better health care decisions.
cial laboratories. Nichols Institute
Research & Development
Diagnostics brings on-site access to
at Quest Diagnostics
Nichols Institute, is working
closely with renowned
breast cancer specialist
Dr. Marc Lippman,
Director of the Vincent T.
Lombardi Cancer Research
Center at the Georgetown
University Medical Center,
to develop new tests to
help doctors select more
effective therapies for
breast cancer patients.
15

18. Steve Kovach
Kim Fatovich
Logistics
Client Services
Gina Talmadge Gladys Cuezas
Phlebotomy Auto Chemistry Lab

19. Board of Directors Executive Officers Major Facilities
Kenneth D. Brody Kenneth W. Freeman Regional Laboratories
Founding Partner Chairman and Auburn Hills, Michigan
Winslow Partners Chief Executive Officer Baltimore, Maryland
Washington, DC Cambridge, Massachusetts
Gregory C. Critchfield, M.D.
Denver, Colorado
Van C. Campbell Senior Vice President and
Horsham, Pennsylvania
Vice Chairman Chief Medical and Science Officer
Irving, Texas
Corning Incorporated
Lincoln, Nebraska
Don M. Hardison, Jr.
Corning, NY
Phoenix, Arizona
Senior Vice President
Pittsburgh, Pennsylvania
Mary A. Cirillo Sales and Marketing
Portland, Oregon
Senior Vice President
St. Louis, Missouri
Douglas M. VanOort
Global Relationship Banking
Operations and Technology Senior Vice President San Diego, California
Citibank, N.A. Operations Smyrna, Georgia
New York, NY Tampa, Florida
Robert A. Carothers Teterboro, New Jersey
David A. Duke, Ph.D. Vice President and Wallingford, Connecticut
Retired Vice Chairman Chief Financial Officer
Wood Dale, Illinois
Corning Incorporated
James D. Chambers
Corning, NY
Nichols Institute
Vice President
San Juan Capistrano, California
Kenneth W. Freeman Administration
Chairman and
Associated Clinical Laboratories
Kurt R. Fischer
Chief Executive Officer
Erie, Pennsylvania
Quest Diagnostics Incorporated Vice President
(54% owned by Quest Diagnostics)
Teterboro, NJ Human Resources
Dan C. Stanzione, Ph.D. Raymond C. Marier
President, Network Systems Vice President and
and Bell Laboratories General Counsel
Lucent Technologies Incorporated
Warren, NJ C. Kim McCarthy
Vice President
Gail R. Wilensky, Ph.D. Compliance and Government Affairs
Senior Fellow
Alister W. Reynolds
Project HOPE
Bethesda, MD Vice President
Strategic Planning
18

20. ANSWERS FOR INVESTORS
Corporate Profile ‘Safe Harbor’ Statement under the Private
Additional copies are available upon
Securities Litigation Reform Act of 1995
Quest Diagnostics Incorporated is written request to:
one of the leading clinical testing lab- Investor Relations The statements in this Annual Report
oratories in the world. With 17 Quest Diagnostics Incorporated which are not historical facts or infor-
regional labs and 14 smaller branch One Malcolm Avenue mation are forward-looking state-
labs across the country, Quest Teterboro, New Jersey 07608. ments. These forward-looking state-
Diagnostics processes and provides ments involve risks and uncertainties
Common Stock
data annually on approximately 60 that could cause the outcome to be
Shares of Quest Diagnostics
million requisitions for testing. The materially different. Certain of these
Incorporated common stock (ticker
wide variety of tests performed on risks and uncertainties are listed on
symbol: “DGX”) are listed on the New
human tissue and fluids help doctors pages 21 and 22 of the 1996 Annual
York Stock Exchange and also trade
and hospitals diagnose, treat and Report on Form 10-K contained in
on the Stuttgart (Germany) Stock
monitor diseases and disease states. In this Annual Report. These risks and
Exchange. Options on Quest
addition, Quest Diagnostics conducts uncertainties include heightened
Diagnostics shares are traded on the
research through its Nichols Institute competition, impact of changes in
Chicago Board Options Exchange.
unit, which specializes in esoteric test- payor mix, adverse actions by govern-
ing using genetic screening and other mental and other third-party payors,
Transfer Agent and Registrar
advanced technologies, and produces the impact upon Quest Diagnostics’
[No dividends have been declared
test kits. collection rates or general or adminis-
on common stock] trative expenses resulting from com-
Corporate Headquarters Harris Trust and Savings Bank pliance with Medicare administrative
Shareholder Services Division
One Malcolm Avenue policies, adverse results from pending
P.O. Box 755
Teterboro, New Jersey 07608 governmental investigations, reduc-
Chicago, Illinois 60690-0755
201-393-5000 tion in tests ordered by existing cus-
Telephone: 800-255-0461 tomers, material increases in premi-
Additional Information ums for insurance coverage, denial of
For the hearing impaired, Harris
Investment analysts who need addi- licensure, computer or other system
Bank has a Telecommunication
tional information may contact: failures, development of technologies
Device for the Deaf (TDD) telephone.
Investor Relations, Quest Diagnostics that substantially alter the practice of
The listing is Harris Bank
Incorporated, One Malcolm Avenue, medicine and changes in interest rates.
Hearing Impaired Telephone
Teterboro, New Jersey 07608.
TDD 312-461-5633 or
Shareholders may call the toll-free
TDD 312-461-5637.
Quest Diagnostics News and
Information Line at 888-DGX-0002.
Change of Address
Form 10-K Report change of address to
Harris Trust and Savings Bank
A copy of the Quest Diagnostics 1996
at the above address.
Annual Report on Form 10-K, filed
with the Securities and Exchange
Independent Accountants
Commission, is contained in this
Price Waterhouse LLP
Annual Report, starting after page 21.
1177 Avenue of the Americas
New York, New York 10036
19

21. Compliance Trademarks Quest Diagnostics is an equal
Quest Diagnostics is committed to the QUEST DIAGNOSTICS, the Quest opportunity employer.
highest ethical standards and comply- Diagnostics logo, QUEST, and QUEST
ing with all applicable laws and regu- DX are trade/servicemarks; and Produced by:
lations that govern its business opera- QUEST INFORMATICS and Corporate Communications
tions, including those that apply to NICHOLS INSTITUTE are service- Quest Diagnostics Incorporated
reimbursement for testing under the marks of Quest Diagnostics
federal Medicare and Medicaid pro- Incorporated. NICHOLS ADVAN- Design: Q. Cassetti
grams. Quest Diagnostics requires TAGE is a trademark of Quest
Photography: Ed Wheeler
that all employees abide by these Diagnostics Incorporated. CLINICAL
laws, rules and regulations and pro- DISCOVERY is a servicemark and Printed in U.S.A.
vides annual compliance training SMARTECH is a trademark of CLMP,
for all employees. Quest Diagnostics is Inc. METPATH, QUIKSTREP and
committed to protecting the health CHEM-SCREEN are registered service-
and safety of its employees as well as marks of CLMP, Inc. QUICK-INTRA-
the environmental resources of the OPERATIVE and QUICK-PAK are
communities in which it operates. trademarks of Nichols Institute
Diagnostics Inc.
The Raymond Gambino Quality Award
Neither this report nor any statement
The purpose of the Raymond contained herein is furnished in con-
Gambino Quality Award is to encour- nection with any offering of securities
age and recognize quality excellence or for the purpose of promoting or
and best practices within Quest influencing the sale of securities.
Diagnostics. The award is named for
Quest Diagnostics’ distinguished
Chief Medical Officer Emeritus whose
long career includes service as
Director of Laboratories and Chief
Pathologist at New York’s St. Luke’s-
Roosevelt Hospital as well as a
tenured professorship of pathology at
Columbia University College of
Physicians and Surgeons.
1996 Winners:
Grand Rapids, Michigan
Auburn Hills, Michigan
Wallingford, Connecticut
1996 Challengers:
© Copyright 1997 Quest Diagnostics Incorporated.
Denver, Colorado
All rights reserved.
Wood Dale, Illinois
20

22. QUEST DIAGNOSTICS INCORPORATED
AND SUBSIDIARIES
FINANCIAL HIGHLIGHTS
YE A R S E N D E D D E C E M B E R 3 1
(in millions, except
per share data)
Pro Forma
1996 (a) 1996 1995 1994
____________ ________ _________ _________
$ 1,616.3 $ 1,616.3 $ 1,629.4 $ 1,633.7
Net revenues
15.6 (15.9) (19.2) 82.3
Net income (loss) before restructuring and
other non-recurring charges
(594.5) (626.0) (52.1) 28.3
Net income (loss) (b)
28.8
Weighted average common shares outstanding
$ 0.54
Earnings per common share
before restructuring charges and
other non-recurring charges (c)
$ 166.4 $ 166.4 $ 176.5 $ 295.4
Adjusted EBITDA (d)
(a)
Assumes that the spin-off from Corning Incorporated had been completed and the change in accounting
policy for intangible assets had been adopted as of January 1, 1996.
(b)
Includes non-recurring charges totaling $669 million, $51 million, and $80 million in 1996, 1995,
and 1994, respectively.
(c)
Historical earnings per share data is not meaningful as the Company’s historical capital structure is not
comparable to the capital structure subsequent to its spin-off from Corning Incorporated.
(d)
Adjusted EBITDA represents income (loss) before income taxes, net interest expense, depreciation, amortiza-
tion and restructuring and other non-recurring charges.
21

23. OUR VALUES
Quality Accountability
The patient comes first in everything As a company and as individuals,
we do. Our passion is to provide we accept full responsibility for our
every patient and every customer performance and acknowledge
with services and products of our accountability for the ultimate
uncompromising quality — error free, outcome of all that we do. We strive
on time, every time. We do that by for continuous improvement, believing
dedicating ourselves to the relentless that competence, reliability, and
pursuit of excellence in the services rigorous adherence to process
we provide. discipline are the keys to excellence.
Integrity Collaboration
Credibility is the key to our success; We believe in teamwork and the
therefore, all of our processes, limitless possibilities of collaborative
decisions and actions ultimately are energy. We achieve excellence by
driven by integrity. We are honest and putting collective goals ahead of
forthright in all our dealings with our personal interests. We support and
customers and with each other. We encourage open communication and
are responsible corporate citizens in meaningful cooperation among
the communities we serve. We strictly colleagues from varying backgrounds
comply with the laws and regulations and disciplines. We respect individual
governing our business, not only as a differences, and we value diversity.
legal obligation and a competitive
Leadership
necessity, but because it is the right
We strive to be the best at what
thing to do.
we do — both as a company, and as
Innovation individuals. We embrace the qualities
We constantly seek innovative ways to of personal leadership — courage,
enhance patient care and provide competence, confidence and a passion
value to our customers. We support for surpassing expectations. We will
the creativity, courage and persistence provide growth opportunities for our
that transform information into employees, quality services and
knowledge, and knowledge into products to our customers and
insights. We seek continuous superior returns to our shareholders.
advancement through the adaptation
of existing knowledge as well as
through experimentation, with the
full understanding that we learn from
our failures as well as our successes.

24. One Malcolm Avenue
Teterboro, New Jersey 07608
Annual Report without 10K:
MI0029(6)
Annual Report:
MI0030(6)