To Our Shareholders, Employees and Customers:

2007 was a year of significant achievements for Quest Diagnostics.

The year started with uncertainty regarding industry pricing and access to health plan contracts. During the course of the year, we took a series of decisive actions to reduce that uncertainty, improve performance and build a solid foundation for future growth.

By the end of 2007, despite a major contract loss, intensified competition and pricing pressure, we had re-established growth in revenues, earnings and cash flow.

2007 Financial Highlights

Our financial performance improved steadily through the year.

• Revenues increased 7% to $6.7 billion.
  
• Operating income was $1.1 billion, or 16.3% of revenues.
  
• Cash from operations was $927 million.
  
• Net earnings per diluted share from continuing operations were $2.84.

Positioned for Growth

Our company is far stronger today than it was at the start of 2007. We have signed new contracts, organized for growth, streamlined our operations and acquired unique assets and capabilities. As a result, we exited the year with annualized revenues of $7 billion, improved profitability from the year before and accelerated momentum as we entered 2008.

The opportunities have never been greater for the diagnostics industry. Healthcare has been focused for much of the past decade or two on therapies that cure disease and relieve pain. Now the healthcare world is moving from a focus on curative care to a reliance on early diagnosis and prevention, including the expanded use of targeted medicine.

Doctors and patients seek ways to detect potential problems early, when there is time to take preventive action. Pharmaceutical companies are searching for promising new therapies, and we can help with companion diagnostic tests that will truly usher in the age of personalized medicine.

Across the globe in developing nations, an emerging middle class is becoming interested in their health and in preventing disease. We are well positioned to take advantage of these major trends.

Execution, Value, Leadership

Flawless execution of our strategy is the key to growing both the top and bottom lines. Now is the time to execute and realize our ambitious dreams.

At Quest Diagnostics we strive constantly to find new ways to create value for customers. We create value with Six Sigma quality, unsurpassed access and convenience, innovative science and medicine and advanced healthcare information technology.

When we execute and create value, we lead. I am proud of the determination and resolve of our 43,000 colleagues who are leading our industry forward through their expertise, hard work and dedication.

During 2007 we were saddened by the passing of William R. Grant, a leader who had served as a member of the Quest Diagnostics Board of Directors since 1999. Bill was a good friend and trusted adviser. His integrity, professionalism, knowledge and friendship are deeply missed.

A Successful Strategy

We have a successful strategy based on three simple but profound words: Patients, Growth and People. We have a compelling mission to be the undisputed world leader in diagnostic testing, information and services. Our vision is that of dedicated employees improving the health of patients through unsurpassed diagnostic insights. And we are guided by six core values: Quality, Integrity, Innovation, Accountability, Collaboration and Leadership.

We recognized long ago that in healthcare, we must put patients first with special service that sets us apart.

Patients, doctors and health plans appreciate our quality, access and convenience. In 2007 we expanded the use of our popular appointment scheduling system for visits to our patient service centers. Appointment scheduling puts patients in charge of their own schedules, and it helps us even out the work flow in our patient service centers.

The evidence is clear that our strategy is working. During the year, we renewed or expanded relationships with most of the major health plans, including Aetna, CIGNA, Humana, multiple Blue Cross plans and other local payers. And, despite becoming a non-contracted provider with UnitedHealthcare, a significant portion of physicians and United members continue to select us for our unique services.

Diversifying Our Business

We continue to diversify our revenue base. Of our $7 billion in annualized revenues, about $2.5 billion, or 35%, is now coming from anatomic pathology and advanced gene-based and esoteric testing, versus $1 billion, or 26%, of our revenues in 2002.

Our acquisition of AmeriPath made us the clear leader in cancer diagnostics. We have strengthened our integrated offering of clinical, anatomic pathology and esoteric testing for hospitals, specialists and primary care physicians.

We are excited about the opportunity to accelerate our growth in anatomic pathology. Many tissue specimens come from primary care physicians. This is a significant growth opportunity—and one that AmeriPath previously lacked the infrastructure to realize.

We have accelerated innovation, particularly in esoteric and gene-based testing. Molecular testing is now used for more than diagnostics—to predict patient outcomes, determine genetic predisposition and predict response to drug therapy. For example, our ClariSure Comparative Genomic Hybridization microarray was initially validated to identify mental retardation in newborns. Future tests may identify genetic abnormalities associated with malignancies such as leukemia.

We have introduced several blood tests to provide information to physicians about medical conditions without the need for painful procedures in some cases. For example, our HepaScore liver fibrosis test offers physicians a non-invasive alternative to liver biopsy by providing laboratory information about liver fibrosis or cirrhosis in patients with hepatitis C. Our expanding Leumeta family of cancer tests provides an alternative to painful bone-marrow biopsies for monitoring leukemia and lymphoma patients.

Point-of-care testing, which is expanding rapidly, will help us diversify further and also drive growth by offering doctors choice and convenience. They can select traditional laboratory testing or in-office testing depending on the needs of each patient. We are well positioned to benefit from the shift toward point-of-care testing, thanks to our HemoCue, Enterix and Focus Diagnostics point-of-care products.

We continue to invest in information technology, which is an important differentiator and a key enabler of almost everything we do. We now have 125,000 physician users of our Care360 suite of connectivity products. We see tremendous opportunities to use healthcare IT to make our diagnostic insights more easily available to doctors, hospitals and, eventually, patients themselves, to improve safety and help drive better healthcare decisions.

India is an enormous growth opportunity, and one in which we will be investing over the next several years. Our offerings in India include advanced esoteric testing for hospitals, physicians and patients, clinical trials testing for global pharmaceutical companies, and risk assessment testing for life insurance companies.

The Journey Continues…

Our strategy, based on Patients, Growth and People, has served us well in the past and it positions us well to take advantage of opportunities that lie ahead.

Our longer term goals are:

• To grow revenues profitably above the industry growth rate;
• To expand operating margin to 20% of revenues;
• To derive 10% of consolidated revenues internationally within 5 years;
• For every patient to think first of Quest Diagnostics when it comes to lab testing; and
• For every doctor, hospital administrator, life insurance executive, and pharmaceutical research head to think of Quest Diagnostics as the most trusted source when it comes to diagnostic testing, information and services.

We stand at the beginning of a new era for Quest Diagnostics, in which we have the opportunity to leverage our assets and capabilities to become a powerhouse in healthcare services and information.

I am very proud that, as we go to press, Quest Diagnostics has been named one of “America’s Most Admired Companies” by Fortune Magazine. We are the only diagnostic testing company on this list, which clearly reinforces our industry leadership and reputation.

We continue our journey, while writing a new chapter in the exciting story of Quest Diagnostics. We can achieve our goals by flawlessly executing our plan, creating value for patients, physicians, employees and shareholders, and by leading our industry forward.

Thank you for your support and continued confidence.

Take care,

Surya N. Mohapatra, Ph.D.
Chairman, President and
Chief Executive Officer