<SUBMISSION>
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<TYPE>10-Q
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<FILING-DATE>20020813
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<CONFORMED-NAME>QUEST DIAGNOSTICS INC
<CIK>0001022079
<ASSIGNED-SIC>8071
<IRS-NUMBER>161387862
<STATE-OF-INCORPORATION>DE
<FISCAL-YEAR-END>1231
</COMPANY-DATA>
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<FORM-TYPE>10-Q
<ACT>34
<FILE-NUMBER>001-12215
<FILM-NUMBER>02727926
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<BUSINESS-ADDRESS>
<STREET1>ONE MALCOLM AVE
<CITY>TETERBORO
<STATE>NJ
<ZIP>07608
<PHONE>2013935000
</BUSINESS-ADDRESS>
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<STREET1>ONE MALCOLM AVE
<CITY>TETERBORO
<STATE>NJ
<ZIP>07601
</MAIL-ADDRESS>
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<FORMER-CONFORMED-NAME>CORNING CLINICAL LABORATORIES INC
<DATE-CHANGED>19960903
</FORMER-COMPANY>
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<TYPE>10-Q
<SEQUENCE>1
<FILENAME>a33151.txt
<DESCRIPTION>QUEST DIAGNOSTICS, INC.
<TEXT>

<PAGE>



                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

--------------------------------------------------------------------------------

                                    FORM 10-Q

               QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                       THE SECURITIES EXCHANGE ACT OF 1934

                       For the Quarter ended June 30, 2002
                         Commission file number 1-12215

                         Quest Diagnostics Incorporated

                               One Malcolm Avenue
                               Teterboro, NJ 07608
                                 (201) 393-5000

                                    Delaware
                            (State of Incorporation)

                                   16-1387862
                     (I.R.S. Employer Identification Number)

--------------------------------------------------------------------------------

Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes  X    No
                                       ---      ---

As of August 2, 2002, there were outstanding 97,424,717 shares of Common Stock,
$.01 par value.







<PAGE>


                         PART I - FINANCIAL INFORMATION


Item 1.  Financial Statements

Index to consolidated financial statements filed as part of this report:
<TABLE>
<CAPTION>
                                                                                   Page
<S>                                                                               <C>
       Consolidated Statements of Operations for the
       Three and Six Months Ended June 30, 2002 and 2001                            2

       Consolidated Balance Sheets as of
       June 30, 2002 and December 31, 2001                                          3

       Consolidated Statements of Cash Flows for the
       Six Months Ended June 30, 2002 and 2001                                      4

       Notes to Consolidated Financial Statements                                   5


Item 2.  Management's Discussion and Analysis of Financial Condition
and Results of Operations

       Management's Discussion and Analysis of Financial
          Condition and Results of Operations                                      19

Item 3. Quantitative and Qualitative Disclosures About Market Risk

       See Item 2. "Management's Discussion and Analysis of Financial Condition
          and Results of Operations"
</TABLE>


                                       1





<PAGE>


                 QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
            FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2002 AND 2001
                      (in thousands, except per share data)
                                   (unaudited)

<TABLE>
<CAPTION>
                                                     Three Months Ended          Six Months Ended
                                                           June 30,                  June 30,
                                                   ----------------------    ------------------------

                                                      2002         2001         2002          2001
                                                   ----------    --------    ----------    ----------
<S>                                                <C>           <C>         <C>           <C>
Net revenues ...................................   $1,068,810    $931,589    $2,015,572    $1,814,142
                                                   ----------    --------    ----------    ----------

Costs and expenses:
   Cost of services ............................      630,258     549,391     1,187,996     1,078,456
   Selling, general and administrative .........      276,821     256,474       535,224       509,276
   Interest expense, net .......................       14,916      20,458        27,591        43,158
   Amortization of goodwill and other intangible
     assets ....................................        2,065      12,139         4,220        23,239
   Provision for special charge ................            -       5,997             -         5,997
   Minority share of income ....................        3,938       2,851         7,820         3,967
   Other, net ..................................       (5,660)     (1,432)       (6,274)       (1,134)
                                                   ----------    --------    ----------    ----------
     Total .....................................      922,338     845,878     1,756,577     1,662,959
                                                   ----------    --------    ----------    ----------
Income before taxes and extraordinary loss .....      146,472      85,711       258,995       151,183
Income tax expense .............................       59,321      38,607       105,155        68,331
                                                   ----------    --------    ----------    ----------
Income before extraordinary loss ...............       87,151      47,104       153,840        82,852
Extraordinary loss, net of taxes ...............            -     (21,609)            -       (21,609)
                                                   ----------    --------    ----------    ----------
Net income .....................................   $   87,151    $ 25,495    $  153,840    $   61,243
                                                   ==========    ========    ==========    ==========

Basic net income per common share:
Income before extraordinary loss ...............   $     0.90    $   0.51    $     1.60    $     0.90
Extraordinary loss, net of taxes ...............            -       (0.23)            -         (0.24)
                                                   ----------    --------    ----------    ----------
Net income .....................................   $     0.90    $   0.28    $     1.60    $     0.66
                                                   ==========    ========    ==========    ==========

Diluted net income per common share:
Income before extraordinary loss ...............   $     0.87    $   0.48    $     1.54    $     0.85
Extraordinary loss, net of  taxes ..............            -       (0.22)            -         (0.22)
                                                   ----------    --------    ----------    ----------
Net  income ....................................   $     0.87    $   0.26    $     1.54    $     0.63
                                                   ==========    ========    ==========    ==========

Weighted average common shares
   outstanding - basic .........................       96,393      92,566        95,907        92,228

Weighted average common shares
   outstanding - diluted .......................      100,297      97,304        99,802        96,962
</TABLE>


The accompanying notes are an integral part of these statements.


                                       2





<PAGE>


                 QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                       JUNE 30, 2002 AND DECEMBER 31, 2001
                      (in thousands, except per share data)
                                   (unaudited)

<TABLE>
<CAPTION>
                                                                              June 30,       December 31,
                                                                                2002            2001
                                                                            -----------      -----------
<S>                                                                         <C>              <C>
Assets
Current assets:
   Cash and cash equivalents .........................................      $   89,840       $  122,332
   Accounts receivable, net of allowance of $207,392 and $216,203
   at June 30, 2002 and December 31, 2001, respectively ..............         597,667          508,340
   Inventories .......................................................          57,930           49,906
   Deferred taxes on income ..........................................         146,782          157,649
   Prepaid expenses and other current assets .........................          41,595           38,287
                                                                            ----------       ----------
     Total current assets ............................................         933,814          876,514
Property, plant and equipment, net ...................................         568,994          508,619
Goodwill, net ........................................................       1,778,297        1,351,123
Intangible assets, net ...............................................          24,184           28,020
Deferred taxes on income .............................................          46,444           52,678
Other assets .........................................................          99,752          113,601
                                                                            ----------       ----------
Total assets .........................................................      $3,451,485       $2,930,555
                                                                            ==========       ==========

Liabilities and Stockholders' Equity
Current liabilities:
   Accounts payable and accrued expenses .............................      $  644,813       $  657,219
   Short-term borrowings and current portion of long-term debt .......         301,768            1,404
                                                                            ----------       ----------
     Total current liabilities .......................................         946,581          658,623
Long-term debt .......................................................         820,819          820,337
Other liabilities ....................................................         114,091          115,608
Commitments and contingencies
Common stockholders' equity:
   Common stock, par value $0.01 per share; 300,000 shares authorized;
     97,424 and 96,024 shares issued at June 30, 2002 and December 31,
     2001, respectively ..............................................             974              960
   Additional paid-in capital ........................................       1,788,479        1,714,676
   Accumulated deficit ...............................................        (209,086)        (362,926)
   Unearned compensation .............................................          (8,118)         (13,253)
   Accumulated other comprehensive loss ..............................          (2,255)          (3,470)
                                                                            ----------       ----------
     Total common stockholders' equity ...............................       1,569,994        1,335,987
                                                                            ----------       ----------
Total liabilities and stockholders' equity ...........................      $3,451,485       $2,930,555
                                                                            ==========       ==========
</TABLE>


The accompanying notes are an integral part of these statements.


                                       3





<PAGE>


                 QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                 FOR THE SIX MONTHS ENDED JUNE 30, 2002 AND 2001
                                 (in thousands)
                                   (unaudited)

<TABLE>
<CAPTION>
                                                                                       2002                2001
                                                                                    ----------          ----------
<S>                                                                                 <C>                 <C>
Cash flows from operating activities:
Net income...................................................................       $ 153,840          $  61,243
Extraordinary loss, net of taxes...........................................                 -             21,609
Adjustments to reconcile net income to net cash provided by
operating activities:
   Depreciation and amortization.............................................          63,815             70,903
   Provision for doubtful accounts...........................................         110,477            110,854
   Provision for special charge..............................................               -              5,997
   Deferred income tax provision.............................................          17,563              1,247
   Minority share of income..................................................           7,820              3,967
   Stock compensation expense................................................           4,953             11,814
   Tax benefits associated with stock-based compensation plans...............          38,189             22,898
   Other, net................................................................          (2,056)             2,962
   Changes in operating assets and liabilities:
     Accounts receivable.....................................................        (136,837)          (146,154)
     Accounts payable and accrued expenses...................................         (38,040)           (20,253)
     Integration, settlement and other special charges.......................         (12,668)           (33,439)
     Other assets and liabilities, net.......................................          10,890             37,987
                                                                                    ---------          ---------
Net cash provided by operating activities....................................         217,946            151,635
                                                                                    ---------          ---------

Cash flows from investing activities:
Business acquisitions, net of cash acquired..................................        (333,512)           (55,746)
Capital expenditures.........................................................         (83,390)           (78,432)
Collection of note receivable ...............................................          10,660              2,000
Proceeds from disposition of assets..........................................           1,043             21,492
Increase in investments and other assets.....................................          (2,917)            (9,901)
                                                                                    ---------          ---------
Net cash used in investing activities........................................        (408,116)          (120,587)
                                                                                    ---------          ---------

Cash flows from financing activities:
Repayments of long-term debt.................................................        (333,265)          (734,025)
Proceeds from borrowings.....................................................         475,237            722,333
Costs paid in connection with debt refinancing...............................               -            (23,684)
Exercise of stock options....................................................          22,103             10,132
Distributions to minority partners...........................................          (6,268)            (2,969)
Preferred stock dividends paid...............................................               -               (147)
Other........................................................................            (129)                 -
                                                                                    ---------          ---------
Net cash provided by (used in) financing activities..........................         157,678            (28,360)
                                                                                    ---------          ---------

Net change in cash and cash equivalents......................................         (32,492)             2,688
Cash and cash equivalents, beginning of year.................................         122,332            171,477
                                                                                    ---------          ---------
Cash and cash equivalents, end of period.....................................       $  89,840          $ 174,165
                                                                                    =========          =========

Cash paid during the period for:
Interest.....................................................................       $  30,504          $  50,704
Income taxes.................................................................          38,760             20,442

Businesses acquired:
Fair value of assets acquired..............................................         $ 549,947          $  55,746
Fair value of liabilities acquired.........................................           204,490                  -
</TABLE>


The accompanying notes are an integral part of these statements.


                                       4





<PAGE>


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


1.   BASIS OF PRESENTATION

     Background

     Quest Diagnostics Incorporated and its subsidiaries ("Quest Diagnostics" or
the "Company") is the largest clinical laboratory testing business in the United
States. As the nation's leading provider of diagnostic testing and related
services for the healthcare industry, Quest Diagnostics offers a broad range of
clinical laboratory testing services to physicians, hospitals, managed care
organizations, employers, governmental institutions and other independent
clinical laboratories. Quest Diagnostics has the leading market share in
clinical laboratory testing and esoteric testing, including molecular
diagnostics, as well as non-hospital based anatomic pathology services and
testing for drugs of abuse. Through the Company's national network of
laboratories and patient service centers, and its esoteric testing laboratory
and development facilities, Quest Diagnostics offers comprehensive and
innovative diagnostic testing, information and related services used by
physicians and other healthcare customers to diagnose, treat and monitor
diseases and other medical conditions. Quest Diagnostics also offers clinical
testing and services to support clinical trials of new pharmaceuticals
worldwide.

     On an annualized basis, Quest Diagnostics processes over 115 million
requisitions through its extensive network of laboratories and patient service
centers in virtually every major metropolitan area throughout the United States.

     Basis of Presentation

     The interim consolidated financial statements reflect all adjustments
which, in the opinion of management, are necessary for a fair statement of
financial condition and results of operations for the periods presented. Except
as otherwise disclosed, all such adjustments are of a normal recurring nature.
The interim consolidated financial statements have been compiled without audit.
Operating results for the interim periods are not necessarily indicative of the
results that may be expected for the full year. These interim consolidated
financial statements should be read in conjunction with the audited consolidated
financial statements included in the Company's 2001 Annual Report on Form 10-K.

     Earnings Per Share

     Basic net income per common share is calculated by dividing net income,
less preferred stock dividends (approximately $30 thousand per quarter in 2001),
by the weighted average number of common shares outstanding. Diluted net income
per common share is calculated by dividing net income, less preferred stock
dividends, by the weighted average number of common shares outstanding after
giving effect to all potentially dilutive common shares outstanding during the
period. The if-converted method is used in determining the dilutive effect of
the Company's 1 3/4% contingent convertible debentures in periods when the
holders of such securities are permitted to exercise their conversion rights.
Potentially dilutive common shares include outstanding stock options and
restricted common shares granted under the Company's Employees Equity
Participation Program. These dilutive securities increased the weighted average
number of common shares outstanding by 3.9 million shares and 4.7 million
shares, respectively, for both the three and six months ended June 30, 2002 and
2001. During the fourth quarter of 2001, the Company redeemed all of its then
issued and outstanding shares of preferred stock.

     Stock-Based Compensation

     Quest Diagnostics has adopted the disclosure-only provisions of Statement
of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"), and follows Accounting Principles Board Opinion
("APB") No. 25, "Accounting for Stock Issued to Employees" ("APB 25"), and
related interpretations to account for its stock-based compensation plans.
Under this approach, the cost of restricted stock awards is expensed over their
vesting period, while the imputed cost of stock option grants and discounts
offered under the Company's Employee Stock Purchase Plan ("ESPP") is 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,
related to restricted stock awards, was $2.5 million and $4.9 million for the
three months ended June 30, 2002 and 2001, respectively, and $5.0 million and
$11.8 million for the six months ended June 30, 2002 and 2001, respectively.


                                       5





<PAGE>


                 QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                   (in thousands, unless otherwise indicated)
                                   (unaudited)


     The following table presents net income and basic and diluted earnings per
common share, had the Company elected to recognize compensation cost based on
the fair value at the grant dates for stock option awards and discounts granted
for stock purchases under the Company's ESPP, consistent with the method
prescribed by SFAS 123:

<TABLE>
<CAPTION>
                                                        Three Months Ended           Six Months Ended
                                                            June 30,                      June 30,
                                                      ---------------------       -----------------------
                                                        2002          2001          2002           2001
                                                      -------       -------       --------       --------
<S>                                                   <C>           <C>           <C>            <C>
Net income
Net income .....................................      $87,151       $25,495       $153,840       $ 61,243
Impact of recognizing compensation cost pursuant
   to provisions of SFAS 123 ...................       (9,909)       (6,759)       (17,953)       (10,010)
                                                      -------       -------       --------       --------
Net income, adjusted for impact of SFAS 123 ....      $77,242       $18,736       $135,887       $ 51,233
                                                      =======       =======       ========       ========

Basic net income per common share
Net income .....................................      $  0.90       $  0.28       $   1.60       $   0.66
Impact of recognizing compensation cost pursuant
   to provisions of SFAS 123 ...................        (0.10)        (0.08)         (0.18)         (0.11)
                                                      -------       -------       --------       --------
Net income, adjusted for impact of SFAS 123 ....      $  0.80       $  0.20       $   1.42       $   0.55
                                                      =======       =======       ========       ========
Diluted net income per common share
Net income .....................................      $  0.87       $  0.26       $   1.54       $   0.63
Impact of recognizing compensation cost pursuant
   to provisions of SFAS 123 ...................        (0.10)        (0.07)         (0.18)         (0.10)
                                                      -------       -------       --------       --------
Net income, adjusted for impact of SFAS 123 ....      $  0.77       $  0.19       $   1.36       $   0.53
                                                      =======       =======       ========       ========
</TABLE>

         The fair value of each option grant was estimated on the date of
grant using the Black-Scholes option-pricing model with the following weighted
average assumptions:

<TABLE>
<CAPTION>
                                                        Three Months Ended           Six Months Ended
                                                            June 30,                      June 30,
                                                      ---------------------       -----------------------
                                                        2002          2001          2002           2001
                                                      -------       -------       --------       --------
<S>                                                   <C>           <C>           <C>            <C>
Dividend yield.....................................     0.0%          0.0%           0.0%          0.0%
Risk-free interest rate............................     4.3%          5.3%           4.2%          5.2%
Expected volatility................................    45.2%         47.7%          45.2%         47.7%
Expected holding period, in years..................       5             5              5             5
</TABLE>

     New Accounting Standards

     In August 2001, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 144, "Accounting for Impairment or Disposal of Long-Lived Assets"
("SFAS 144"), which supercedes SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of" ("SFAS 121").
SFAS 144 further refines SFAS 121's requirement that companies recognize an
impairment loss if the carrying amount of a long-lived asset is not recoverable
based on its undiscounted future cash flows and measure an impairment loss as
the difference between the carrying amount and fair value of the asset. In
addition, SFAS 144 provides guidance on accounting and disclosure issues
surrounding long-lived assets to be disposed of by sale. SFAS 144 also extends
the presentation of discontinued operations to include more disposal
transactions. SFAS 144 is effective for all fiscal quarters of all fiscal years
beginning after December 15, 2001 (January 1, 2002 for the Company). The
Company's adoption of SFAS 144 did not result in any impairment loss being
recorded.

     In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements
No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections" ("SFAS 145"). SFAS 145 rescinds SFAS No. 4, "Reporting Gains and
Losses from Extinguishment of Debt" ("SFAS 4"), SFAS No. 44, "Accounting for
Intangible Assets of Motor Carriers"


                                       6





<PAGE>


                 QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                   (in thousands, unless otherwise indicated)
                                   (unaudited)


("SFAS 44") and SFAS No. 64, "Extinguishments of Debt Made to Satisfy
Sinking-Fund Requirements" ("SFAS 64") and amends SFAS No. 13, "Accounting for
Leases" ("SFAS 13"). This statement updates, clarifies and simplifies existing
accounting pronouncements. As a result of rescinding SFAS 4 and SFAS 64, the
criteria in APB No. 30, "Reporting the Results of Operations-Reporting the
Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions", will be used to classify gains
and losses from extinguishment of debt. SFAS 44 was no longer necessary because
the transitions under the Motor Carrier Act of 1980 were completed. SFAS 13 was
amended to eliminate an inconsistency between the required accounting for
sale-leaseback transactions and the required accounting for certain lease
modifications that have economic effects that are similar to sale-leaseback
transactions and makes technical corrections to existing pronouncements. The
provisions of SFAS 145 are effective for fiscal years beginning after May 15,
2002, with earlier application encouraged. The Company expects to adopt SFAS 145
effective January 1, 2003 and reflect any necessary reclassifications in its
consolidated statements of operations. The adoption of SFAS 145 will not have a
material impact on the Company's financial position.

     In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities" ("SFAS 146"), which addresses the
recognition, measurement, and reporting of costs associated with exit or
disposal activities, and supercedes Emerging Issues Task Force ("EITF") Issue
No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and
Other Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring)" ("EITF 94-3"). The principal difference between SFAS 146 and
EITF 94-3 relates to the requirements for recognition of a liability for a cost
associated with an exit or disposal activity. SFAS 146 requires that a liability
for a cost associated with an exit or disposal activity, including those related
to employee termination benefits and obligations under operating leases and
other contracts, be recognized when the liability is incurred, and not
necessarily the date of an entity's commitment to an exit plan, as under EITF
94-3. SFAS 146 also establishes that the initial measurement of a liability
recognized under SFAS 146 be based on fair value. The provisions of SFAS 146 are
effective for exit or disposal activities that are initiated after December 31,
2002, with early application encouraged. The Company expects to adopt SFAS 146,
effective January 1, 2003. For exit or disposal activities initiated prior to
January 1, 2003, the Company plans to follow the accounting guidance outlined in
EITF 94-3.

2.   ACCOUNTING FOR GOODWILL AND OTHER INTANGIBLE ASSETS

     In July 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets" ("SFAS 142"), which broadens the criteria for recording intangible
assets separate from goodwill. SFAS 142 requires the use of a nonamortization
approach to account for purchased goodwill and certain intangibles. Under a
nonamortization approach, goodwill and certain intangibles are not amortized
into results of operations, but instead are reviewed for impairment and an
impairment charge is recorded in the periods in which the recorded carrying
value of goodwill and certain intangibles is more than its estimated fair value.
The Company adopted SFAS 142 effective January 1, 2002. The provisions of SFAS
142 require that a transitional impairment test be performed as of the beginning
of the year the statement is adopted. The provisions of SFAS 142 also require
that a goodwill impairment test be performed annually or in the case of other
events that indicate a potential impairment. The new criteria for recording
intangible assets separate from goodwill did not require the Company to
reclassify any of its intangible assets. The Company's transitional impairment
test indicated that there was no impairment of goodwill upon adoption of SFAS
142. The annual impairment test of goodwill will be performed at the end of the
Company's fiscal year on December 31st.

     Effective January 1, 2002, the Company evaluates the recoverability and
measures the possible impairment of its goodwill under SFAS 142. The impairment
test is a two-step process that begins with the estimation of the fair value of
the reporting unit. The first step screens for potential impairment and the
second step measures the amount of the impairment, if any. Management's estimate
of fair value considers publicly available information regarding the market
capitalization of the Company as well as (i) publicly available information
regarding comparable publicly-traded companies in the clinical laboratory
testing industry, (ii) the financial projections and future prospects of the
Company's business, including its growth opportunities and likely operational
improvements, and (iii) comparable sales prices, if available. As part of the
first step to assess potential impairment, management compares the estimate of
fair value for the Company to the book value of the Company's consolidated net
assets. If the book value of the consolidated net assets is greater than the
estimate of fair value, the Company would then proceed to the second step to
measure the impairment, if any. The second step compares the implied fair value
of goodwill with its carrying value. The implied fair value is determined by
allocating the fair value of the reporting unit to all of the assets and
liabilities of that unit as if the reporting unit had been acquired in a
business combination and the fair value of the reporting unit was the purchase
price paid to acquire the reporting unit. The excess of the fair value of the
reporting unit over the amounts assigned to its assets and


                                       7




<PAGE>


                 QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                   (in thousands, unless otherwise indicated)
                                   (unaudited)


liabilities is the implied fair value of goodwill. If the carrying amount of the
reporting unit's goodwill is greater than its implied fair value, an impairment
loss will be recognized in the amount of the excess. Management believes its
estimation methods are reasonable and reflective of common valuation practices.

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

     The following table presents net income and basic and diluted earnings per
common share, adjusted to reflect results as if the nonamortization provisions
of SFAS 142 had been in effect for the periods presented:

<TABLE>
<CAPTION>
                                                        Three Months Ended          Six Months Ended
                                                              June 30,                  June 30,
                                                       --------------------      ----------------------

                                                         2002         2001         2002          2001
                                                       -------      -------      --------      --------
<S>                                                    <C>          <C>          <C>           <C>
Net income
Reported net income .............................      $87,151      $25,495      $153,840      $ 61,243
Add back: Amortization of goodwill, net of taxes             -        9,543             -        18,190
                                                       -------      -------      --------      --------
Adjusted net income .............................      $87,151      $35,038      $153,840      $ 79,433
                                                       =======      =======      ========      ========

Income before extraordinary loss, adjusted to
   exclude amortization of goodwill, net of taxes      $87,151      $56,647      $153,840      $101,042

Basic net income per common share
Reported net income .............................      $  0.90      $  0.28      $   1.60      $   0.66
Amortization of goodwill ........................            -         0.10             -          0.20
                                                       -------      -------      --------      --------
Adjusted net income .............................      $  0.90      $  0.38      $   1.60      $   0.86
                                                       =======      =======      ========      ========

Income before extraordinary loss, adjusted to
   exclude amortization of goodwill, net of taxes      $  0.90      $  0.61      $   1.60      $   1.09

Diluted net income per common share
Reported net income .............................      $  0.87      $  0.26      $   1.54      $   0.63
Amortization of goodwill ........................            -         0.10             -          0.19
                                                       -------      -------      --------      --------
Adjusted net income .............................      $  0.87      $  0.36      $   1.54      $   0.82
                                                       =======      =======      ========      ========

Income before extraordinary loss, adjusted to
   exclude amortization of goodwill, net of taxes      $  0.87      $  0.58      $   1.54      $   1.04
</TABLE>


                                       8





<PAGE>


                 QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                   (in thousands, unless otherwise indicated)
                                   (unaudited)


     Other intangible assets consist of the following:

<TABLE>
<CAPTION>
                        Weighted
                        Average
                      Amortization
                         Period                      June 30, 2002                         December 31, 2001
                     ----------------   ------------------------------------      -----------------------------------
                                                      Accumulated                              Accumulated
                                          Cost       Amortization      Net          Cost      Amortization      Net
                                        --------     ------------    -------      --------    ------------    -------
<S>                      <C>             <C>          <C>            <C>           <C>         <C>            <C>
Non-compete
  agreements..........   5 years         $43,943      $(29,391)      $14,552       $43,943     $(26,566)      $17,377
Customer lists........  15 years          41,301       (32,822)        8,479        41,331      (31,787)        9,544
Other.................  12 years           3,267        (2,114)        1,153         3,067       (1,968)        1,099
                                         -------      --------       -------       -------     --------       -------
   Total..............   8 years         $88,511      $(64,327)      $24,184       $88,341     $(60,321)      $28,020
                                         =======      ========       =======       =======     ========       =======
</TABLE>

     For the three months ended June 30, 2002 and 2001, amortization expense
related to other intangible assets was $2,065 and $1,989, respectively. For the
six months ended June 30, 2002 and 2001, amortization expense related to other
intangible assets was $4,220 and $3,852, respectively.

     The estimated amortization expense related to other intangible assets for
each of the five succeeding fiscal years as of June 30, 2002 is as follows:

<TABLE>
<CAPTION>
                       Fiscal year ending
                          December 31,
                       -------------------
                    <S>                               <C>
                     Remainder of 2002 .........      $ 3,725
                     2003.......................        7,355
                     2004.......................        5,830
                     2005.......................        2,503
                     2006.......................        1,389
                     2007.......................          639
                     Thereafter.................        2,743
                                                      -------
                       Total....................      $24,184
                                                      =======
</TABLE>

3.   BUSINESS ACQUISITION

     Acquisition of American Medical Laboratories, Incorporated

     On April 1, 2002, the Company completed its previously announced
acquisition of all of the outstanding voting stock of American Medical
Laboratories, Incorporated, ("AML") and an affiliated company of AML, LabPortal,
Inc. ("LabPortal"), a provider of electronic connectivity products, in an
all-cash transaction with a combined value of approximately $500 million, which
included the assumption of approximately $160 million in debt.

     Through the acquisition of AML, Quest Diagnostics acquired all of AML's
operations, including two full-service laboratories, 51 patient service centers,
and hospital sales, service and logistics capabilities. The all-cash purchase
price of approximately $335 million and related transaction costs, together with
the repayment of approximately $150 million of principal and related accrued
interest, representing substantially all of AML's debt, was financed by Quest
Diagnostics with cash on-hand, $300 million of borrowings under its secured
receivables credit facility and $175 million of borrowings under its unsecured
revolving credit facility. During the second quarter of 2002, Quest Diagnostics
repaid all of the $175 million borrowed under the Company's unsecured revolving
credit facility.


                                       9





<PAGE>


                 QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                   (in thousands, unless otherwise indicated)
                                   (unaudited)


     The acquisition of AML was accounted for under the purchase method of
accounting. As such, the cost to acquire AML has been allocated on a preliminary
basis to the assets and liabilities acquired based on estimated fair values as
of the closing date. The consolidated financial statements include the results
of operations of AML subsequent to the closing of the acquisition.

     The following table summarizes the Company's preliminary purchase price
allocation related to the acquisition of AML based on the estimated fair value
of the assets acquired and liabilities assumed on the acquisition date. The
purchase price allocation will be finalized after completion of the valuation of
certain assets and liabilities, including costs to integrate AML's operations.

<TABLE>
<CAPTION>
                                                                    Estimated
                                                                   Fair Values
                                                                      as of
                                                                  April 1, 2002
                                                                  -------------
         <S>                                                       <C>
         Current assets........................................     $ 83,517
         Property, plant and equipment.........................       32,207
         Goodwill..............................................      419,871
         Other assets..........................................        3,134
                                                                    --------
           Total assets acquired...............................      538,729
                                                                    --------

         Current portion of long-term debt.....................       11,834
         Other current liabilities.............................       43,461
         Long-term debt........................................      139,465
         Other liabilities.....................................        2,193
                                                                    --------
           Total liabilities assumed...........................      196,953
                                                                    --------

           Net assets acquired.................................     $341,776
                                                                    ========
</TABLE>

     Based on management's review of the net assets acquired and consultations
with valuation specialists, no intangible assets meeting the criteria under SFAS
No. 141, "Business Combinations", were identified. Of the $420 million allocated
to goodwill, approximately $17 million is expected to be deductible for tax
purposes.


                                       10





<PAGE>


                 QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                   (in thousands, unless otherwise indicated)
                                   (unaudited)


     The following unaudited pro forma combined financial information
for the six months ended June 30, 2002 and the three and six months ended
June 30, 2001 assumes that the AML acquisition was effected on January 1, 2001
(in thousands, except per share data):

<TABLE>
<CAPTION>
                                                                                                     Three Months
                                                                                                        Ended
                                                                 Six Months Ended June 30,             June 30,
                                                                 2002                2001                2001
                                                              ----------          ----------          ----------
     <S>                                                     <C>                 <C>                 <C>
     Net revenues...........................................  $2,093,987          $1,958,962          $1,006,049
     Income before extraordinary loss.......................     153,437              89,423              49,269
     Net income.............................................     153,437              67,815              27,661

     Basic earnings per common share:
     Income before extraordinary loss.......................  $     1.60          $     0.97          $     0.53
     Net income.............................................        1.60                0.74                0.30
     Weighted average common shares outstanding - basic.....      95,907              92,228              92,566

     Diluted earnings per common share:
     Income before extraordinary loss.......................  $     1.54          $     0.92          $     0.51
     Net income.............................................        1.54                0.70                0.28
     Weighted average common shares outstanding - diluted...      99,802              96,962              97,304
</TABLE>

     Proforma results for the six months ended June 30, 2002 exclude $14.5
million of non-recurring merger costs which were incurred and expensed by AML
immediately prior to the closing of the AML acquistion.

     The all-cash purchase price for LabPortal of approximately $4 million and
related transaction costs, together with the repayment of all of LabPortal's
outstanding debt of approximately $7 million and related accrued interest, was
financed by Quest Diagnostics with cash on-hand. The acquisition of LabPortal
was accounted for under the purchase method of accounting. As such, the cost to
acquire LabPortal has been allocated on a preliminary basis to the assets and
liabilities acquired based on estimated fair values as of the closing date,
including approximately $7 million of goodwill. The consolidated financial
statements include the results of operations of LabPortal subsequent to the
closing of the acquisition.

4.   PROVISION FOR SPECIAL CHARGE

     During the second quarter of 2001, the Company recorded a special charge of
$6.0 million in connection with the refinancing of its debt and settlement of
the Company's interest rate swap agreements. Prior to the Company's debt
refinancing in June 2001, the Company's secured credit agreement required the
Company to maintain interest rate swap agreements to mitigate the risk of
changes in interest rates associated with a portion of its variable interest
rate indebtedness. These interest rate swap agreements were considered a hedge
against changes in the amount of future cash flows associated with the interest
payments of the Company's variable rate debt obligations. Accordingly, the
interest rate swap agreements were recorded at their estimated fair value in the
Company's consolidated balance sheet and the related losses on these contracts
were deferred in shareholders' equity as a component of comprehensive income. In
conjunction with the debt refinancing, the interest rate swap agreements were
terminated and the losses which were included in shareholders' equity as a
component of comprehensive income were reflected as a special charge in the
consolidated statement of operations for the three and six months ended June 30,
2001.

5.   EXTRAORDINARY LOSS

     In conjunction with the Company's debt refinancing in the second quarter of
2001, the Company recorded an extraordinary loss of $36.0 million, ($21.6
million, net of taxes). The loss represented the write-off of deferred financing
costs of $23.2 million, associated with the Company's debt which was refinanced,
and $12.8 million of payments related primarily to the tender premium incurred
in connection with the Company's cash tender offer of the Company's 10 3/4%
Senior Subordinated Notes. See Note 1,"New Accounting Standards", for a
discussion regarding the impact of SFAS 145.


                                       11





<PAGE>


                 QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                   (in thousands, unless otherwise indicated)
                                   (unaudited)


6.   COMMITMENTS AND CONTINGENCIES

     The Company has entered into several settlement agreements with various
governmental and private payers during recent years relating to industry-wide
billing and marketing practices that had been substantially discontinued by
early 1993. In addition, the Company is aware of several pending lawsuits filed
under the qui tam provisions of the civil False Claims Act and has received
notices of private claims relating to billing issues similar to those that were
the subject of prior settlements with various governmental payers. Some of the
proceedings against the Company involve claims that are substantial in amount.
Some of the cases involve the operations of SmithKline Beecham Clinical
Laboratories, Inc. ("SBCL") prior to the closing of the SBCL acquisition.

     SmithKline Beecham plc ("SmithKline Beecham") has agreed to indemnify Quest
Diagnostics, on an after-tax basis, against monetary payments for governmental
claims or investigations relating to the billing practices of SBCL that had been
settled before or were pending as of the closing date of the SBCL acquisition.
SmithKline Beecham has also agreed to indemnify Quest Diagnostics, on an
after-tax basis, against monetary payments to private payers, relating to or
arising out of the governmental claims. The indemnification with respect to
governmental claims is for 100% of those claims. SmithKline Beecham will
indemnify Quest Diagnostics, in respect of private claims for: 100% of those
claims, up to an aggregate amount of $80 million; 50% of those claims to the
extent the aggregate amount exceeds $80 million but is less than $130 million;
and 100% of such claims to the extent the aggregate amount exceeds $130 million.
The indemnification also covers 80% of out-of-pocket costs and expenses relating
to investigations of the claims indemnified against by SmithKline Beecham.
SmithKline Beecham has also agreed to indemnify the Company with respect to
pending actions relating to a former SBCL employee that at times reused certain
needles when drawing blood from patients. In addition, SmithKline Beecham has
agreed to indemnify the Company against all monetary payments relating to
professional liability claims of SBCL for services provided prior to the closing
of the SBCL acquisition. Amounts due from SmithKline Beecham at June 30, 2002,
related principally to indemnified professional liability claims discussed
above, totaled approximately $11 million. The estimated reserves and related
amounts due from SmithKline Beecham are subject to change as additional
information regarding the outstanding claims is gathered and evaluated.

     At June 30, 2002, recorded reserves relating to billing claims
approximated $10 million. Although management believes that established reserves
for both indemnified and non-indemnified claims are sufficient, it is possible
that additional information (such as the indication by the government of
criminal activity, additional tests being questioned or other changes in the
government's or private claimants' theories of wrongdoing) may become available
which may cause the final resolution of these matters to exceed established
reserves by an amount which could be material to the Company's results of
operations and cash flows in the period in which such claims are settled. The
Company does not believe that these issues will have a material adverse effect
on its overall financial condition.

     In addition to the billing-related settlement reserves discussed above, the
Company is involved in various legal proceedings arising in the ordinary course
of business. Some of the proceedings against the Company involve claims that are
substantial in amount. Some of these claims involve contracts of SBCL that were
terminated following the Company's acquisition of SBCL. During the second
quarter of 2002, the Company paid approximately $5 million to settle a claim
related to a contract of SBCL that was terminated following the Company's
acquisition of SBCL. The settlement had been fully reserved for. Although
management cannot predict the outcome of such proceedings or any claims made
against the Company, management does not anticipate that the ultimate outcome of
the various proceedings or claims will have a material adverse effect on the
Company's financial position but may be material to the Company's results of
operations and cash flows in the period in which such claims are resolved.


                                       12





<PAGE>


                 QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                   (in thousands, unless otherwise indicated)
                                   (unaudited)


7.   COMMON STOCKHOLDERS' EQUITY

     Changes in common stockholders' equity for the six months ended June 30,
2002 were as follows:

<TABLE>
<CAPTION>
                                                                                            Accumulated
                                              Additional                                       Other
                                   Common       Paid-In      Accumulated     Unearned      Comprehensive   Comprehensive
                                    Stock       Capital        Deficit     Compensation        (Loss)         Income
                                  ---------------------------------------------------------------------------------------
<S>                                 <C>       <C>             <C>            <C>             <C>             <C>
Balance,
   December 31, 2001                $960      $1,714,676      $(362,926)     $(13,253)       $(3,470)
Net income....................                                  153,840                                      $153,840
Other comprehensive income....                                                                 1,215            1,215
                                                                                                             --------
  Comprehensive income........                                                                               $155,055
                                                                                                             ========
Issuance of common stock under
  benefit plans (214 common
  shares).....................         2         13,523
Exercise of options (1,186
  common shares)..............        12         22,091
Tax benefits associated with
  stock-based compensation
  plans.......................                   38,189
Amortization of unearned
  compensation................                                                  5,135
----------------------------------------------------------------------------------------------------
Balance,
   June 30, 2002                    $974      $1,788,479      $(209,086)     $ (8,118)       $(2,255)
                                    ================================================================
</TABLE>




                                       13





<PAGE>


                 QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                   (in thousands, unless otherwise indicated)
                                   (unaudited)


     Changes in common stockholders' equity for the six months ended June 30,
2001 were as follows:

<TABLE>
<CAPTION>
                                                                                            Accumulated
                                              Additional                                       Other
                                   Common       Paid-In      Accumulated     Unearned      Comprehensive   Comprehensive
                                    Stock       Capital        Deficit     Compensation        (Loss)         Income
                                  ---------------------------------------------------------------------------------------
<S>                                 <C>       <C>             <C>            <C>             <C>             <C>
Balance,
   December 31, 2000                $465      $1,591,976      $(525,111)     $(31,077)       $(5,458)
Net income....................                                   61,243                                      $61,243
Other comprehensive income....                                                                 1,859           1,859
                                                                                                             -------
  Comprehensive income........                                                                               $63,102
                                                                                                             =======
Two-for-one stock split (47,149
  common shares)..............       472            (472)
Preferred dividends declared                                        (59)
Issuance of common stock under
  benefit plans (193 common
  shares).....................         2          24,764                       (4,053)
Exercise of options (606 common
  shares).....................         6          10,126
Shares to cover employee
  payroll tax withholdings on
  exercised options (2 common
  shares).....................                      (189)
Tax benefits associated with
  stock-based compensation
  plans.......................                    22,898
Amortization of unearned
  compensation................                                                 12,481
-----------------------------------------------------------------------------------------------------
Balance,
   June 30, 2001                    $945      $1,649,103      $(463,927)     $(22,649)       $(3,599)
                                    ====      ==========      ==========     =========       ========
</TABLE>

     During the six months ended June 30, 2001, two thousand common shares were
surrendered to cover employee payroll tax withholdings related to the exercise
of stock options. For reporting purposes, these shares were accounted for as
treasury purchases which were immediately retired.

     For the six months ended June 30, 2001, other comprehensive income included
the cumulative effect of the change in accounting for derivative financial
instruments upon adoption of SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities", as amended, which reduced comprehensive
income by approximately $1 million. In addition, in conjunction with the
Company's debt refinancing, the interest rate swap agreements were terminated
and the losses which were included in shareholders' equity as a component of
comprehensive income were reflected as a special charge in the consolidated
statements of operations for the three and six months ended June 30, 2001 (See
Note 4).

8.   PENDING ACQUISITION

     Acquisition of Unilab Corporation

     On April 2, 2002, the Company entered into a definitive agreement with
Unilab Corporation ("Unilab"), which provides that Quest Diagnostics will
acquire all of the outstanding shares of Unilab common stock and assume Unilab's
existing debt of approximately $200 million. In exchange for their Unilab
shares, Unilab stockholders may elect to receive $26.50 in cash, 0.3256 shares
of Quest Diagnostics common stock or a combination of cash and stock. The
aggregate amount of cash available to Unilab stockholders will be limited to 30%
of the total consideration available for the Unilab shares. Unilab has
approximately 37.4 million shares of common stock outstanding on a fully diluted
basis. If Unilab stockholders elect to receive 30% of the consideration in cash
and if all options are exercised, Quest Diagnostics


                                       14





<PAGE>


                 QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                   (in thousands, unless otherwise indicated)
                                   (unaudited)


would issue approximately 8.5 million shares and pay $297 million in cash to the
stockholders of Unilab. If Unilab stockholders elect to receive 100% of the
consideration in Quest Diagnostics common stock and all Unilab options were
exercised, Quest Diagnostics would issue approximately 12.2 million common
shares to the stockholders of Unilab. The transaction, which has been approved
by the Boards of Directors of both companies, is subject to the satisfaction of
customary conditions, including the tender of a majority of Unilab's common
stock on a fully diluted basis, and regulatory review.

     During the second quarter of 2002, the Company and Unilab received a
request for additional information (commonly referred to as a "second request")
from the Federal Trade Commission ("FTC") under the Hart-Scott-Rodino Antitrust
Improvements Act (the "HSR Act") in connection with the Company's pending
acquisition of Unilab. Subject to completion of the HSR process and satisfaction
of the other conditions to the cash election exchange offer and the agreement
and plan of merger, the Company hopes to close the transaction in the third
quarter of 2002. The Company and Unilab are continuing their discussions with
the FTC regarding the proposed transaction and the process is taking longer
than anticipated. The Company continues to believe that the transaction is
not anti-competitive.

     As part of the acquisition, Quest Diagnostics would acquire all of Unilab's
operations, including its primary testing facilities in Los Angeles, San Jose
and Sacramento, California, its more than 400 regional service and testing
facilities located throughout California and its operations in Arizona. The
Company expects to finance the cash portion of the purchase price and any
retirements of Unilab's existing debt with the proceeds from a new $450 million
five-year amortizing term loan commitment, which is available for the
acquisition of Unilab, available borrowings under its unsecured revolving credit
facility and cash on hand. The term loan, which is contingent upon the
completion of the Unilab transaction, will carry interest at LIBOR plus 1.3125%
and require principal repayments of the initial amount borrowed equal to 15%,
20%, 20%, 20% and 25% in years one through five, respectively. Since the
transaction has yet to close, a preliminary purchase price allocation is not
practical at this time.

9.   SUMMARIZED FINANCIAL INFORMATION

     The Company's 6 3/4% senior notes due 2006, 7 1/2% senior notes due 2011
and 1 3/4% contingent convertible debentures are guaranteed by each of the
Company's wholly owned subsidiaries that operate clinical laboratories in the
United States (the "Subsidiary Guarantors"). With the exception of Quest
Diagnostics Receivables Incorporated (see paragraph below), the non-guarantor
subsidiaries are primarily foreign and less than wholly owned subsidiaries.

     In conjunction with the Company's receivables financing in 2000, the
Company formed a new wholly owned non-guarantor subsidiary, Quest Diagnostics
Receivables Incorporated ("QDRI"). The Company and the Subsidiary Guarantors,
with the exception of AML, transfer all private domestic receivables
(principally excluding receivables due from Medicare, Medicaid and other federal
programs and receivables due from customers of its joint ventures) to QDRI. QDRI
utilizes the transferred receivables to collateralize the Company's secured
receivables credit facility. The Company and the Subsidiary Guarantors provide
collection services to QDRI. QDRI uses cash collections principally to purchase
new receivables from the Company and the Subsidiary Guarantors.

     The following condensed consolidating financial data illustrates the
composition of the combined guarantors. Investments in subsidiaries are
accounted for by the parent using the equity method for purposes of the
supplemental consolidating presentation. Earnings (losses) of subsidiaries are
therefore reflected in the parent's investment accounts and earnings. The
principal elimination entries relate to investments in subsidiaries and
intercompany balances and transactions. On April 1, 2002, Quest Diagnostics
acquired AML (see Note 3) which has been included in the accompanying condensed
consolidating financial data, subsequent to the closing of the acquisition, as a
Subsidiary Guarantor.


                                       15





<PAGE>


                 QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                   (in thousands, unless otherwise indicated)
                                   (unaudited)


Condensed Consolidating Statement of Operations
Six Months Ended June 30, 2002

<TABLE>
<CAPTION>
                                                                  Subsidiary     Non-Guarantor
                                                    Parent        Guarantors     Subsidiaries    Eliminations   Consolidated
                                                    ------        ----------     ------------    ------------   ------------
<S>                                              <C>              <C>             <C>           <C>           <C>
Net revenues................................     $ 363,269         $1,545,617      $254,858       $(148,172)    $2,015,572

Costs and expenses:
  Cost of services..........................       244,113            867,811        76,072               -      1,187,996
  Selling, general and administrative.......        84,571            327,658       130,633          (7,638)       535,224
  Interest, net.............................        40,409            122,626         5,090        (140,534)        27,591
  Amortization of intangible assets.........           996              3,224             -               -          4,220
  Royalty (income) expense..................      (124,157)           124,157             -               -              -
  Other, net................................         1,687               (693)          552               -          1,546
                                                 ---------        -----------      --------       ---------     ----------
   Total....................................       247,619          1,444,783       212,347        (148,172)     1,756,577
                                                 ---------        -----------      --------       ---------     ----------
Income before taxes and extraordinary loss..       115,650            100,834        42,511               -        258,995
Income tax expense..........................        45,094             40,511        19,550               -        105,155
                                                 ---------        -----------      --------       ---------     ----------
Income before equity earnings...............        70,556             60,323        22,961               -        153,840
Equity earnings from subsidiaries...........        83,284                  -             -         (83,284)             -
                                                 ---------        -----------      --------       ---------     ----------
Net income..................................     $ 153,840        $    60,323      $ 22,961       $ (83,284)    $  153,840
                                                 =========        ===========      ========       =========     ==========

<CAPTION>
Condensed Consolidating Statement of Operations
Six Months Ended June 30, 2001

                                                                  Subsidiary     Non-Guarantor
                                                    Parent        Guarantors     Subsidiaries    Eliminations   Consolidated
                                                    ------        ----------     ------------    ------------   ------------
<S>                                              <C>              <C>             <C>           <C>           <C>
Net revenues................................     $ 301,626        $1,437,653       $217,717       $(142,854)    $1,814,142

Costs and expenses:
  Cost of services..........................       219,952           808,689         49,815               -      1,078,456
  Selling, general and administrative.......        78,758           312,868        125,014          (7,364)       509,276
  Interest, net.............................        33,461           131,882         13,305        (135,490)        43,158
  Amortization of goodwill and other
    intangible assets.......................         2,324            20,616            299               -         23,239
  Provision for special charge..............         5,997                 -              -               -          5,997
  Royalty (income) expense..................      (122,054)          122,054              -               -              -
  Other, net................................           685              (877)         3,025               -          2,833
                                                 ---------        ----------       --------       ---------     ----------
   Total....................................       219,123         1,395,232        191,458        (142,854)     1,662,959
                                                 ---------        ----------       --------       ---------     ----------
Income before taxes and extraordinary loss..        82,503            42,421         26,259               -        151,183
Income tax expense..........................        36,922            20,517         10,892               -         68,331
                                                 ---------        ----------       --------       ---------     ----------
Income before equity earnings and
extraordinary loss..........................        45,581            21,904         15,367               -         82,852
Equity earnings from subsidiaries...........        19,542                 -              -         (19,542)             -
                                                 ---------        ----------       --------       ---------     ----------
Income before extraordinary loss............        65,123            21,904         15,367         (19,542)        82,852
Extraordinary loss, net of taxes............        (3,880)          (15,567)        (2,162)              -        (21,609)
                                                 ---------        ----------       --------       ---------     ----------
Net income..................................     $  61,243        $    6,337       $ 13,205       $ (19,542)    $   61,243
                                                 =========        ==========       ========       =========     ==========
</TABLE>


                                       16








<PAGE>


                 QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                   (in thousands, unless otherwise indicated)
                                   (unaudited)


Condensed Consolidating Balance Sheet
June 30, 2002

<TABLE>
<CAPTION>
                                                                  Subsidiary     Non-Guarantor
                                                    Parent        Guarantors     Subsidiaries    Eliminations   Consolidated
                                                    ------        ----------     ------------    ------------   ------------
<S>                                              <C>              <C>             <C>           <C>           <C>
Assets
Current assets:
Cash and cash equivalents...................     $         -      $   82,958      $    6,882      $         -     $   89,840
Accounts receivable, net....................          15,072         106,775         475,820                -        597,667
Other current assets........................          85,893          64,511          95,903                -        246,307
                                                 -----------      ----------      ----------      -----------     ----------
   Total current assets.....................         100,965         254,244         578,605                -        933,814
Property, plant and equipment, net..........         200,684         342,595          25,715                -        568,994
Intangible assets, net .....................         153,765       1,605,326          43,390                -      1,802,481
Intercompany receivable (payable)...........          13,791         181,441        (195,232)               -              -
Investment in subsidiaries..................       1,709,595               -               -       (1,709,595)             -
Other assets................................          67,095          39,454          39,647                -        146,196
                                                 -----------      ----------      ----------      -----------     ----------
   Total assets.............................     $ 2,245,895      $2,423,060      $  492,125      $(1,709,595)    $3,451,485
                                                 ===========      ==========      ==========      ===========     ==========

Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued expenses.......     $   318,592      $  292,008      $   34,213      $         -     $  644,813
Short-term borrowings and current portion of
  long-term debt............................               -           1,425         300,343                -        301,768
                                                 -----------      ----------      ----------      -----------     ----------
   Total current liabilities................         318,592         293,433         334,556                -        946,581
Long-term debt..............................         313,930         503,729           3,160                -        820,819
Other liabilities...........................          43,379          54,494          16,218                -        114,091
Common stockholders' equity.................       1,569,994       1,571,404         138,191       (1,709,595)     1,569,994
                                                 -----------      ----------      ----------      -----------     ----------
   Total liabilities and stockholders' equity    $ 2,245,895      $2,423,060      $  492,125      $(1,709,595)    $3,451,485
                                                 ===========      ==========      ==========      ===========     ==========

<CAPTION>
Condensed Consolidating Balance Sheet
December 31, 2001
                                                                  Subsidiary     Non-Guarantor
                                                    Parent        Guarantors     Subsidiaries    Eliminations   Consolidated
                                                    ------        ----------     ------------    ------------   ------------
<S>                                              <C>              <C>             <C>           <C>           <C>
Assets
Current assets:
Cash and cash equivalents...................     $         -      $  110,571      $   11,761      $         -     $  122,332
Accounts receivable, net....................           9,083          52,232         447,025                -        508,340
Other current assets........................          93,144          52,755          99,943                -        245,842
                                                 -----------      ----------      ----------      -----------     ----------
   Total current assets.....................         102,227         215,558         558,729                -        876,514
Property, plant and equipment, net..........         170,494         320,244          17,881                -        508,619
Intangible assets, net .....................         154,809       1,188,031          36,303                -      1,379,143
Intercompany receivable (payable)...........         425,735          92,378        (518,113)               -              -
Investment in subsidiaries..................       1,096,647               -               -       (1,096,647)             -
Other assets................................          75,633          54,998          35,648                -        166,279
                                                 -----------      ----------      ----------      -----------     ----------
   Total assets.............................     $ 2,025,545      $1,871,209      $  130,448      $(1,096,647)    $2,930,555
                                                 ===========      ==========      ==========      ===========     ==========

Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued expenses.......     $   334,666      $  290,039      $   32,514      $         -     $  657,219
Short-term borrowings and current portion of
  long-term debt............................              21           1,040             343                -          1,404
                                                 -----------      ----------      ----------      -----------     ----------
   Total current liabilities................         334,687         291,079          32,857                -        658,623
Long-term debt..............................         310,690         502,519           7,128                -        820,337
Other liabilities...........................          44,181          57,469          13,958                -        115,608
Common stockholders' equity.................       1,335,987       1,020,142          76,505       (1,096,647)     1,335,987
                                                 -----------      ----------      ----------      -----------     ----------
   Total liabilities and stockholders' equity    $ 2,025,545      $1,871,209      $  130,448      $(1,096,647)    $2,930,555
                                                 ===========      ==========      ==========      ===========     ==========
</TABLE>


                                       17





<PAGE>


                 QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                   (in thousands, unless otherwise indicated)
                                   (unaudited)


Condensed Consolidating Statement of Cash Flows
Six Months Ended June 30, 2002

<TABLE>
<CAPTION>
                                                                  Subsidiary     Non-Guarantor
                                                    Parent        Guarantors     Subsidiaries    Eliminations   Consolidated
                                                    ------        ----------     ------------    ------------   ------------
<S>                                              <C>              <C>             <C>           <C>           <C>
Cash flows from operating activities:
Net income..................................     $   153,840      $   60,323      $   22,961      $  (83,284)    $ 153,840
Adjustments to reconcile net income to net
  cash provided by operating activities:
  Depreciation and amortization.............          22,605          37,647           3,563               -        63,815
  Provision for doubtful accounts...........           2,460          15,679          92,338               -       110,477
  Other, net................................         (29,804)         (2,787)         15,776          83,284        66,469
  Changes in operating assets and liabilities         31,859         (89,358)       (119,156)              -      (176,655)
                                                 -----------      ----------      ----------      ----------     ---------
Net cash provided by operating activities...         180,960          21,504          15,482               -       217,946
Net cash used in investing activities.......        (205,897)        (54,056)         (1,930)       (146,233)     (408,116)
Net cash provided by (used in) financing
  activities................................          24,937           4,939         (18,431)        146,233       157,678
                                                 -----------      ----------      ----------      ----------     ---------
Net change in cash and cash equivalents.....               -         (27,613)         (4,879)              -       (32,492)
Cash and cash equivalents, beginning of year               -         110,571          11,761               -       122,332
                                                 -----------      ----------      ----------      ----------     ---------
Cash and cash equivalents, end of period....     $         -      $   82,958      $    6,882      $        -     $  89,840
                                                 ===========      ==========      ==========      ==========     =========

<CAPTION>
Condensed Consolidating Statement of Cash Flows
Six Months Ended June 30, 2001
                                                                  Subsidiary     Non-Guarantor
                                                    Parent        Guarantors     Subsidiaries    Eliminations   Consolidated
                                                    ------        ----------     ------------    ------------   ------------
<S>                                              <C>              <C>             <C>           <C>           <C>
Cash flows from operating activities:
Net income..................................     $    61,243      $    6,337      $   13,205      $  (19,542)    $  61,243
Extraordinary loss, net of taxes                       3,880          15,567           2,162               -        21,609
Adjustments to reconcile net income to net
  cash provided by operating activities:
  Depreciation and amortization.............          19,443          49,106           2,354               -        70,903
  Provision for doubtful accounts...........             715          10,047         100,092               -       110,854
  Provision for special charge..............           5,997               -               -               -         5,997
  Other, net................................          27,480          30,349         (34,483)         19,542        42,888
  Changes in operating assets and liabilities       (101,123)         (4,194)        (56,542)              -      (161,859)
                                                 -----------      ----------      ----------      ----------     ---------
Net cash provided by operating activities...          17,635         107,212          26,788               -       151,635
Net cash used in investing activities.......         (23,888)        (91,941)           (194)         (4,564)     (120,587)
Net cash provided by (used in) financing
  activities................................           6,253         (14,318)        (24,859)          4,564       (28,360)
                                                 -----------      ----------      ----------      ----------     ---------
Net change in cash and cash equivalents.....               -             953           1,735               -         2,688
Cash and cash equivalents, beginning of year               -         163,863           7,614               -       171,477
                                                 -----------      ----------      ----------      ----------     ---------
Cash and cash equivalents, end of period....     $         -      $  164,816      $    9,349      $        -     $ 174,165
                                                 ===========      ==========      ==========      ==========     =========
</TABLE>


                                       18





<PAGE>


Item 2. Management's Discussion and Analysis of Financial Condition and
        Results of Operations

Critical Accounting Policies

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

     While many operational aspects of our business are subject to complex
federal, state and local regulations, the accounting for our business is
generally straight-forward with net revenues primarily recognized upon
completion of the testing process. Our revenues are primarily comprised of a
high volume of relatively low dollar transactions, and about half of all our
costs and expenses consist of employee compensation and benefits. Due to the
nature of our business, several of our accounting policies involve significant
estimates and judgments. These accounting policies have been described in our
2001 Annual Report on Form 10-K, with the following accounting policy adopted
effective January 1, 2002:

     Accounting for and recoverability of goodwill

     In July 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and
Other Intangible Assets" ("SFAS 142"). The impact of adopting SFAS 142 is
summarized in Note 2 to the interim consolidated financial statements.

     Effective January 1, 2002, we evaluate the recoverability and measure the
possible impairment of our goodwill under SFAS 142. The impairment test is a
two-step process that begins with the estimation of the fair value of the
reporting unit. The first step screens for potential impairment and the second
step measures the amount of the impairment, if any. Our estimate of fair value
considers publicly available information regarding the market capitalization of
our Company, as well as (i) publicly available information regarding comparable
publicly-traded companies in the clinical laboratory testing industry, (ii) the
financial projections and future prospects of our business, including its growth
opportunities and likely operational improvements, and (iii) comparable sales
prices, if available. As part of the first step to assess potential impairment,
we compare our estimate of fair value for the Company to the book value of our
consolidated net assets. If the book value of our consolidated net assets is
greater than our estimate of fair value, we would then proceed to the second
step to measure the impairment, if any. The second step compares the implied
fair value of goodwill with its carrying value. The implied fair value is
determined by allocating the fair value of the reporting unit to all of the
assets and liabilities of that unit as if the reporting unit had been acquired
in a business combination and the fair value of the reporting unit was the
purchase price paid to acquire the reporting unit. The excess of the fair value
of the reporting unit over the amounts assigned to its assets and liabilities is
the implied fair value of goodwill. If the carrying amount of the reporting unit
goodwill is greater than its implied fair value, an impairment loss will be
recognized in the amount of the excess. We believe our estimation methods are
reasonable and reflective of common valuation practices.

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

Integration of Acquired Businesses

     American Medical Laboratories, Incorporated

     On April 1, 2002, we completed our previously announced acquisition of all
of the outstanding voting stock of American Medical Laboratories, Incorporated,
("AML"). See Note 3 to the interim consolidated financial statements for a full
discussion of this transaction.

     We estimate that we will incur between $10 million and $15 million of costs
to integrate Quest Diagnostics and AML. The majority of these costs are expected
to require cash outlays and are expected to primarily relate to severance and
other integration-related costs during 2002 and 2003, including the elimination
of excess capacity and workforce reductions. Of the total costs indicated above,
estimated costs related to actions that impact the employees and operations of
AML, which will be accounted for as a cost of the AML acquisition and included
in goodwill, are expected to total between $7 million and $10 million. Of the
total costs indicated above, estimated costs related to actions that impact
Quest Diagnostics' employees


                                       19





<PAGE>


and operations, which will be accounted for as a charge to earnings in the
period that the integration plans are approved and communicated, are expected to
total between $3 million and $5 million. We expect to finalize and record these
costs during the third quarter of 2002. We expect that the AML integration will
result in approximately $15 million of annual synergies and that we will achieve
this annual rate of synergies by the end of 2003.

     Unilab Corporation

     On April 2, 2002, we entered into a definitive agreement with Unilab
Corporation ("Unilab") which provides that we will acquire all of the
outstanding shares of Unilab common stock. See Note 8 to the interim
consolidated financial statements for a full discussion of this transaction.

     We estimate that we will incur up to $20 million of costs to integrate
Quest Diagnostics and Unilab. A significant portion of these costs is expected
to require cash outlays and are expected to primarily relate to severance and
other integration-related costs during 2002 and 2003, including the elimination
of excess capacity and workforce reductions. These estimates are preliminary and
will be subject to revisions as integration plans are developed and finalized.
To the extent that the costs relate to actions that impact the employees and
operations of Unilab, such costs will be accounted for as a cost of the Unilab
acquisition and included in goodwill. To the extent that the costs relate to
actions that impact Quest Diagnostics' employees and operations, such costs will
be accounted for as a charge to earnings in the period that the integration
plans are approved and communicated. We expect to finalize and record these
costs during the fourth quarter of 2002.

Results of Operations

     Three and Six Months Ended June 30, 2002 Compared with Three and Six Months
     Ended June 30, 2001

     Reported net income for the three months ended June 30, 2002 increased to
$87 million from $25 million for the three months ended June 30, 2001. For the
six months ended June 30, 2002, reported net income increased to $154 million
from $61 million for the prior year period. Assuming the nonamortization
provisions of SFAS 142 had been in effect in 2001, net income for the three and
six months ended June 30, 2001 would have been $35 million and $79 million,
respectively. In addition, results for the three and six months ended June 30,
2001 included an extraordinary loss of $36 million ($22 million, net of tax) and
a special charge of $6.0 million ($3.6 million, net of tax), both of which were
incurred in conjunction with our debt refinancing in the second quarter of 2001.
After considering the impact of SFAS 142 and excluding the extraordinary loss
and special charge in 2001, income for the three months ended June 30, 2002
increased by $27 million, compared to the prior year period, an increase of 45%.
After considering the impact of SFAS 142 and excluding the extraordinary loss
and special charge in 2001, income for the six months ended June 30, 2002
increased by $49 million, compared to the prior year period, an increase of 47%.
These increases in earnings were primarily attributable to revenue growth,
driven by improvements in average revenue per requisition and clinical testing
volume, improved efficiencies generated from our Six Sigma and Standardization
initiatives, and a reduction in net interest expense, partially offset by
increases in employee compensation and supply costs, depreciation expense and
investments in our information technology strategy and strategic growth
opportunities.

     Net Revenues

     Net revenues for the three and six months ended June 30, 2002 grew by 14.7%
and 11.1%, respectively, compared to the prior year period. The acquisition of
AML, which was completed on April 1, 2002, contributed approximately 60% and 40%
to the increase in net revenues for the three and six months ended June 30,
2002. For the three and six months ended June 30, 2002, clinical testing volume,
measured by the number of requisitions, increased 12% and 7.3%, respectively,
compared to the prior year period. Assuming AML had been part of Quest
Diagnostics in 2001, clinical testing volume would have increased 3.7% and 3.5%,
respectively, on a pro forma basis, for the three and six months ended June 30,
2002, compared to the prior year period. Average revenue per requisition
increased 2.4% and 3.2%, respectively, for the three and six months ended June
30, 2002. Our drugs-of-abuse testing business continued to negatively impact
total company volume comparisons, reducing volume growth by approximately 1% for
the three and six months ended June 30, 2002. The improvement in average revenue
per requisition was primarily attributable to a continuing shift in test mix to
higher value testing, contributing more than half of the improvement in average
revenue per requisition, and a shift in payer mix to higher priced
fee-for-service reimbursement.


                                       20





<PAGE>


     Operating Costs and Expenses

     Total operating costs for the three and six months ended June 30, 2002
increased $101 million and $135 million, respectively, from the year earlier
period primarily due to increases in our clinical testing volume, largely as a
result of the AML acquisition, employee compensation and supply costs and
depreciation expense; partially offset by a reduction in bad debt expense. While
our cost structure has been favorably impacted by the synergies realized as a
result of the integration of SmithKline Beecham Clinical Laboratories, Inc.
("SBCL") and the improved efficiencies generated from our Six Sigma and
Standardization initiatives, we continue to make investments to enhance our
infrastructure to pursue our overall business strategy. These investments
include those related to:

     o    Skills training for all employees, which together with our competitive
          pay and benefits, helps to increase employee satisfaction and
          performance, which we believe will result in better service to our
          customers;

     o    Our information technology strategy, which is designed to result in
          better service to our customers; and

     o    Our strategic growth opportunities.

     Cost of services, which includes the costs of obtaining, transporting and
testing specimens was 59.0% of net revenues for the three months ended June 30,
2002 and remained unchanged from the prior year period. For the six months ended
June 30, 2002, costs of services, as a percentage of net revenues, decreased to
58.9% from 59.4% a year ago. The positive net impact of increased average
revenue per requisition and our Six Sigma and Standardization efforts on
reducing cost of services as a percentage of net revenues was offset by the
addition of AML's cost structure as of April 1, 2002.

     Selling, general and administrative expenses, which includes the costs of
the sales force, billing operations, bad debt expense and general management and
administrative support, decreased during the three months ended June 30, 2002 as
a percentage of net revenues to 25.9% from 27.5% in the prior year period. For
the six months ended June 30, 2002, selling, general and administrative expenses
decreased as a percentage of net revenues to 26.6% from 28.1% in the prior year
period. These decreases were primarily due to improvements in average revenue
per requisition, efficiencies from our Six Sigma and Standardization efforts, in
particular bad debt expense, and the addition of AML's cost structure as of
April 1, 2002. During the second quarter of 2002, bad debt expense was reduced
to 5.2% of net revenues, compared to 6.0% of net revenues a year ago. For the
six months ended June 30, 2002, bad debt expense was 5.5% of net revenues,
compared to 6.1% of net revenues in the prior year. The improvements in bad debt
expense were principally attributable to the continued progress that we have
made in our overall collection experience through process improvements, driven
by our Six Sigma and Standardization initiatives, primarily related to the
collection of diagnosis, patient and insurance information necessary to
effectively bill for services performed. Based on prior experience, as well as
the continued sharing of internal best practices in the billing functions, we
believe that additional opportunities exist to further improve our overall
collection experience.

     Interest, Net

     Net interest expense for the three and six months ended June 30, 2002
decreased from the prior year periods by $5.5 million and $15.6 million,
respectively. These reductions were primarily due to the favorable impact of our
debt refinancings in 2001 and a favorable interest rate environment.

     Amortization of Goodwill and Other Intangible Assets

     Amortization of goodwill and other intangible assets for the three and six
months ended June 30, 2002 decreased from the prior year period by $10.1 million
and $19.0 million, respectively, principally as the result of adopting SFAS 142,
effective January 1, 2002. See Note 2 to the interim consolidated financial
statements for further details regarding the impact of SFAS 142.

     Provision for Special Charge

     During the second quarter of 2001, we recorded a special charge of $6.0
million in connection with the refinancing of our debt and settlement of our
interest rate swap agreements. Prior to our debt refinancing in June 2001, our
secured credit agreement required us to maintain interest rate swap agreements
to mitigate the risk of changes in interest rates associated with a portion of
our variable interest rate indebtedness. These interest rate swap agreements
were considered a hedge against changes in the amount of future cash flows
associated with the interest payments of our variable rate debt


                                       21





<PAGE>


obligations. Accordingly, the interest rate swap agreements were recorded at
their estimated fair value in our consolidated balance sheet and the related
losses on these contracts were deferred in shareholders' equity as a component
of comprehensive income. In conjunction with the debt refinancing, the interest
rate swap agreements were terminated and the losses which were reflected in
shareholders' equity as a component of comprehensive income were reflected as a
special charge in the consolidated statement of operations for the three and six
months ended June 30, 2001.

     Minority Share of Income

     Minority share of income for the three and six months ended June 30, 2002
increased from the prior year level, primarily due to the improved performance
of our consolidated joint ventures.

     Other, Net

     Other, net, which represents income for each of the periods presented,
increased $4.2 million and $5.1 million, for the three and six months ended June
30, 2002, respectively. The increases are primarily due to improved operating
performance at our unconsolidated joint ventures, which resulted in an increase
in equity earnings of $2.5 million and $3.9 million for the three and six months
ended June 30, 2002. The second quarter of 2001 reflects the net impact of
writing-off $7.0 million of impaired assets, partially offset by a $6.3
million gain on the sale of an investment. The remainder of the increases for
both periods is primarily due to miscellaneous real estate and investment gains
and losses in both 2002 and 2001.

     Income Taxes

     During 2001, our effective tax rate was significantly impacted by goodwill
amortization, the majority of which was not deductible for tax purposes, and had
the effect of increasing the overall tax rate. The reduction in the effective
tax rate for the three and six months ended June 30, 2002 was primarily due to
the reduction in amortization of goodwill (as a result of adopting SFAS 142,
effective January 1, 2002) the majority of which was not deductible for tax
purposes.

     Extraordinary Loss

     In conjunction with our debt refinancing in the second quarter of 2001, we
recorded an extraordinary loss of $36 million, ($22 million, net of taxes). The
loss represented the write-off of deferred financing costs of $23 million,
associated with our debt which was refinanced, and $12.8 million of payments
related primarily to the tender premium incurred in connection with our cash
tender offer of our 10 3/4% senior subordinated notes due 2006 (the
"Subordinated Notes").

     EBITDA

     EBITDA represents income before net interest expense, income taxes,
depreciation and amortization, and special items in 2001. The specials items
represented the extraordinary loss and the special charge associated with our
debt refinancing in the second quarter of 2001. EBITDA is presented and
discussed because management believes it is a useful adjunct to net income and
other measurements under accounting principles generally accepted in the United
States since it is a meaningful measure of a company's performance and ability
to meet its future debt service requirements, fund capital expenditures and meet
working capital requirements. EBITDA is not a measure of financial performance
under accounting principles generally accepted in the United States and should
not be considered as an alternative to (i) net income (or any other measure of
performance under accounting principles generally accepted in the United States)
as a measure of performance or (ii) cash flows from operating, investing or
financing activities as an indicator of cash flows or as a measure of liquidity.

     EBITDA for the three months ended June 30, 2002 improved to $195 million,
or 18.2% of net revenues, from $149 million, or 16.0% of net revenues, in 2001.
For the six months ended June 30, 2002, EBITDA improved to $350 million, or
17.4% of net revenues, from $271 million, or 15.0% of net revenues, in 2001. The
increases in EBITDA were primarily due to revenue growth, driven by improvements
in average revenue per requisition and clinical testing volume and improved
efficiencies generated from our Six Sigma and Standardization initiatives,
partially offset by increases in employee compensation and supply costs, and
investments in our information technology strategy and strategic growth
opportunities. The improvements in EBITDA as a percentage of net revenues were
also driven by these same factors and were partially offset by the acquisition
of AML, which had EBITDA percentages lower than those of Quest Diagnostics.


                                       22





<PAGE>


     Impact of Contingent Convertible Debentures on Earnings per Common Share

     On November 26, 2001, we completed our $250 million offering of 1 3/4%
contingent convertible debentures due 2021 (the "Debentures"). Each one thousand
dollar principal amount of Debentures is convertible into 11.429 shares of our
common stock, which represents an initial conversion price of $87.50 per share.
Holders may surrender the Debentures for conversion into shares of our common
stock under any of the following circumstances: (i) if the sales price of our
common stock is above 120% of the conversion price (or $105 per share) for
specified periods; (ii) if we call the Debentures or (iii) if specified
corporate transactions have occurred. See Note 12 to the Consolidated Financial
Statements contained in our 2001 Annual Report on Form 10-K for a further
discussion of the Debentures.

     The if-converted method is used in determining the dilutive effect of the
Debentures in periods when the holders of such securities are permitted to
exercise their conversion rights. As of and for the three and six months ended
June 30, 2002, the holders of our Debentures did not have the ability to
exercise their conversion rights. Had the requirements to allow the holders to
exercise their conversion rights been met and the Debentures remained
outstanding for the entire period, diluted net income per common share would
have been reduced by approximately 2% during the quarter and six months ended
June 30, 2002.

Quantitative and Qualitative Disclosures About Market Risk

     We address our exposure to market risks, principally the market risk of
changes in interest rates, through a controlled program of risk management that
may include the use of derivative financial instruments. We do not hold or issue
derivative financial instruments for trading purposes. We do not believe that
our foreign exchange exposure is material to our financial position or results
of operations taken as a whole. See Note 2 to the Consolidated Financial
Statements contained in our 2001 Annual Report on Form 10-K for additional
discussion of our financial instruments and hedging activities.

     At June 30, 2002 and December 31, 2001, the fair value of our debt was
estimated at approximately $1.2 billion and $857 million, respectively, using
quoted market prices and yields for the same or similar types of borrowings,
taking into account the underlying terms of the debt instruments. At June 30,
2002 and December 31, 2001, the estimated fair value exceeded the carrying value
of the debt by approximately $70 million and $35 million, respectively. An
assumed 10% increase in interest rates (representing approximately 50 basis
points) would potentially reduce the estimated fair value of our debt by
approximately $23 million and $26 million at June 30, 2002 and December 31,
2001, respectively.

     Our Debentures have a contingent interest component that will require us to
pay contingent interest based on certain thresholds, as outlined in the
Indenture. The contingent interest component which is more fully described in
Note 12 to the Consolidated Financial Statements contained in our 2001 Annual
Report on Form 10-K, is considered to be a derivative instrument subject to SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities", as
amended. As such, the derivative was recorded at its fair value in the
consolidated balance sheet and was not material at June 30, 2002 and
December 31, 2001.

     Borrowings under our unsecured revolving credit facility under our Credit
Agreement and our secured receivables credit facility are subject to variable
interest rates. Interest rates on our unsecured revolving credit facility are
also subject to a pricing schedule that fluctuates over an approximate range of
50 basis points, based on changes in our credit rating. As such, our borrowing
cost under these credit facilities will be subject to both fluctuations in
interest rates and changes in our credit rating. As of June 30, 2002, our
borrowing rate for LIBOR-based loans was LIBOR plus 1.3125%. At June 30, 2002
and December 31, 2001, we had approximately $307 million and $7 million,
respectively, of variable interest rate debt outstanding, which included $300
million outstanding under our secured receivables credit facility at
June 30, 2002.

     Based on our net exposure to interest rate changes, an assumed 10% change
in interest rates on our variable rate indebtedness (representing approximately
20 basis points) would impact net interest expense by approximately $0.6 million
on an annual basis, assuming no changes to the debt outstanding at June
30, 2002.


                                       23





<PAGE>


Liquidity and Capital Resources

     Cash and Cash Equivalents

     Cash and cash equivalents at June 30, 2002 totaled $90 million, a decrease
of $32 million from December 31, 2001. Cash flows from operating activities in
2002 provided cash of $218 million, which along with cash flows from financing
activities of $158 million, were used to fund investing activities, which
required cash of $408 million. Cash and cash equivalents at June 30, 2001
totaled $174 million, an increase of $2.7 million from December 31, 2000. Cash
flows from operating activities in 2001 provided cash of $152 million, which was
used to fund investing and financing activities, which required cash of $149
million.

     Cash From Operating Activities

     Net cash from operating activities for 2002 was $66 million higher than the
2001 level. This increase was primarily due to improved operating performance.
Days sales outstanding, a measure of billing and collection efficiency, was 52
days at both June 30, 2002 and March 31, 2002, compared to 54 days at December
31, 2001.

     Cash From Investing Activities

     Net cash used in investing activities in 2002 was $408 million, consisting
primarily of acquisition and related costs of $334 million, primarily to acquire
the outstanding voting stock of AML, and capital expenditures of $83 million.
Net cash used in investing activities in 2001 was $121 million, consisting
primarily of capital expenditures of $78 million, acquisition and related costs
of $56 million, including $47 million to acquire the assets of Clinical
Laboratories of Colorado, Inc., and $21 million in proceeds from the disposition
of assets, principally related to the sale of an investment in the second
quarter of 2001.

     Cash From Financing Activities

     Net cash provided by financing activities in 2002 was $158 million,
consisting primarily of the net cash activity associated with our acquisition of
AML and proceeds from the exercise of stock options. AML's all-cash purchase
price of approximately $335 million and related transaction costs, together with
the repayment of approximately $150 million of acquired AML debt and accrued
interest was financed by us with cash on-hand and $300 million of borrowings
under our existing secured receivables credit facility and $175 million of
borrowings under our existing unsecured revolving credit facility. During the
second quarter of 2002, we repaid all of the $175 million borrowed under our
unsecured revolving credit facility.

     Net cash used in financing activities for 2001 was $28 million, consisting
primarily of the net cash activity associated with our debt refinancing in the
second quarter of 2001, partially offset by proceeds from the exercise of stock
options. During the second quarter of 2001, we refinanced the majority of our
long-term debt. The gross proceeds of $722 million from our senior notes
offering and the new term loan under our unsecured credit agreement, together
with cash on-hand, was used to repay the entire outstanding principal under our
then existing secured credit agreement and to consummate the cash tender offer
and consent solicitation for our Subordinated Notes. Of the $734 million in debt
repayments for the six months ended June 30, 2001, $584 million related to the
repayment of the entire outstanding principal under our then existing secured
credit agreement and $147 million represented the aggregate principal amount of
outstanding Subordinated Notes which were tendered. During the remainder of
2001, we redeemed all of the remaining $3 million of our outstanding
Subordinated Notes. During 2001, we incurred approximately $30 million of costs
associated with the debt refinancing. Of that amount, $24 million was included
in financing activities and principally represented $11 million of costs
associated with placing the new debt, and a $13 million tender premium incurred
in conjunction with our cash tender offer of the Subordinated Notes, which was
included in the extraordinary loss recorded in the second quarter of 2001. The
remaining $6 million was reflected in cash from operations and represented the
cost to settle the interest rate swap agreements on the debt which was
refinanced.

     Dividend Policy

     We have never declared or paid cash dividends on our common stock and do
not anticipate paying dividends on our common stock in the foreseeable future.
We currently intend to retain all available funds and any future earnings to
retire debt and fund the growth of our business.


                                       24





<PAGE>


     Contractual Obligations and Commitments

     A full description of the terms of our indebtedness, related debt service
requirements and our future payments under certain of our contractual
obligations is contained in Note 12 to the Consolidated Financial Statements in
our 2001 Annual Report on Form 10-K. A full discussion and analysis regarding
our minimum rental commitments under noncancelable operating leases,
noncancelable commitments to purchase products or services, and reserves with
respect to insurance claims is contained in Note 17 to the Consolidated
Financial Statements in our 2001 Annual Report on Form 10-K. See Note 6 to the
interim consolidated financial statements for information regarding the status
of billing-related claims. See Note 3 to the interim consolidated financial
statements for a full discussion and analysis regarding our acquisition of AML.

     As more fully described in Note 12 to the Consolidated Financial Statements
in our 2001 Annual Report on Form 10-K, the borrowings outstanding under our
secured receivables credit facility are classified as a current liability.
However, it is our current intention to roll-over this facility annually, as we
have done since 2001. If we are not able to roll-over all or a part of this
facility, we will need to refinance the secured receivables credit facility with
cash on-hand, our unsecured revolving credit facility or a new financing
agreement.

     Our Credit Agreement relating to our unsecured revolving credit facility
contains various covenants and conditions, including the maintenance of certain
financial ratios, that could impact our ability to, among other things, incur
additional indebtedness, repurchase shares of our outstanding common stock, make
additional investments and consummate acquisitions. We do not expect these
covenants to adversely impact our ability to execute our growth strategy or
conduct normal business operations.

     On April 2, 2002, we entered into a definitive agreement with Unilab
to acquire all of the outstanding shares of Unilab common stock and assume
Unilab's debt of approximately $200 million. See Note 8 to the interim
consolidated financial statements for a full discussion and analysis regarding
the transaction.

     Unconsolidated Joint Ventures

     At June 30, 2002 and December 31, 2001, we had investments in
unconsolidated joint ventures in Phoenix, Arizona; Indianapolis, Indiana; and
Dayton, Ohio. At June 30, 2002, as a result of the AML acquisition, we also
had an investment in an unconsolidated joint venture in Chesapeake, Virginia.
Our investments in unconsolidated joint ventures are accounted for under the
equity method of accounting. We believe that our transactions with our joint
ventures are conducted at arm's length, reflecting current market conditions and
pricing. Total annual net revenues of our unconsolidated joint ventures, on a
combined basis, are less than 6% of our consolidated net revenues. As of
June 30, 2002 and December 31, 2001, total assets associated with our
unconsolidated joint ventures are less than 3% of our consolidated total assets.
We have no material obligations or guarantees to, or in support of, our
unconsolidated joint ventures and their operations.

     Requirements and Capital Resources

     We estimate that we will invest approximately $160 million to $170 million
during 2002 for capital expenditures, principally related to investments in
information technology, equipment, and facility upgrades and expansions. Other
than the reduction for outstanding letters of credit under our unsecured
revolving credit facility, which approximated $33 million at July 25, 2002, all
of our $325 million unsecured revolving credit facility remains available to us
for future borrowing.

     We believe that cash from operations and our borrowing capacity under our
revolving credit facilities, together with the indemnification by SmithKline
Beecham plc against monetary fines, penalties or losses from outstanding
government and other related claims, will provide sufficient financial
flexibility to meet seasonal working capital requirements and to fund capital
expenditures, debt service requirements and additional growth opportunities for
the foreseeable future. Improvements in our industry and in particular our
financial performance have resulted in improvements to our credit ratings from
both Standard & Poor's and Moody's Investor Services. Our investment grade
credit ratings have had a favorable impact on our cost of and access to capital.
We believe that our improved financial performance should provide us with access
to additional financing, if necessary, to fund growth opportunities which cannot
be funded from existing sources.

     As discussed above in "Contractual Obligations and Commitments", on April
2, 2002, we entered into a definitive agreement with Unilab to acquire all of
the outstanding shares of Unilab common stock and assume Unilab's debt of
approximately $200 million. We have obtained a commitment, which is contingent
upon the completion of the Unilab acquisition, for a $450 million five-year
amortizing term loan to be used to finance the transaction. See Note 8 to the
interim consolidated financial statements for a full discussion and analysis
regarding the transaction.


                                       25





<PAGE>


Impact of New Accounting Standards

     In August 2001, the FASB issued SFAS No. 144 "Accounting for Impairment or
Disposal of Long-Lived Assets". In April 2002, the FASB issued SFAS No. 145,
"Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement
No. 13, and Technical Corrections". In July 2002, the FASB issued SFAS No. 146,
"Accounting for Costs Associated with Exit or Disposal Activities".

     The impact of the above referenced accounting standards is discussed in
Note 1 to the interim consolidated financial statements.

Forward Looking Statements

     Some statements and disclosures in this document are forward-looking
statements. Forward-looking statements include all statements that do not relate
solely to historical or current facts and can be identified by the use of words
such as "may", "believe", "will", "expect", "project", "estimate", "anticipate",
"plan" or "continue". These forward-looking statements are based on our current
plans and expectations and are subject to a number of risks and uncertainties
that could significantly cause our plans and expectations, including actual
results, to differ materially from the forward-looking statements. The Private
Securities Litigation Reform Act of 1995 provides a "safe harbor" for
forward-looking statements to encourage companies to provide prospective
information about their companies without fear of litigation.

     We would like to take advantage of the "safe harbor" provisions of the
Litigation Reform Act in connection with the forward-looking statements included
in this document. The risks and other factors that could cause our actual
financial results to differ materially from those projected, forecasted or
estimated by us in forward-looking statements are detailed in our 2001 Annual
Report on Form 10-K.


                                       26





<PAGE>


                           PART II - OTHER INFORMATION

Item 1.  Legal Proceedings

     See Note 6 to the interim consolidated financial statements for information
regarding the status of government investigations and private claims, including
those related to SBCL.


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

     (a) The annual meeting of stockholders of the Company was held on May 7,
2002. At the meeting the matters described below were approved by the
stockholders.

     (b-c) The following nominees for the office of director were elected for
terms expiring at the 2005 annual meeting of stockholders, with the following
number of votes for and withheld:

<TABLE>
<CAPTION>
                                      For                  Withheld
    <S>                           <C>                      <C>
     William F. Buehler            89,212,102               576,729
     Van C. Campbell               88,573,611             1,215,220
     Rosanne Haggerty              89,189,648               599,183
     Dan C. Stanzione              88,715,994             1,072,837
</TABLE>


     The following persons continue as directors:

     Kenneth D. Brody
     Mary A. Cirillo
     Kenneth W. Freeman
     William R. Grant
     Gail R. Wilensky
     John B. Ziegler

     The appointment of PricewaterhouseCoopers LLP as independent accountants to
audit the financial statements of the Company and its subsidiaries for the
fiscal year ending December 31, 2002, was approved, with the following number of
votes for, against, and abstained:

     For: 86,776,549        Against: 2,893,155        Abstained: 119,127


Item 6.  Exhibits and Reports on Form 8-K

     (a) Exhibits:

           2.1      Agreement and Plan of Merger, dated as of April 2, 2002,
                    among the Company, Quest Diagnostics Newco Incorporated and
                    Unilab Corporation (incorporated by reference to Exhibit 2.1
                    to the current report on Form 8-K (Date of Report: April 2,
                    2002)).

           2.2      Amendment to the Agreement and Plan of Merger, dated as of
                    May 13, 2002 among the Company, Quest Diagnostics Newco
                    Incorporated and Unilab Corporation (incorporated by
                    reference to Annex to the prospectus forming a part of the
                    Company's registration statement on Form S-4 (No.
                    333-88330)).

           2.3      Amendment No. 2 to the Agreement and Plan of Merger, dated
                    as of June 20, 2002 among the Company, Quest Diagnostics
                    Newco Incorporated and Unilab Corporation (incorporated by
                    reference to Annex to the prospectus forming a part of the
                    Company's registration statement on Form S-4 (No.
                    333-88330)).



                                       27





<PAGE>


          10.1      Term Loan Credit Agreement dated as of June 21, 2002 among
                    Quest Diagnostics Incorporated, certain subsidiary
                    guarantors of the Company, the lenders party thereto, and
                    Bank of America, N.A., as Administrative Agent (incorporated
                    by reference to Exhibit 99.12 of the Company's Registration
                    Statement on Form S-4 (No. 333-88330)).

          10.2      Amendment No. 3 to the Amended and Restated Credit and
                    Security Agreement dated as of July 24, 2002 among Quest
                    Diagnostics Receivables Inc., as Borrower, the Company, as
                    Initial Servicer, each of the lenders party thereto and
                    Wachovia Bank, National Association, as Administrative
                    Agent.

          10.3      The Quest Diagnostics Incorporated 1996
                    Employee Equity Participation Program, as amended.

          10.4      The Quest Diagnostics Incorporated 1999
                    Employee Equity Participation Program, as amended.


     (b) Reports on Form 8-K:

         On April 12, 2002, the Company filed a current report on Form 8-K
         (Date of Report: April 1, 2002) reporting under Item 5 on the
         acquisition of American Medical Laboratories, Incorporated and the
         guarantee of certain indebtedness of the Company by certain of the
         Company's subsidiaries.

         On April 2, 2002, the Company filed a current report on Form 8-K (Date
         of Report: April 2, 2002) reporting under Item 5 on the execution of a
         definitive agreement and plan of merger with Unilab Corporation and
         the execution of a stockholders agreement with certain stockholders of
         Unilab Corporation.






                                       28





<PAGE>


                                   Signatures



     Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.


August 12, 2002

Quest Diagnostics Incorporated



By  /s/ Kenneth W. Freeman
    ----------------------------
        Kenneth W. Freeman                   Chairman of the Board and
                                             Chief Executive Officer


By  /s/Robert A. Hagemann
    ----------------------------
        Robert A. Hagemann                   Vice President and
                                             Chief Financial Officer







                                       29




</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10
<SEQUENCE>3
<FILENAME>ex10-2.txt
<DESCRIPTION>EXHIBIT 10.2
<TEXT>

<PAGE>


                                                                    Exhibit 10.2


      AMENDMENT NO. 3 TO AMENDED AND RESTATED CREDIT AND SECURITY AGREEMENT

         THIS AMENDMENT NO. 3 TO AMENDED AND RESTATED CREDIT AND SECURITY
AGREEMENT (this "Amendment") is entered into as of July 24, 2002, by and among:

         (1) QUEST DIAGNOSTICS RECEIVABLES INC., a Delaware corporation
     (the "Borrower"),

         (2) QUEST DIAGNOSTICS INCORPORATED, a Delaware corporation as
     initial servicer (together with the Borrower, the "Loan Parties"),

         (3) BLUE RIDGE ASSET FUNDING CORPORATION, a Delaware
     corporation, WACHOVIA BANK, NATIONAL ASSOCIATION, in its capacity
     as a Liquidity Bank to Blue Ridge, and Lloyds TSB Bank plc, in its
     capacity as a Liquidity Bank to Blue Ridge,

         (4) La Fayette Asset Securitization LLC, a Delaware limited
     liability company (together with its successors, "La Fayette"),
     ATLANTIC ASSET SECURITIZATION CORP., a Delaware corporation, and
     Credit Lyonnais New York Branch, in its capacity as a Liquidity
     Bank to Atlantic and hereafter, to La Fayette,

         (5) WACHOVIA BANK, NATIONAL ASSOCIATION, in its capacity as
     agent for the Blue Ridge Group, and Credit Lyonnais New York
     Branch, in its capacity as agent for the Atlantic Group and as
     agent for the La Fayette Group (in such latter capacity, together
     with its successors in such latter capacity, the "La Fayette Agent"
     or a "Co-Agent"), and

         (6) WACHOVIA BANK, NATIONAL ASSOCIATION, as administrative
     agent for the Blue Ridge Group, the Atlantic Group and the
     Co-Agents (in such capacity, together with any successors thereto
     in such capacity, the "Administrative Agent" and together with each
     of the Co-Agents, the "Agents"),

with respect to that certain Amended and Restated Credit and Security Agreement
dated as of September 28, 2001, by and among the parties hereto other than La
Fayette and the La Fayette Agent (as heretofore amended, the "Existing
Agreement" which, as amended hereby, is hereinafter referred to as the
"Agreement").

         Unless otherwise indicated, capitalized terms used in this Amendment
are used with the meanings attributed thereto in the Existing Agreement.




<PAGE>


                          W I T N E S S E T H :

         WHEREAS, simultaneously herewith, Atlantic is assigning all of
     its rights and obligations under the Existing Agreement to La
     Fayette; and

         WHEREAS, to reflect such assignment, the parties hereto desire
     to amend the Existing Agreement as hereinafter set forth;

         NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein contained, the parties hereto hereby agree as follows:

         1. Amendments to Existing Agreement. Subject to the terms and
conditions hereinafter set forth, the parties hereby agree to amend the Existing
Agreement as follows:

         1.1. The definition of "Atlantic Liquidity Agreement" is hereby deleted
in its entirety from Annex A to the Existing Agreement and the following new
definition is hereby added to such Annex A in its appropriate alphabetical
order:

         "La Fayette Liquidity Agreement" means the Liquidity Asset
     Purchase Agreement dated as of July 24, 2002 among La Fayette, the
     La Fayette Agent, and the La Fayette Liquidity Banks from time to
     time party thereto, as the same may be amended, restated,
     supplemented, replaced or otherwise modified from time to time.

         1.2. Replace all references in the Existing Agreement (and in all
Annexes, Exhibits and Schedules thereto) to the term in the left-hand column in
the table below with the term opposite such term in the right-hand column:

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------
       Term to be Replaced                             Replacement Term

--------------------------------------------------------------------------------------
<S>                                          <C>
"Atlantic Asset Securitization Corp."        "La Fayette Asset Securitization LLC"

--------------------------------------------------------------------------------------
"Atlantic Agent"                             "La Fayette Agent"

--------------------------------------------------------------------------------------
"Atlantic Group"                             "La Fayette Group"

--------------------------------------------------------------------------------------
"Atlantic"                                   "La Fayette"

--------------------------------------------------------------------------------------
"Atlantic Allocation Limit"                  "La Fayette Allocation Limit"

--------------------------------------------------------------------------------------
"Atlantic Fee Letter"                        "La Fayette Fee Letter"

--------------------------------------------------------------------------------------
"Atlantic Liquidity Agreement"               "La Fayette Liquidity Agreement"

--------------------------------------------------------------------------------------
"Atlantic Liquidity Bank"                    "La Fayette Liquidity Bank"

--------------------------------------------------------------------------------------
"Wachovia Bank, N.A."                        "Wachovia Bank, National Association"

--------------------------------------------------------------------------------------
</TABLE>

                                       2




<PAGE>


         1.3. Section 4.1 of the Existing Agreement is hereby amended to provide
that from and after the date of this Amendment, all fees that would otherwise be
payable to Atlantic under what was formerly called the Atlantic Fee Letter and
is now called the La Fayette Fee Letter shall henceforth be payable to La
Fayette.

         1.4. Part E of Schedule 14.2 to the Existing Agreement is hereby
amended to delete "Account #____________" where it appears and to substitute in
lieu thereof "Account # __________".

         1.5. Upon effectiveness of this Amendment in accordance with Section 3
below, Atlantic shall cease to be a party to the Existing Agreement and all of
Atlantic's rights and obligations under the Transaction Documents shall be
automatically assumed by La Fayette.

         2. Representations.
            ----------------

         2.1. Each of the Loan Parties represents and warrants to the Lenders
and the Agents that it has duly authorized, executed and delivered this
Amendment and that the Agreement constitutes, a legal, valid and binding
obligation of such Loan Party, enforceable in accordance with its terms (except
as enforceability may be limited by applicable bankruptcy, insolvency, or
similar laws affecting the enforcement of creditors' rights generally or by
equitable principles relating to enforceability).

         2.2. Each of the Loan Parties further represents and warrants to the
Lenders and the Agents that each of its representations and warranties set forth
in Section 6.1 of the Agreement is true and correct as of the date hereof and
that no Event of Default or Unmatured Default exists as of the date hereof and
is continuing.

         3. Conditions Precedent. This Amendment shall become effective as of
the date first above written upon receipt by the Administrative Agent (a) of a
counterpart hereof duly executed by each of the parties hereto, and (b)
confirmation from the La Fayette Agent that it has received the La Fayette
Liquidity Agreement and that such agreement is in full force and effect.

         4. Miscellaneous.
            --------------

         4.1. Except as expressly amended hereby, the Existing Agreement and
shall remain unaltered and in full force and effect, and each of the parties
hereby ratifies and confirms the Agreement and each of the other Transaction
Documents to which it is a party.

         4.2. THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK WITHOUT REFERENCE TO PRINCIPLES
OF CONFLICTS OF LAW.

         4.3. EACH LOAN PARTY HEREBY ACKNOWLEDGES AND AGREES THAT:

                                       3




<PAGE>


         4.3.1. IT IRREVOCABLY (i) SUBMITS TO THE NON-EXCLUSIVE JURISDICTION,
FIRST, OF ANY UNITED STATES FEDERAL COURT, AND SECOND, IF FEDERAL JURISDICTION
IS NOT AVAILABLE, OF ANY NEW YORK STATE COURT, IN EITHER CASE SITTING IN NEW
YORK COUNTY, NEW YORK, IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO
THE AGREEMENT, AND (ii) WAIVES, TO THE FULLEST EXTENT IT MAY EFFECTIVELY DO SO,
THE DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF AN ACTION OR
PROCEEDING IN SUCH COURTS.

         4.3.2. TO THE EXTENT THAT IT HAS OR HEREAFTER MAY ACQUIRE ANY IMMUNITY
FROM THE JURISDICTION OF ANY COURT OR FROM ANY LEGAL PROCESS (WHETHER THROUGH
SERVICE OR NOTICE, ATTACHMENT PRIOR TO JUDGMENT, ATTACHMENT IN AID TO EXECUTION,
EXECUTION OR OTHERWISE) WITH RESPECT TO ITSELF OR ITS PROPERTY, IT HEREBY
IRREVOCABLY WAIVES SUCH IMMUNITY IN RESPECT OF ITS OBLIGATIONS UNDER OR IN
CONNECTION WITH THE AGREEMENT.

         4.4. This Amendment may be executed in any number of counterparts and
by the different parties hereto in separate counterparts, each of which when so
executed shall be deemed to be an original and all of which when taken together
shall constitute one and the same Amendment.

                            [Signature pages follow]

                                       4




<PAGE>



         IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the date first above written.

                         QUEST DIAGNOSTICS RECEIVABLES INC.

                         By:  __________________________________
                              Name:
                              Title:

                         QUEST DIAGNOSTICS INCORPORATED

                         By:  __________________________________
                              Name:
                              Title:

                                       5




<PAGE>


                         WACHOVIA BANK, NATIONAL ASSOCIATION, individually, as
                         Administrative Agent and as Blue Ridge Agent

                         By:  __________________________________
                              Name:
                              Title:


                         BLUE RIDGE ASSET FUNDING CORPORATION

                         BY: WACHOVIA BANK, NATIONAL ASSOCIATION,
                             its attorney-in-fact

                         By:  __________________________________
                              Name:
                              Title:

                                       6




<PAGE>




                         ATLANTIC ASSET SECURITIZATION CORP.

                         By: Credit Lyonnais New York Branch.,
                         its attorney-in-fact

                         By:  _________________________________
                              Name:  Konstantina Kourmpetis
                              Title: Director


                         LA FAYETTE ASSET SECURITIZATION LLC

                         By:  La Fayette Member, Inc., as its sole member

                         By:  _________________________________
                              Name:  Konstantina Kourmpetis
                              Title: Director


                         Credit Lyonnais New York Branch,
                         individually and as Atlantic Agent and La Fayette Agent

                         By:  _________________________________
                              Name:  Konstantina Kourmpetis
                              Title: Director

                                       7




<PAGE>



                        LLOYDS TSB BANK PLC

                        By:  __________________________________
                             Name:
                             Title:

                        By:  __________________________________
                             Name:
                             Title:

                                       8




</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10
<SEQUENCE>4
<FILENAME>ex10-3.txt
<DESCRIPTION>EXHIBIT 10.3
<TEXT>

<PAGE>


                                                                    Exhibit 10.3

As Amended as of May 7, 2002

                         QUEST DIAGNOSTICS INCORPORATED

                      EMPLOYEE EQUITY PARTICIPATION PROGRAM
                         QUEST DIAGNOSTICS INCORPORATED
                      EMPLOYEE EQUITY PARTICIPATION PROGRAM

1. Purpose
   -------

The Employee Equity Participation Program (the "Program") is intended to
encourage executive, managerial, technical and other employees of (i) Quest
Diagnostics Incorporated (the "Corporation"), (ii) any "subsidiary corporation"
of the Corporation within the meaning of Section 424 of the Internal Revenue
Code of 1986, as amended (the "Code") or of any successor section, or (iii) any
other entity in which the Corporation holds beneficially at least one-half of
the ownership interest (such entity or "subsidiary corporation" being referred
to herein as a "Subsidiary") to become owners of stock of the Corporation in
order to increase their proprietary interest in the Corporation's success; to
stimulate the efforts of certain key executive, managerial, technical and other
employees by giving suitable recognition to services which contribute materially
to the Corporation's success; and to provide such employees with additional
incentive and reward opportunity based, in part, upon the attainment of
predetermined goals over specified periods. The Program shall consist of two
plans: (a) the Stock Option Plan and (b) the Incentive Stock Plan.

2. Administration
   --------------

The Program shall be administered by a committee appointed by the Board of
Directors of the Corporation, to be known as the "Compensation Committee" (the
"Committee"), consisting of not less than two members of the Corporation's Board
of Directors, each member of which shall be a "non-employee director" within the
meaning of Rule 16b-3(b)(3)(i) promulgated under the Securities Exchange Act of
1934 (the "1934 Act") or any successor thereto and an "outside director" within
the meaning set forth in regulations promulgated under Section 162(m) of the
Code. Without limiting the foregoing, unless and to the extent those definitions
are amended, no member of the Committee shall be an officer or employee of the
Corporation or a subsidiary thereof, a former officer of the Corporation, a
former employee of the Corporation who receives compensation for prior services
(other than benefits under a tax-qualified retirement plan) during the taxable
year, any other person who receives directly or indirectly in any capacity
(other than as a director) remuneration in excess of the lesser of $60,000 or 5
percent of the gross income realized by the entity employing such member during
such entity's taxable year ending with or within the Corporation's taxable year
or any person who is a member of a law firm retained by, or a partner or
executive officer of an investment banking firm that performs services for, the
Corporation. No member of the Committee shall have been eligible to participate
in the Program in the preceding year nor be eligible to participate in the
Program while serving on the

                                       1




<PAGE>


Committee. The Committee shall select periodically the executive, managerial,
technical and other employees who shall participate in the Program and the
extent of their participation in any particular Plan under the Program and shall
report such selections and levels of participation to the Board of Directors.

                                       2




<PAGE>


The Committee's interpretation and construction of any provisions of this
Program or any Plan or any right, option or award granted or contract executed
under it shall be final unless otherwise determined by the Board of Directors,
which determination shall be final. No member of the Board of Directors or the
Committee shall be liable for any action or determination made in good faith.

3. Eligibility
   -----------

The Committee shall from time to time select the executive, managerial,
technical and other employees (including officers and employees who are
directors) of the Corporation and of any Subsidiary who shall be eligible to
participate in any Plan under the Program.

4. Stock
   -----

The shares subject to options, grants or incentive stock rights under the
Program shall be shares of the Corporation's Common Stock par value $.01 per
share, either authorized but unissued or issued and held in treasury or such
other securities as may be issued by the Corporation in substitution therefor.
The total amount of the Common Stock of the Corporation which may be (i) sold
pursuant to options granted under the Stock Option Plan and (ii) granted, or
issued pursuant to incentive stock rights awarded, under the Incentive Stock
Plan shall not exceed 3,000,000 shares. There may be awarded under the Incentive
Stock Plan in lieu of shares the cash equivalent thereof valued at the date that
the Committee determines whether, or to what extent, performance objectives have
been met. In each case, the number of shares shall be subject to adjustment in
accordance with the provisions of Section 5.

Shares from the unexercised portion of the options which expire or of the
options which are terminated during the period when options may be granted and
shares forfeited or not earned under the Incentive Stock Plan may again either
(i) be the subject of an option under the Stock Option Plan or (ii) be awarded
or be the subject of rights granted under the Incentive Stock Plan. Shares of
the Common Stock of the Corporation used by an optionee as full or partial
payment to the Corporation for the purchase price of shares subject to an option
agreement, the terms of which explicitly provide for the grant of an additional
option as contemplated by Section 6(a)(i) hereof, shall again be made available
for use under the Program. Shares otherwise surrendered upon the exercise of
stock options may not again be the subject of options or awards granted under
the Program. Shares surrendered under the Program in payment of taxes due upon
the exercise of stock options or upon the recognition of income for shares
issued under the Incentive Stock Plan may not be issued again under the Program.

No single eligible employee under the Stock Option Plan may receive grants of
stock options covering in excess of 600,000, or 20% of the total, shares
authorized under the Program.

5. Recapitalization
   ----------------

The number of shares of Common Stock which may be granted, awarded or earned
under the Incentive Stock Plan or made subject to options granted under the
Stock Option Plan in the

                                       3




<PAGE>


aggregate and to any single eligible employee, the number of shares covered by
each outstanding option, and the price per share thereunder, and the number of
shares granted or subject to incentive stock rights under the Incentive Stock
Plan shall all be proportionally adjusted for any increase or decrease in the
number of issued shares of Common Stock of the Corporation resulting from a
subdivision or consolidation of shares or other capital adjustment, the
distribution of shares of capital stock to stockholders of the Corporation, the
payment of a stock dividend or other increase or decrease in such shares
effected without receipt of consideration by the Corporation, or any
distribution or spin-off of assets (other than a normal cash dividend) to the
stockholders of the Corporation.

Subject to any required action by the stockholders, if the Corporation shall be
the surviving corporation in any merger or consolidation, any option granted
under the Stock Option Plan and any incentive stock right granted under the
Incentive Stock Plan shall apply to the securities to which a holder of the
number of shares of Common Stock subject to the option or such right, as the
case may be, would have been entitled before the occurrence of such event. A
dissolution or liquidation of the Corporation, or a merger or consolidation in
which the Corporation is not the surviving corporation, shall cause every option
outstanding under the Stock Option Plan to terminate, except that the surviving
corporation may, in its absolute and uncontrolled discretion, tender an option
or options to purchase its shares on terms and conditions, both as to number of
shares and otherwise, which will substantially preserve the rights and benefits
of any option then outstanding under the Stock Option Plan. Upon the dissolution
or liquidation of the Corporation, or upon the effective date of any merger or
consolidation in which the Corporation is not the survivor and in which the
survivor has not tendered options as provided in the preceding sentence, the
Corporation shall deliver to each optionee whose incentive stock options are
being terminated an amount in cash equal to the difference between the option
price and the fair market value of a share of the Corporation's Common Stock
determined in good faith by the Committee. In the case of such a merger or
consolidation in which the Corporation is not the survivor, the Corporation
shall also deliver to each person whose incentive stock options are being
terminated and to each person who had exercised an incentive stock option and
who was holding the shares so purchased for long-term capital gains treatment an
amount equal to the difference between the federal income tax which the person
would be required to pay as a result of being unable to hold such shares for
long-term capital gains purposes (assuming a sale price equal to the fair market
value as provided above) and the tax such person is required to pay as a result
of having to dispose of shares on account of such merger or consolidation.

In the event of a change in the Corporation's presently authorized Common Stock
which is limited to a change of authorized shares with par value into the same
number of shares with a different par value or into the same number of shares
without par value, the shares resulting from any such change shall be deemed to
be Common Stock within the meaning of the Program.

6. Stock Option Plan
   -----------------

(a) The Committee may from time to time grant options, including but not limited
    to performance-based stock options and to incentive stock options permitted
    by Section 422 of the Code, to purchase shares of Common Stock, evidenced by
    agreements in such form

                                         4




<PAGE>

    as the Committee may, from time to time, approve, containing in substance
    the following terms and conditions:

    (i)    The option price shall be payable in full upon the exercise of the
           option and may be paid either in United States dollars, or under
           rules established and maintained from time to time by the Committee,
           in shares of the Common Stock of the Corporation owned by the
           optionee, or a combination of cash and shares. Under such rules, an
           optionee paying the purchase price of an option in already-owned,
           freely transferable, unencumbered shares of Common Stock of the
           Corporation may receive new options to purchase shares of Common
           Stock of the Corporation at the then current market price (being the
           mean between the high and low selling prices of the Corporation's
           Common Stock on the New York Stock Exchange Composite Transactions
           list on the date of exercise; provided, however, that if on the date
           of exercise, an optionee sells through a broker designated by the
           Corporation any of the shares purchased as a result of the exercise
           of the option, then the shares shall be valued at the average sales
           price of such shares sold on such date as reported to the Corporation
           by such broker) for the same number of shares surrendered upon
           exercise of the original option. In no circumstance will the total
           number of shares subject to the new option granted exceed the number
           of shares surrendered upon exercise of the original option, will the
           new option be exercisable within twelve months of the date of
           exercise or will the new option have a life beyond that of the
           original option.

           Shares of the Corporation's Common Stock tendered for payment (either
           actually or by attestation) shall be valued at the mean between the
           high and low selling prices of the Corporation's Common Stock on the
           New York Stock Exchange Composite Transactions list on the date of
           exercise; provided, however, that if on the date of exercise, an
           optionee sells through a broker designated by the Corporation any of
           the shares purchased as a result of the exercise of the option, then
           the shares shall be valued at the average sales price of such shares
           sold on such date as reported to the Corporation by such broker).

    (ii)   The option shall state the total number of shares to which it
           pertains.

    (iii)  The option price shall be not less than 100% of the fair market value
           of the shares on the date of the granting of the option.

    (iv)   Each option granted under the Stock Option Plan shall expire on the
           date designated by the Committee but in no event more than ten years
           from the date the option is granted.

    (v)    The Committee may in its discretion provide that an option may not be
           exercised in whole or in part for any period or periods of time
           specified by the Committee. Except as may be so provided by the
           Committee and except as otherwise provided

                                       5




<PAGE>


           herein, any option may be exercised in whole at any time or in part
           from time to time after the option has vested in accordance with the
           terms of the applicable agreement and during its term; provided,
           however, that, except in the event of a change of control (as
           determined by the Committee) in no circumstance will an option under
           the Stock Option Plan become exercisable in less than twelve months
           from the date of grant.

    (vi)   The aggregate fair market value (determined as of the time the option
           is granted) of the stock for which any employee may be granted
           incentive stock options under this Plan or any other plans of the
           Corporation or any subsidiary of the Corporation shall not exceed
           $100,000 (or such other limit as may be in effect from time to time
           under Section 422 of the Code or any statutory successor thereto) in
           any calendar year in which such option or any portion thereof first
           becomes exercisable pursuant to the terms of the agreement between
           such employee and the Corporation.

    (vii)  If, in the opinion of counsel for the Corporation, the listing,
           registration or qualification of the shares subject to option under
           any securities exchange or under any state or Federal law, or the
           consent or approval of any governmental regulatory body, or an
           exemption from registration, is necessary or desirable, each option
           shall be subject to the requirement that such option may not be
           exercised in whole or in part unless such listing, registration,
           qualification, consent, approval or exemption shall have been
           effected or obtained free of any conditions not acceptable to the
           Committee.

    (viii) An optionee shall have no rights as a stockholder with respect to
           shares covered by his option to purchase until the date of the
           issuance or transfer of the shares to him and only after such shares
           are fully paid. No adjustment will be made for dividends or other
           rights for which the record date is prior to the date of such
           issuance or transfer, except as provided in Section 5.

    (ix)   The option agreements authorized under the Stock Option Plan shall
           contain such other provisions not inconsistent with this Program as
           the Committee may deem advisable.

(b) Options may be granted under the Stock Option Plan from time to time in
    substitution for (i) stock options held by consultants to or directors or
    employees of other corporations who are about to become and who do
    concurrently with the grant of such options become consultants to or
    directors or employees of the Corporation or a Subsidiary as the result of a
    merger or consolidation of the employing corporation with the Corporation or
    a Subsidiary, or the acquisition by the Corporation or a Subsidiary of the
    assets of the employing corporation, or the acquisition by the Corporation
    or a Subsidiary of stock of the employing corporation as the result of which
    it becomes a Subsidiary or (ii) in substitution stock options to acquire
    common stock of Corning Incorporated ("Corning"), which options are held by
    employees of the Corporation and are canceled as a result of the spinoff
    distribution by Corning of all of the Corporation's outstanding common stock
    to the

                                       6




<PAGE>



    stockholders of Corning. The terms and conditions of the substitute options
    so granted may vary from the terms and conditions set forth in Section 6 of
    this Program to such extent as the Committee at the time of grant may deem
    appropriate to conform, in whole or in part, to the provisions of the stock
    options in substitution for which they are granted. Options granted under
    this paragraph (b) or pursuant to the terms of the agreements contemplated
    by Section 6(a)(i) hereof shall not reduce the shares available for options,
    grants or incentive stock rights under the Program as set forth in Section 4
    hereof.

(c) If the optionee's employment by the Corporation or a Subsidiary shall
    terminate, his option shall terminate unless otherwise determined by the
    Committee, or specific provision has been otherwise made as evidenced by the
    terms of the option agreement approved by the Committee. The Committee shall
    have full power and authority to determine whether, to what extent and under
    what circumstances any option shall be exercisable, suspended or canceled in
    the event of an optionee's termination of employment.

    If an optionee dies while in the employ of the Corporation or a Subsidiary,
    or within three months after termination of employment with options
    exercisable pursuant to action taken by the Committee or otherwise in
    accordance with the preceding sentences, the optionee's estate, personal
    representative or beneficiary shall have the right to exercise such option
    in accordance with the terms of the option agreement with respect to all
    shares subject to option on the date of death.

    If an optionee shall be transferred from the Corporation to a Subsidiary or
    from a Subsidiary to the Corporation or from a Subsidiary to another
    Subsidiary, his employment shall not be deemed to have terminated. If an
    optionee shall be employed by a corporation or an entity which ceases to be
    a Subsidiary, the Committee may, subject to the provisions of clauses (iv)
    and (v) of Paragraph (a) of this Section 6, permit the participant to
    exercise options held for such period of time as it determines with respect
    to all shares which were available for purchase by the optionee on the date
    the corporation or entity ceased to be a Subsidiary.

7. Incentive Stock Plan
   --------------------

The Committee may from time to time award shares of Incentive Stock and grant
incentive stock rights, or either, to eligible employees on the terms set forth
herein.

(a) "Incentive Stock" shall be shares of the Corporation's Common Stock awarded
    pursuant to the terms of the Incentive Stock Plan.

(b) An "incentive stock right" shall, subject to the terms, conditions and
    limitations of this Section 7, give the holder thereof the right to receive
    in consideration of services performed for, but without payment of cash to,
    the Corporation such shares of Common Stock, cash or a combination of the
    two as the Committee may determine.

                                       7




<PAGE>


(c) Subject to the limitations of Section 4, the Committee shall from time to
    time select, and report to the Board of Directors, (i) the individual
    employees who are to receive shares of Incentive Stock or incentive stock
    rights, or a combination thereof, (ii) the number of shares of Incentive
    Stock a designated employee is to receive, either directly or upon
    maturation of an incentive stock right, (iii) whether ownership of, or any
    portion of, such shares of Incentive Stock is to be vested in the designated
    employee without the possibility of forfeiture or other restrictions at the
    time of the Committee's action or at one or more specified dates in the
    future, (iv) whether ownership of such, or any portion of such, shares of
    Incentive Stock is to be vested in the designated employee at the time of
    the Committee's action, but subject to the possibility of forfeiture or
    other restrictions, and (v) the specific dates from the date of the
    Committee's award over which the possibility of forfeiture or other
    restrictions are to lapse.

    Shares of Incentive Stock shall be issued in the name of, and distributed
    to, those employees from time to time designated by the Board as recipients
    of Incentive Stock as follows:

    (1) Each employee designated as a recipient of shares of Incentive Stock
        shall receive, promptly after the date or dates the Committee determines
        the number of such shares which such employee is to receive not subject
        to the possibility of forfeiture and other restrictions, one or more
        stock certificates registered in the name of the designated employee for
        such number of shares, the ownership of which is vested non-forfeitably
        and without restriction in such employee; and

    (2) Certificates covering shares of Incentive Stock subject to the
        possibility of forfeiture and other restrictions shall be issued
        promptly after the date or dates the Committee determines the number of
        such shares to be issued in the name of the designated employee but held
        by the Corporation as provided in clause (e) below.

(d) The shares which are granted subject to restrictions and the possibility of
    forfeiture (and all shares issued or distributed by means of dividends,
    splits, combinations, reclassifications, or other capital changes thereon)
    (i) may not be sold, assigned, transferred, pledged or otherwise encumbered,
    except (a) for gifts to a spouse, ancestors, or descendants, or to trusts
    for their benefit and (b) pursuant to the qualified domestic relations
    orders referred to in Section 9 hereof, subject, however, in each such case
    to the restrictions and possibility of forfeiture applicable to such shares
    and (ii) except as otherwise provided in an agreement approved by the
    Committee are to be forfeitable to the Corporation upon termination of
    employment for any reason other than death, disability approved by the
    Corporation or retirement with the consent of the Corporation. The
    restrictions and possibility of forfeiture imposed by this clause (d) shall
    lapse at such time and in such proportions as the Committee shall, subject
    to limitations of clause (c) above, determine.

(e) Each certificate issued in respect of shares granted under the Incentive
    Stock Plan subject to restrictions on transfer and the possibility of
    forfeiture shall be registered in the name of the employee but shall be held
    by the Corporation in safekeeping for the employee and until

                                       8




<PAGE>


    such restrictions and the possibility of forfeiture shall lapse. Such
    certificates shall bear a legend substantially as follows:

    "The transferability of this certificate and the shares of stock represented
    hereby are restricted and the shares are subject to the further terms and
    conditions (including forfeiture) contained in the Incentive Stock Plan of
    Quest Diagnostics Incorporated and an agreement executed pursuant thereto. A
    copy of such Plan and such agreement are on file in the office of the
    Secretary of Quest Diagnostics Incorporated, Teterboro, New Jersey."

(f) An employee who is to receive shares of Incentive Stock only upon the
    expiration of certain specified periods or who is the holder of an incentive
    stock right shall have no rights as a stockholder with respect to any shares
    which may become vested in, or be awarded to, him, as the case may be, until
    such shares have been actually issued.

(g) The value of shares of the Incentive Stock or the value of the shares of
    Common Stock granted by the Corporation to the holder of an incentive stock
    right shall be the mean between the high and low selling prices of the
    Corporation's Common Stock on the New York Stock Exchange Composite
    Transactions list on the date the Committee determines that the applicable
    performance objectives were met or the date the possibility of forfeiture
    shall terminate, as the case may be.

(h) At the time an incentive stock right is granted, the Committee shall
    establish with respect to each holder one or more performance periods and
    performance objectives. If the objectives have been met and are being
    maintained at the end of the applicable performance period to the
    satisfaction of the Committee, the holder of the incentive stock right shall
    receive promptly the shares and/or cash which are subject to the agreement
    referred to below.

(i) Any provisions hereof the contrary notwithstanding, the Committee shall have
    the authority and the power to adjust performance periods, performance
    objectives and the number of shares which may be awarded pursuant to an
    incentive stock right if it determines that conditions so warrant. Such
    conditions may include, but need not be limited to, changes in functional
    responsibilities of a holder of an incentive stock right, changes in laws or
    government regulations, changes in accounting treatment or in generally
    accepted accounting principles, acquisitions, dispositions or distributions
    deemed to be material, or extraordinary events which significantly impact
    consolidated financial performance.

(j) Incentive stock rights shall be evidenced by agreements in such form and not
    inconsistent with the Incentive Stock Plan as the Committee shall approve
    from time to time, which agreements shall, among other things, contain in
    substance the following terms, conditions and provisions:

    (i)   The number of shares to which the incentive stock right relates and
          whether such rights are to be paid in shares, in cash or in a
          combination or the two;

    (ii)  The length of the performance period or periods;

                                       9




<PAGE>


    (iii) The performance objectives applicable to an individual granted an
          incentive stock right, which objectives may relate, but shall not be
          limited, to overall corporate performance measures, such as earnings
          per share, return on stockholders' equity and return on capital, or to
          divisional, subsidiary or other business unit performance measures, or
          to a combination of each; and

    (iv)  Such other rules, as determined by the Committee, governing the
          continuation of an incentive stock right after the holder terminates,
          either voluntarily or involuntarily, his employment with the
          Corporation.

(k) Unless otherwise determined by the Committee or set forth in the agreement
    contemplated by subsection (j) above, if the holder of an incentive stock
    right shall cease to be employed by the Corporation or a Subsidiary, his
    incentive stock right shall terminate immediately. However, if employment is
    terminated on account of death, retirement or termination of employment with
    the consent of the Corporation (including termination by reason of
    retirement, disability or a Subsidiary ceasing to be such), the Committee
    may award to such employee such shares or cash at such time and under such
    conditions as it shall in its sole discretion determine.

8. Amendment and Administration of the Program
   -------------------------------------------

The Board of Directors may, upon the recommendation of the Committee, from time
to time alter, amend, suspend, or discontinue the Program or either Plan
thereunder, except that no alteration or amendment shall, without the approval
of the holders of a majority of the outstanding shares entitled to vote thereon,
increase the total number of shares which may be sold or awarded under the
Program, decrease the price at which options may be granted, change the
standards of eligibility of employees eligible to participate, materially
increase the benefits of the Program or either Plan thereunder to participants,
or extend the term of the Program or of options granted thereunder. Adjustments
in the total number of shares purchasable or awardable under the Program or
optioned to any individual and adjustments of the option price may be made,
however, without stockholder approval pursuant to the adjustment provisions
described under the provisions of Section 5 hereof. No amendment or modification
shall apply to affect adversely any employee with respect to incentive stock or
incentive stock rights already awarded to him or an option already granted.
Anything to the contrary in this Section 8 notwithstanding, should the
provisions of Rule 16b-3, or any successor rule, under the 1934 Act be amended,
the Board may amend the Program in accordance with any modifications to such
Rule.

With respect to persons subject to Section 16 of the 1934 Act, transactions
under the Program are intended to comply with all applicable conditions of Rule
16b-3, or any successor rule, under the 1934 Act. To the extent any provision of
the Program or action by the Committee, the Board of Directors or any
administrator fails to so comply, it shall be deemed null and void, to the
extent permitted by law and deemed advisable by the Committee or the Board of
Directors.

                                       10




<PAGE>


9. Assignability
   -------------

No option or right granted under the Program shall be assignable or transferable
except by Will, by the laws of descent and distribution, or except for an
incentive stock option pursuant to domestic relations orders as defined in or
meeting the requirements of the Code or Title I of the Employee Retirement
Income Security Act of 1974, as amended. During the lifetime of an optionee, an
option shall be exercisable only by him and any shares purchased upon the
exercise of an option shall be issued in the name of the optionee alone.

10. Effective Date and Term of Program.
    -----------------------------------

The Program shall become effective when approved by a majority of the votes cast
at a meeting of the Corporation's stockholders by stockholders entitled to vote
thereon. No shares may be optioned or awarded (except upon the attainment of
performance goals contemplated by Section 7(h) hereof) and no incentive stock
rights may be granted under the Program after the fifth anniversary, plus 60
calendar days, of the Program's effective date.

11. Use of Proceeds
    ---------------

Proceeds from the sale of stock under the Program shall constitute general funds
of the Corporation.

12. Withholding
    -----------

Whenever under the Program shares are to be issued in satisfaction of options,
awards or rights granted thereunder, the Corporation shall have the right to
require the employee to remit to it an amount in cash, in shares of the
Corporation's Common Stock, or though the reduction of options, awards or rights
to be issued thereof, necessary to satisfy federal, state and local withholding
tax requirements prior to the delivery of any certificate or certificates for
shares. Whenever under the Program payments are to be made in cash, such payment
shall be net of an amount necessary to satisfy federal, state and local
withholding tax requirements.

                                       11



</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10
<SEQUENCE>5
<FILENAME>ex10-4.txt
<DESCRIPTION>EXHIBIT 10.4
<TEXT>

<PAGE>


                                                                    Exhibit 10.4

                         Quest Diagnostics Incorporated
                   1999 Employee Equity Participation Program
                          As amended as of May 7, 2002

1. THE PROGRAM

a) Purpose. This Quest Diagnostics Incorporated 1999 Employee Equity
Participation Program (the "Program") is intended to benefit the stockholders of
Quest Diagnostics Incorporated (the "Company") by providing a means to attract,
retain and reward individuals who can and do contribute to the longer term
financial success of the Company. Further, the recipients of stock-based awards
under the Program should identify their success with that of the Company's
stockholders and therefore will be encouraged to increase their proprietary
interest in the Company.

b) Effective Date. To serve this purpose, the Program will become effective upon
its approval by the holders of stock entitled to vote at the Company's 1999
Annual Meeting of Stockholders.

2. ADMINISTRATION

a) Committee. The Program shall be administered by a Committee, appointed by the
Board of Directors of the Company (the "Board"), which shall consist of no less
than two of its members, all of whom shall not be (or formerly have been)
employees of the Company (the "Committee"); provided, however, that from time to
time the Board may assume, at its sole discretion, administration of the
Program. Except with regard to awards to employees subject to Section 16 of the
Securities Exchange Act of 1934, the Committee may delegate certain
responsibilities and powers to any executive officer or officers selected by it.
Any such delegation may be revoked by the Committee at any time.

b) Powers and authority. The Committee's powers and authority include, but are
not limited to: selecting individuals, who are employees of the Company and any
subsidiary of the Company or other entity in which the Company has a significant
equity or other interest as determined by the Committee, to receive awards;
determining the types and terms and conditions of all awards granted, including
performance and other earnout and/or vesting contingencies; permitting
transferability of awards to eligible third parties; interpreting the Program's
provisions; and administering the Program in a manner that is consistent with
its purpose. The Committee's decision in carrying out the Program and its
interpretation and construction of any provisions of the Program or any award
granted or agreement or other instrument executed under it shall be final and
binding upon all persons. No members of the Board shall be liable for any action
or determination made in good faith in administering the Program.

c) Award Prices. All awards denominated or made in Shares shall use as the per
Share price the mean between the high and low selling prices of a share of the
Common Stock of the Company ("Share") on the applicable date as reported in The
New York Times l, or if Shares are not traded on such date, the mean between the
high and low selling prices on the next preceding day on which such Shares are
traded provided, however, that where a "reload" option is issued to an optionee
who exercises an option by tendering (either actually or by attestation) Shares
previously owned by the optionee, then the per Share exercise price of the
reload option (which shall be for the same number of shares tendered for
payment) shall be the market price at which the Shares tendered are valued in
accordance with Section 4(b). The applicable date shall be the day on which the
award is granted or, another Program transaction occurs, except that in the case
of a stock option or stock appreciation right granted retroactively in tandem
with or as a substitution for another previously granted stock option or stock
appreciation right, the applicable date shall be grant date for such prior
award. Except as provided for in Section 3(d), the per Share exercise price of
any stock option or stock appreciation right may not be decreased after the
grant of the award, and a stock option or stock appreciation right may not be
surrendered as consideration in exchange for the grant of a new award with a
lower per Share exercise price.

3. SHARES SUBJECT TO THE PROGRAM AND ADJUSTMENTS

a) Maximum Shares Available for Delivery. Subject to adjustments under Section
3(d), the maximum number of Shares that may be delivered to participants and
their beneficiaries under the Program shall be equal to (i) 9,000,000 Shares;
(ii) any Shares available for future awards under the Company's 1996 Employee
Equity Participation Program (the "Prior Program") as of the effective date of
this Program; and (iii) any Shares that are represented by awards granted under
the Prior Program of the Company, which are forfeited, expire or are canceled
without the delivery of Shares or which result in the forfeiture of Shares back
to the Company. In addition, any Shares delivered under the Program or the Prior
Program of the Company which are forfeited back to the Company because of the
failure to meet an award

                                        1




<PAGE>


contingency or condition shall again be available for delivery pursuant to new
awards granted under the Program. Any Shares covered by an award (or portion of
an award) granted under the Program or the Prior Program of the Company, which
is forfeited or canceled, expires or is settled in cash, including the
settlement of tax withholding obligations using Shares, shall be deemed not to
have been delivered for purposes of determining the maximum number of Shares
available for delivery under the Program. Likewise, if any stock option is
exercised by tendering Shares, either actually or by attestation, to the Company
as full or partial payment for such exercise under this Program or the Prior
Program of the Company, only the number of Shares issued net of the Shares
tendered shall be deemed delivered for purposes of determining the maximum
number of Shares available for delivery under the Program. Further, Shares
issued under the Program through the settlement, assumption or substitution of
outstanding awards or obligations to grant future awards as a condition of the
Company acquiring another entity shall not reduce the maximum number of Shares
available for delivery under the Program.

b) Other Program Limits. Subject to adjustment under Section 3(d), the following
additional maximums are imposed under the Program. The maximum number of Shares
that may be issued in conjunction with awards granted pursuant to Section 4(d)
shall be 1,800,000. The maximum aggregate number of Shares that may be covered
by awards granted to any one individual pursuant to Sections 4(b) and 4(c) shall
not exceed 1,000,000 Shares. The aggregate maximum payments that can be made for
awards granted to any one individual pursuant to Section 4(d) shall not exceed
300,000 Shares.

c) Payment Shares. Subject to the overall limitation on the number of Shares
that may be delivered under the Program, the Committee may, in addition to
granting awards under Section 4, use available Shares as the form of payment for
compensation, grants or rights earned or due under any other compensation plans
or arrangements of the Company, including those of any entity acquired by the
Company.

d) Adjustments for Corporate Transactions.

(i) The Committee may determine that a corporate transaction has affected the
price per Share such that an adjustment or adjustments to outstanding awards are
required to preserve (or prevent enlargement of) the benefits or potential
benefits intended at time of grant. For this purpose a corporate transaction
will include, but is not limited to, any stock dividend, stock split,
extraordinary cash dividend, recapitalization, reorganization, merger,
consolidation, split-up, spin-off, combination or exchange of shares, or other
similar occurrence. In the event of such a corporate transaction, the Committee
may, in such manner as the Committee deems equitable, adjust (i) the number and
kind of shares which may be delivered under the Program pursuant to Sections
3(a) and 3(b); (ii) the number and kind of shares subject to outstanding awards;
and (iii) the exercise price of outstanding stock options and stock appreciation
rights. Similar adjustments may be made in situations where the Company assumes
or substitutes for outstanding awards held by employees and other persons of an
entity acquired by the Company.

(ii) In the event that the Company is not the surviving company of a merger,
consolidation or amalgamation with another company, or in the event of a
liquidation or reorganization of the Company, and in the absence of the
surviving corporation's assumption of outstanding awards made under the Program,
the Committee may provide for appropriate adjustments and/or settlements of such
grants either at the time of grant or at a subsequent date. The Committee may
also provide for adjustments and/or settlements of outstanding awards as it
deems appropriate and consistent with the Program's purpose in the event of any
other change-in-control of the Company.

4. TYPES OF AWARDS

a) General. An award may be granted singularly, in combination with another
award(s) or in tandem whereby exercise or vesting of one award held by a
participant cancels another award held by the participant. Subject to the
limitations of Section 2(c), an award may be granted as an alternative or
successor to or replacement of an existing award under the Program or under any
other compensation plan or arrangement of the Company, including the plan of any
entity acquired by the Company. The types of awards that may be granted under
the Program include:

b) Stock Option. A stock option represents a right to purchase a specified
number of Shares during a specified period at a price per Share which is no less
than one hundred percent (100%) of the per Share amount stipulated by Section
2(c). A stock option may be in a form intended to comply with Section 422 or any
other similar provision of the Internal

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Revenue Code (the "Code") or in another form which may or may not qualify for
favorable federal income tax treatment. Each stock option shall expire on the
applicable date designated by the Committee but in no event may such date be
more than eleven years from the date the stock option is granted. The Shares
covered by a stock option may be purchased by means of a cash payment or such
other means as the Committee may from time-to-time permit, including (i)
tendering (either actually or by attestation) Shares valued using the market
price at the time of exercise (which, where on the date of exercise, the
optionee sells through a broker designated by the Corporation any of the shares
purchased as a result of the exercise of the stock option, shall be the average
sales price of the price of such shares sold on such date as reported to the
Corporation by the broker), (ii) authorizing a third party to sell Shares (or a
sufficient portion thereof) acquired upon exercise of a stock option and to
remit to the Company a sufficient portion of the sale proceeds to pay for all
the Shares acquired through such exercise and any tax withholding obligations
resulting from such exercise; or (iii) any combination of the above.

c) Stock Appreciation Right. A stock appreciation right is a right to receive a
payment in cash, Shares or a combination, equal to the excess of the aggregate
market price at time of exercise of a specified number of Shares over the
aggregate exercise price of the stock appreciation right being exercised. The
longest term a stock appreciation right may be outstanding shall be eleven
years. Such exercise price shall be no less than one hundred percent (100%) of
the per Share amount stipulated by Section 2(c).

d) Stock Award. A stock award is a grant of Shares or of a right to receive
Shares (or their cash equivalent or a combination of both) in the future. Except
in cases of certain terminations of employment or an extraordinary event, each
stock award shall be earned and vest over at least three years and shall be
governed by such conditions, restrictions and contingencies as the Committee
shall determine. These may include continuous service and/or the achievement of
performance goals. The performance goals that may be used by the Committee for
such awards granted to persons who may become subject to Code Section 162(m)
shall consist of operating profits (including EBITDA), net profits, earnings per
share, profit returns and margins, revenues, shareholder return and/or value,
stock price and working capital. Performance goals may be measured solely on a
corporate, subsidiary or business unit basis, or a combination thereof. Further,
performance criteria may reflect absolute entity performance or a relative
comparison of entity performance to the performance of a peer group of entities
or other external measure of the selected performance criteria. Profit, earnings
and revenues used for any performance goal measurement shall exclude: gains or
looses on operating asset sales or dispositions; asset write-downs; litigation
or claim judgments or settlements; accruals for historic environmental
obligations; effect of changes in tax law or rate on deferred tax liabilities;
accruals for reorganization and restructuring programs; uninsured catastrophic
property losses; the cumulative effect of changes in accounting principles; and
any extraordinary non-recurring items as described in Accounting Principles
Board Opinion No. 30 and/or in management's discussion and analysis of financial
performance appearing in the Company's annual report to stockholders for the
applicable year.

5. AWARD SETTLEMENTS AND PAYMENTS

a) Dividends and Dividend Equivalents. An award may contain the right to receive
dividends or dividend equivalent payments which may be paid either currently or
credited to a participant's account. Any such crediting of dividends or dividend
equivalents may be subject to such conditions, restrictions and contingencies as
the Committee shall establish, including the reinvestment of such credited
amounts in Share equivalents.

b) Payments. Awards may be settled through cash payments, the delivery of
Shares, the granting of awards or combination thereof as the Committee shall
determine. Any award settlement, including payment deferrals, may be subject to
such conditions, restrictions and contingencies as the Committee shall
determine. The Committee may permit or require the deferral of any award
payment, subject to such rules and procedures as it may establish, which may
include provisions for the payment or crediting of interest, or dividend
equivalents, including converting such credits into deferred Share equivalents.

6. PROGRAM AMENDMENT AND TERMINATION

a) Amendments. The Board may amend this Program as it deems necessary and
appropriate to better achieve the Program's purpose provided, however, that: (i)
the Share and other award limitations set forth in Sections 3(a) and 3(b) cannot
be increased and (ii) the minimum stock option and stock appreciation right
exercise prices set forth in Sections 2(c) and 4(b) and (c) cannot be changed
unless such a plan amendment is properly approved by the Company's stockholders.

b) Program Suspension and Termination. The Board may suspend or terminate this
Program at any time. However, in no event may any awards be granted under the
Program after the tenth anniversary of its approval by stockholders of the
Company. Any such suspension or termination shall not of itself impair any
outstanding award granted under the Program or the applicable participant's
rights regarding such award.

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7. MISCELLANEOUS

a) Assignability. Except by will or by the laws of descent and distribution and,
if permitted by the Committee, as a gift to a family member or a trust or
similar entity for the benefit of one or more family members, no award granted
under the Program shall be assignable or transferable.

b) No Individual Rights. No person shall have any claim or right to be granted
an award under the Program. Neither the Program nor any action taken hereunder
shall be construed as giving any employee or other person any right to continue
to be employed by or to perform services for the Company, any subsidiary or
related entity. The right to terminate the employment of or performance of
services by any Program participant at any time and for any reason is
specifically reserved to the employing entity.

c) Unfunded Program. The Program shall be unfunded and shall not create (or be
construed to create) a trust or a separate fund or funds. The Program shall not
establish any fiduciary relationship between the Company and any participant or
beneficiary of a participant. To the extent any person holds any obligation of
the Company by virtue of an award granted under the Program, such obligation
shall merely constitute a general unsecured liability of the Company and
accordingly shall not confer upon such person any right, title or interest in
any assets of the Company.

d) Use of Proceeds. Any proceeds from the sale of shares under the Program shall
constitute general funds of the Company.

e) Other Benefit and Compensation Programs. Unless otherwise specifically
determined by the Committee, settlements of awards received by participants
under the Program shall not be deemed a part of a participant's regular,
recurring compensation for purposes of calculating payments or benefits from any
Company benefit plan or severance program. Further, the Company may adopt any
other compensation programs, plans or arrangements as it deems appropriate.

f) No Fractional Shares. No fractional Shares shall be issued or delivered
pursuant to the Program or any award, and the Committee shall determine whether
cash shall be paid or transferred in lieu of any fractional Shares, or whether
such fractional Shares or any rights thereto shall be canceled.

g) Governing Law. The validity, construction and effect of the Program and any
award, agreement or other instrument issued under it shall be determined in
accordance with the laws of the state of New Jersey without reference to
principles of conflict of law.

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