Press Release Details

Quest Diagnostics Reports Strong Results for Fourth Quarter and Full Year 2006

01/25/2007
                      - Company provides 2007 guidance -

LYNDHURST, N.J., Jan. 25 /PRNewswire-FirstCall/ -- Quest Diagnostics Incorporated (NYSE: DGX), the nation's leading provider of diagnostic testing, information and services, announced that for the fourth quarter ended December 31, 2006, income from continuing operations was $151 million, or $0.77 per diluted share compared to $149 million, or $0.73 per diluted share for the prior year.

Fourth quarter revenues from continuing operations grew 8.5% over the prior year level to $1.5 billion. The acquisitions of LabOne, which was completed on November 1, 2005, and Focus Diagnostics, which was completed on July 1, 2006, contributed 4% revenue growth. Clinical testing revenues grew 6.9%. Clinical testing volume, measured by the number of requisitions, increased 1% and revenue per requisition increased 5.9%.

For the fourth quarter, operating income was $279 million, or 18.0% of revenues, compared to $260 million, or 18.2% of revenues, in 2005.

Bad debt expense was 3.8% of revenues, unchanged from a year ago. Days sales outstanding were 48 days and cash flow from operations was $306 million. During the quarter the company repurchased $196 million of its common stock and made capital expenditures of $60 million.

"We drove strong results in the fourth quarter, finishing an excellent year in which we grew revenues 15% and generated $952 million of cash from operations," said Surya N. Mohapatra, Ph.D., Chairman and Chief Executive Officer. "While we will face challenges in 2007, our longer-term goals remain unchanged. We intend to grow revenues organically, at or above the industry growth rate; pursue selective acquisitions; expand operating margins to 20%; and further strengthen our position as the undisputed world leader in diagnostic testing, information and services."

Full Year 2006 Performance

Income from continuing operations was $626 million, or $3.14 per diluted share for the full year 2006 compared to $573 million, or $2.79 per diluted share in the prior year. Net income for 2006 included pretax expenses of $55 million, or $0.17 per share, associated with stock-based compensation recorded in accordance with SFAS 123R and pretax charges of $27 million, or $0.08 per share, primarily associated with integration activities.

Revenues from continuing operations increased 14.9% to $6.3 billion. The acquisition of LabOne contributed revenue growth of approximately 8%. Operating income was $1.1 billion, or 18.0% of revenues, in 2006 compared to $1 billion, or 18.5% of revenues in 2005. Operating income as a percentage of revenues compared to the prior year was reduced by approximately 1% due to stock-based compensation (SFAS 123R), 0.6% due to the inclusion of LabOne and 0.4% due to integration charges.

Cash from operations increased to $952 million from $852 million in 2005. During the year, the company repurchased $472 million in common stock, spent $237 million on acquisitions, and made capital expenditures of $193 million.

Discontinued operations contributed a loss of $0.20 per diluted share for the year, compared to a loss of $0.13 per diluted share in the prior year.

Outlook for 2007

For the full year 2007 the company expects results from continuing operations as follows: earnings per diluted share of between $2.70 and $3.00; revenues of $6 billion to $6.2 billion; and operating income of between 16.5% and 17.5% of revenues. Over the same period, the company expects cash from operations to approximate $800 million and capital expenditures to approximate $200 million.

The estimates for 2007 reflect reductions related to the anticipated impact of contract changes. Earnings per share, revenues, operating income as a percentage of revenues and cash from operations have been reduced by between: $0.50 and $0.80; $450 million and $650 million; 1% and 2%; and $150 million and $200 million, respectively, to reflect these changes.

These estimates are before any special charges, including charges related to potential restructuring activities.

Quest Diagnostics will hold its fourth quarter conference call on January 25 at 8:30 A.M. Eastern Time. A simulcast of the call and a replay are available via the Internet at: www.questdiagnostics.com and registered analysts may access the call at: www.streetevents.com. In addition, a replay of the call will be available from 11:30 A.M. on January 25 through 11 P.M. on February 23, 2007 to investors in the U.S. by dialing 866-361-4939. Investors outside the U.S. may dial 203-369-0187. No password is required for either number.

Quest Diagnostics is the leading provider of diagnostic testing, information and services that patients and doctors need to make better healthcare decisions. The company offers the broadest access to diagnostic testing services through its national network of laboratories and patient service centers, and provides interpretive consultation through its extensive medical and scientific staff. Quest Diagnostics is a pioneer in developing innovative new diagnostic tests and advanced healthcare information technology solutions that help improve patient care. Additional company information is available at: www.questdiagnostics.com.

The statements in this press release which are not historical facts or information may be forward-looking statements. These forward-looking statements involve risks and uncertainties that could cause actual results and outcomes to be materially different. Certain of these risks and uncertainties may include, but are not limited to, competitive environment, changes in government regulations, changing relationships with customers, payers, suppliers and strategic partners and other factors described in Quest Diagnostics Incorporated's most recent Form 10-K and subsequent SEC filings.

               Quest Diagnostics Incorporated and Subsidiaries

                    Consolidated Statements of Operations
       For the Three and Twelve Months Ended December 31, 2006 and 2005
             (in millions, except per share and percentage data)

                             Three Months Ended       Twelve Months Ended
                                December 31,              December 31,
                              2006         2005         2006         2005
                        (unaudited)  (unaudited)  (unaudited)

    Net revenues          $1,549.3     $1,427.3     $6,268.7     $5,456.7

    Operating costs
     and expenses:
    Cost of services         919.4        856.6      3,696.0      3,220.7

    Selling, general
     and administrative      349.7        308.6      1,410.7      1,215.8
    Amortization of
     intangible assets         3.2          1.9         10.8          4.6
    Other operating (income)
     expense, net             (2.2)        (0.3)        23.1          8.0
      Total operating
       costs and
       expenses            1,270.1      1,166.8      5,140.6      4,449.1

    Operating income         279.2        260.5      1,128.1      1,007.6

    Other income (expense):
    Interest expense, net    (22.6)       (20.2)       (91.4)       (57.4)

    Minority share of income  (6.5)        (4.6)       (23.9)       (19.5)

    Equity earnings in
     unconsolidated joint
     ventures                  7.2          6.7         28.4         26.2
    Other expense, net        (9.3)        (0.7)        (7.9)        (6.9)

    Total non-operating
     expenses, net           (31.2)       (18.8)       (94.8)       (57.6)

    Income from continuing
     operations before
     taxes                   248.0        241.7      1,033.3        950.0
    Income tax expense        96.7         92.5        407.6        376.8

    Income from continuing
     operations              151.3        149.2        625.7        573.2
    Loss from discontinued
     operations, net of
     taxes                    (2.0)       (18.8)       (39.3)       (26.9)
    Net income              $149.3       $130.4       $586.4       $546.3

    Earnings per common
     share - basic:
    Income from
     continuing
     operations              $0.78        $0.74        $3.18        $2.84
    Loss from discontinued
     operations              (0.01)       (0.09)       (0.20)       (0.13)
    Net income               $0.77        $0.65        $2.98        $2.71

    Earnings per common
     share - diluted:
    Income from continuing
     operations              $0.77        $0.73        $3.14        $2.79
    Loss from discontinued
     operations              (0.01)       (0.09)       (0.20)       (0.13)
    Net income               $0.76        $0.64        $2.94        $2.66

    Weighted average
     common shares
     outstanding:
    Basic                    194.5        200.3        197.0        201.8
    Diluted                  196.5        203.5        199.5        205.5

    Operating income
     as a percentage
     of net revenues          18.0%        18.2%        18.0%        18.5%



               Quest Diagnostics Incorporated and Subsidiaries

                         Consolidated Balance Sheets
                          December 31, 2006 and 2005
                     (in millions, except per share data)

                                                   December 31,   December 31,
                                                       2006           2005
                                                    (unaudited)

    Assets
    Current assets:
    Cash and cash equivalents                         $149.6          $92.1
    Accounts receivable, net                           774.4          732.9
    Inventories                                         78.6           77.9
    Deferred income taxes                              120.5          107.4
    Prepaid expenses and other current assets           67.9           59.2
      Total current assets                           1,191.0        1,069.5
    Property, plant and equipment, net                 752.4          753.7
    Goodwill, net                                    3,391.0        3,197.2
    Intangible assets, net                             193.4          147.4
    Other assets                                       133.7          138.3
    Total assets                                    $5,661.5       $5,306.1

    Liabilities and Stockholders' Equity
    Current liabilities:
    Accounts payable and accrued expenses             $834.0         $764.5
    Short-term borrowings and current portion
     of long-term debt                                 316.9          336.8
      Total current liabilities                      1,150.9        1,101.3
    Long-term debt                                   1,239.1        1,255.4
    Other liabilities                                  252.3          186.4
    Stockholders' equity:
    Common stock, par value $0.01 per share; 600
     shares and 300 shares authorized at December
     31, 2006 and 2005, respectively; 213.8 and
     213.6 shares issued at December 31, 2006 and
     2005 respectively                                   2.1            2.1
    Additional paid-in capital                       2,185.1        2,175.5
    Retained earnings                                1,800.3        1,292.5
    Unearned compensation                                  -           (3.3)
    Accumulated other comprehensive loss                (0.1)          (6.2)
    Treasury stock, at cost; 19.8 and 15.2 shares
     at December 31, 2006 and 2005, respectively      (968.2)        (697.6)
      Total stockholders' equity                     3,019.2        2,763.0
    Total liabilities and stockholders' equity      $5,661.5       $5,306.1



               Quest Diagnostics Incorporated and Subsidiaries

                    Consolidated Statements of Cash Flows
            For the Twelve Months Ended December 31, 2006 and 2005
                                (in millions)

                                                         Twelve Months Ended
                                                             December 31,
                                                        2006           2005
                                                  (unaudited)

    Cash flows from operating activities:
    Net income                                        $586.4         $546.3
    Adjustments to reconcile net income to
     net cash provided by operating
    activities:
    Depreciation and amortization                      197.4          176.1
    Provision for doubtful accounts                    243.4          233.6
    Stock-based compensation expense                    55.5            2.0
    Provision for restructuring and other
     special charges                                    55.8              -
    Deferred income tax (benefit) provision            (46.3)           0.7
    Minority share of income                            23.9           19.5
    Tax benefits associated with stock-based
     compensation plans                                    -           33.8
    Excess tax benefits from stock-based
     compensation arrangements                         (32.7)             -
    Other, net                                          20.2           21.7
    Changes in operating assets and liabilities:
      Accounts receivable                             (273.2)        (238.4)
      Accounts payable and accrued expenses             81.3           36.0
      Integration, settlement and other special
       charges                                          (4.2)          (5.4)
      Income taxes payable                              45.3           15.4
      Other assets and liabilities, net                 (0.9)          10.3
    Net cash provided by operating activities          951.9          851.6

    Cash flows from investing activities:
    Business acquisitions, net of cash acquired       (236.5)        (814.2)
    Capital expenditures                              (193.4)        (224.3)
    Decrease (increase) in investments and other
     assets                                             15.5          (41.3)
    Net cash used in investing activities             (414.4)      (1,079.8)

    Cash flows from financing activities:
    Repayments of debt                                (416.2)        (497.3)
    Proceeds from borrowings                           375.0        1,100.2
    (Decrease) increase in book overdrafts              (1.7)          33.4
    Purchases of treasury stock                       (472.3)        (390.2)
    Exercise of stock options                          102.3           98.3
    Excess tax benefits from stock-based
     compensation arrangements                          32.7              -
    Dividends paid                                     (77.1)         (69.7)
    Distributions to minority partners                 (21.9)         (21.4)
    Financing costs paid                                (0.8)          (6.3)
    Net cash (used in) provided by financing
     activities                                       (480.0)         247.0

    Net change in cash and cash equivalents             57.5           18.8

    Cash and cash equivalents, beginning of period      92.1           73.3

    Cash and cash equivalents, end of period          $149.6          $92.1

    Cash paid during the period for:
    Interest                                          $102.1          $50.0
    Income taxes                                      $381.3         $314.5


    Notes to Financial Tables

    1)  On April 19, 2006, the Company decided to discontinue the operations
        of a test kit manufacturing subsidiary, NID.  During the third quarter
        of 2006, the Company completed its wind down of NID and classified the
        operations of NID as discontinued operations.  The accompanying
        consolidated statements of operations and related disclosures have
        been restated to report the results of NID as discontinued operations
        for all periods presented.

    2)  The computation of basic and diluted earnings per common share (using
        the if-converted method) is as follows:


                                     Three Months Ended    Twelve Months Ended
                                        December 31,            December 31,
                                      2006       2005         2006       2005
                                       (in millions, except per share data)

    Income from continuing
     operations - basic             $151.3     $149.2       $625.7     $573.2
    Loss from discontinued
     operations - basic               (2.0)     (18.8)       (39.3)     (26.9)
    Net income available to common
     stockholders - basic            149.3      130.4        586.4      546.3
    Add: Interest expense
     associated with contingent
     convertible debentures, net
     of related tax effects              -          -            -        0.1
    Income available to common
     stockholders - diluted         $149.3     $130.4       $586.4     $546.4

    Weighted average common
     shares outstanding - basic      194.5      200.3        197.0      201.8

    Effect of dilutive securities:

    Stock options, restricted
     common shares and performance
     share units granted               2.0        3.2          2.5        3.5
    Contingent convertible
     debentures                          -          -            -        0.2
    Weighted average common shares
     outstanding - diluted           196.5      203.5        199.5      205.5

    Earnings per common share -
     basic:
    Income from continuing
     operations                      $0.78      $0.74        $3.18      $2.84
    Loss from discontinued
     operations                      (0.01)     (0.09)       (0.20)     (0.13)
    Net income                       $0.77      $0.65        $2.98      $2.71

    Earnings per common share -
     diluted:
    Income from continuing
     operations                      $0.77      $0.73        $3.14      $2.79
    Loss from discontinued
     operations                      (0.01)     (0.09)       (0.20)     (0.13)
    Net income                       $0.76      $0.64        $2.94      $2.66


    3)  In December 2004, the Financial Accounting Standards Board issued
        Statement of Financial Accounting Standards ("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 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 No. 123,
        "Accounting for Stock-Based Compensation" ("SFAS 123"), as amended by
        Statement of Financial Accounting Standards No. 148, "Accounting for
        Stock-Based Compensation - Transition and Disclosure - an amendment of
        FASB Statement No. 123" ("SFAS 148"), except that compensation costs
        will be recognized in the Company's results of operations.

        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.  In 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.

        The fair value of each stock option award was estimated on the date of
        grant using a lattice-based option valuation model that uses the
        assumptions in the following table.  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 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 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
        life of the options granted was estimated using the historical
        exercise behavior of employees.


                                Three Months Ended     Twelve Months Ended
                                    December 31,           December 31,
                                 2006         2005       2006       2005

    Weighted average fair
     value of options at
     grant date                 $14.87       $13.71     $13.91     $14.17
    Expected volatility          21.6%        21.8%      18.2%      23.0%
    Dividend yield                0.7%         0.7%       0.7%       0.7%
    Risk-free interest rate   4.6% - 4.7%      4.3%       4.6%   3.9% - 4.0%
    Expected holding period,
     in years                  5.5 - 6.2    5.1 - 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 our common stock at the date of grant.

        For the three and twelve months ended December 31, 2006, the stock-
        based compensation expense recorded in accordance with SFAS 123R
        totaled $2.5 million ($1.5 million, net of tax, or $0.01 per share)
        and $55.5 million ($33.5 million, net of tax, or $0.17 per share),
        respectively.  In addition, in connection with the adoption of SFAS
        123R, net cash provided by operating activities decreased and net cash
        provided by financing activities increased for the twelve months ended
        December 31, 2006 by $33 million, related to the classification of
        excess tax benefits from stock-based compensation arrangements.

        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.  Stock-based
        compensation expense recorded in accordance with APB 25, relating to
        restricted stock awards, was $0.6 million and $2.0 million for the
        three and twelve months ended December 31, 2005, respectively.  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 periods presented, as if the Company had elected to
        recognize compensation cost associated with stock option awards and
        employee stock purchases under the Company's Employee Stock Purchase
        Plan, consistent with the method prescribed by SFAS 123, as amended by
        SFAS 148 (in millions, except per share data):


                                                   Three Months  Twelve Months
                                                       Ended         Ended
                                                    December 31,  December 31,
                                                        2005          2005

    Net income
    Net income, as reported                           $130.4         $546.3
    Add: Stock-based compensation under APB 25           0.6            2.0
    Deduct: Total stock-based compensation
     expense determined under fair value
     method for all awards, net of related
     tax effects                                        (5.2)         (32.6)
    Pro forma net income                              $125.8         $515.7

    Earnings per common share
    Basic - as reported                                $0.65          $2.71
    Basic - pro forma                                  $0.63          $2.56

    Diluted - as reported                              $0.64          $2.66
    Diluted - pro forma                                $0.61          $2.50


    4)  Other operating (income) 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.

        During the first quarter of 2006, the Company finalized its plan
        related to the integration of LabOne, Inc. and recorded a charge of
        $20.7 million that primarily related to actions that impact Quest
        Diagnostics' employees and operations and was comprised principally of
        employee severance costs.   In addition, during the first quarter of
        2006, the Company recorded a $4.1 million charge related to
        consolidating its operations in California into a new facility.  The
        costs were comprised primarily of employee severance costs and the
        write-off of certain operating assets.

        For the twelve months ended December 31, 2005, other operating
        (income) expense, net includes 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.

    5)  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
        three and twelve months ended December 31, 2006 other expense, net
        includes a $10.0 million charge recorded in the fourth quarter
        associated with the write-down of an investment.  In addition, for the
        twelve months ended December 31, 2006, other expense, net includes
        $16.3 million in charges related to the write-down of investments and
        a gain of $15.8 million on the sale of an investment.

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

    6)  For the three and twelve months ended December 31, 2006, the Company
        repurchased approximately 3.9 million shares of its common stock at an
        average price of $50.31 per share for $196.4 million and 8.9 million
        shares of its common stock at an average price of  $53.23 per share
        for $472.3 million, respectively.  For the three and twelve months
        ended December 31, 2006, the Company reissued 0.5 million and 4.3
        million shares, respectively, for employee benefit plans.  Since the
        inception of the share repurchase program in May 2003, the Company has
        repurchased 41.3 million shares of its common stock at an average
        price of $44.89 for $1.9 billion.  At December 31, 2006, $250 million
        of the share repurchase authorizations remained available.

    7)  The following table summarizes the approximate impact of various items
        on period-over-period comparisons for certain financial metrics
        reported for the three and twelve months ended December 31, 2006 and
        is included for informational purposes only:


                                       Continuing Operations

                         Three Months Ended           Twelve Months Ended
                          December 31, 2006            December 31, 2006

                             Operating   Diluted          Operating   Diluted
                             Income as  Earnings          Income as  Earnings
                     Revenue    a % of       per  Revenue    a % of       per
                      Growth  Revenues     Share   Growth  Revenues     Share

    Reported:           8.5%     18.0%     $0.77    14.9%     18.0%     $3.14

    Impact on
     comparisons to
     prior year of:
    LabOne acquisition  3.1%        -       0.01     8.1%    (0.6)%      0.01
    Focus Diagnostics
     acquisition        0.9%        -          -     0.5%       -           -
    SFAS 123R stock-
     based
     compensation
     expense              -      (0.2)%    (0.01)      -     (0.9)%     (0.17)
    First quarter
     special charges      -         -          -       -     (0.4)%     (0.08)


    8)  In the third quarter, the Company completed the wind down of NID, a
        test kit manufacturing subsidiary. The results of operations for NID
        have been classified as discontinued operations for all periods
        presented.  For the twelve months ended December 31, 2006, the Company
        recorded pretax charges of $32 million comprised of: $7 million
        related to the write-off of inventories; asset impairment charges of
        $6 million; employee severance costs of $6 million; contract
        termination costs of $6 million; $2 million related to facility
        closure charges and $5 million of costs to support activities to wind-
        down the business, principally comprised of employee costs and
        professional fees.

SOURCE Quest Diagnostics Incorporated

CONTACT: Laure Park, Investors, +1-201-393-5030; or Gary Samuels, Media,
+1-201-393-5700
Web site: http://www.questdiagnostics.com