See accompanying notes to consolidated financial statements.

See accompanying notes to consolidated financial statements.

See accompanying notes to consolidated financial statements.

See accompanying notes to consolidated financial statements.

The accompanying consolidated financial statements include the accounts of LabOne, Inc. and its wholly- owned subsidiaries Osborn Group, Inc. ("Osborn"), Intellisys, Inc., Lab One Canada Inc., Systematic Business Services, Inc. ("SBSI"), ExamOne World Wide, Inc. ("ExamOne"), Central Plains Laboratories, L.L.C. ("CPL") and ScanTech Solutions, L.L.C. (ScanTech). All significant intercompany transactions have been eliminated in consolidation.

The financial information furnished herein as of September 30, 2003, and for the periods ended September 30, 2003, and 2002, is unaudited; however, in the opinion of management, it reflects all adjustments, consisting of normal recurring adjustments, which are necessary to fairly state the Company's financial position, the results of its operations and cash flows. The balance sheet information as of December 31, 2002, has been derived from the audited consolidated financial statements as of that date. The financial statements have been prepared in conformity with accounting principles generally accepted in the United States appropriate in the circumstances, and included in the financial statements are certain amounts based on management's estimates and judgments.

The financial information herein is not necessarily representative of a full year's operations because levels of sales, capital additions and other factors fluctuate throughout the year. These same considerations apply to all year-to-year comparisons. Certain information and note disclosures normally included in the Company's annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. These condensed, consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2002.

This Quarterly report on Form 10-Q may contain "forward-looking statements." Forward-looking statements often can be identified by the use of forward-looking terminology, such as "could," "should," "will," "will be," "intended," "continue," "believe," "may," "hope," "anticipate," "goal," "forecast," "plan," "estimate" or variations thereof. Forward-looking statements are not guarantees of future performance or results. Forward-looking statements involve known and unknown risks and uncertainties. Many factors could cause actual results to differ materially from those that may be expressed or implied in such forward-looking statements, including, but not limited to, the volume, pricing and mix of services provided by the Company, intense competition, the loss of one or more significant customers, general economic conditions and other factors detailed from time to time in the Company's reports and registration statements filed with the Securities and Exchange Commission ("SEC"), including the Cautionary Statement filed as Exhibit 99 to the Company's Annual Report on Form 10-K for the year ended December 31, 2002. Investors are cautioned not to put undue reliance on any forward-looking statement.

Total intangible assets as of September 30, 2003, comprised $97.6 million of goodwill, $0.9 million for noncompete agreements, $5.6 million for customer contracts and $0.2 million for customer lists. Intangible assets as of December 31, 2002, comprised $96.3 million of goodwill, $0.9 million for noncompete agreements, $1.0 million for a customer contract and $0.1 million for customer lists. Statement of Financial Accounting Standards ("SFAS") 142 requires that goodwill and intangible assets with indefinite useful lives not be amortized, but instead tested for impairment at least annually in accordance with the provisions in the statement. SFAS 142 also requires that intangible assets with estimable useful lives be amortized over their respective estimated useful lives to their residual values and reviewed for impairment.

The following table is a reconciliation of the Company's net earnings to comprehensive income for the three month and nine month periods ended September 30:

The Company operates two divisions: risk assessment services and clinical (comprised of healthcare and substance abuse testing). The following table presents selected financial information for each segment:

Operating earnings of each segment is computed as sales less directly identifiable expenses. In computing operating earnings of the segments, none of the following items have been allocated: general corporate expenses such as administrative, management, and information systems expenses; investment income; or other income (expenses). General corporate assets are principally cash, fixed assets and goodwill not identified with a specific segment.

The Company has chosen to adopt the disclosure only provisions of SFAS No. 123, Accounting for Stock-Based Compensation ("SFAS 123"), as amended by SFAS No. 148, Accounting for Stock-Based Compensation - Transition and Disclosure - an amendment of FASB Statement No. 123 ("SFAS 148") and continue to account for stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees ("APB 25"), and related interpretations.

The following table illustrates the effect on net earnings if the fair-value based method had been applied to all outstanding and unvested awards in each period, consistent with the method prescribed by SFAS 123, as amended by SFAS 148:

Contingencies

In the normal course of business, LabOne had certain lawsuits pending at September 30, 2003. Although LabOne cannot predict the outcome of such proceedings or any other claims made against it, management believes that the ultimate resolution of these claims will not have a material adverse impact on the Company's financial position, results of operations and its cash flows.

SELECTED FINANCIAL DATA

LabOne provides certified and accredited laboratory testing, investigative services and paramedical examinations for the insurance industry; laboratory testing services for the healthcare industry; and substance abuse testing services for employers.

LabOne's risk assessment division provides underwriting and claims support services to the insurance industry including: teleunderwriting, specimen collection, paramedical examinations, laboratory testing, telephone inspections, motor vehicle reports, claims investigation services and medical records retrieval. The laboratory tests performed by the Company are specifically designed to assist an insurance company in objectively evaluating the mortality and morbidity risks posed by policy applicants. The majority of the testing is performed on specimens of individual life insurance policy applicants, but also includes specimens of individuals applying for individual and group medical and disability policies.

LabOne's clinical division includes laboratory testing services for the healthcare industry as an aid in the diagnosis and treatment of patients. LabOne operates a highly automated and centralized laboratory and other laboratories, which the Company believes have significant economic advantages over other laboratory competitors. LabOne markets its healthcare testing services to managed care companies, insurance companies, self-insured groups, hospitals and physicians.

LabOne's clinical division also includes substance abuse testing services provided to employers and third party administrators. LabOne is certified by the Substance Abuse and Mental Health Services Administration to perform substance abuse testing services for federally regulated employers and currently markets these services throughout the country to both regulated and nonregulated employers. The Company's rapid turnaround times and multiple testing options help clients reduce downtime for affected employees and meet federally mandated drug screening guidelines.

THIRD QUARTER ANALYSIS

Net sales increased 18% in the third quarter 2003 to $88.1 million from $74.6 million in the third quarter 2002. The increase of $13.5 million was due to increases in healthcare laboratory revenue of $7.4 million and risk assessment services revenue of $6.1 million. Total revenue from clinical and risk assessment laboratory services was $51.2 million as compared to $44.9 million in the third quarter 2002.

During the third quarter, healthcare revenue increased 48% to $22.8 million as compared to $15.4 million in the prior year. Total patients tested increased 37% due to growth in LabOne's customer base and the addition of CPL, acquired in December 2002. Average revenue per patient increased 9% as compared to the third quarter 2002. Healthcare revenue attributable to the acquisition of CPL was $3.1 million for the quarter. SAT revenue increased $24,000 in 2003 to $7.3 million.

The risk assessment services division revenue increased $6.1 million to $58.0 million primarily due to growth of paramedical (ExamOne) revenue and medical records retrieval revenue. Revenue from ExamOne grew $3.4 million or 19% to $21.8 million for the quarter. Medical records retrieval revenue increased $3.0 million due to the acquisition of ScanTech effective August 2003 and due to organic growth. The total number of insurance applicants tested in the third quarter 2003 decreased 8% compared to the same quarter last year due to a lower number of life insurance policies written and competitive pressures. Average revenue per insurance applicant increased 2% due to an increase in reflex testing.

Cost of sales increased $8.3 million or 16% in the third quarter 2003 as compared to the prior year, due primarily to increases in outside services (including medical records retrieval fees and paramedical collections), payroll and lab supplies. Medical records retrieval fees increased due to the addition of ScanTech and organic growth in medical records retrieval services. Paramedical services increased primarily due to continued growth of the ExamOne paramedical operations. Payroll increased due to the addition of ScanTech and CPL, increased specimen volume in the healthcare laboratory testing segment, and growth of teleunderwriting and medical records retrieval services. Risk assessment cost of sales, including all of the above mentioned factors, increased to $41.9 million in 2003 from $37.6 million in the third quarter 2002. Healthcare cost of sales were $13.2 million as compared to $8.8 million in the third quarter 2002. SAT cost of sales expenses decreased to $5.1 million as compared to $5.4 million in the third quarter 2002 primarily due to savings on testing reagents, inbound freight and payroll expense.

As a result of the above factors, gross profit for the quarter increased 23% or $5.2 million from $22.7 million in 2002 to $28.0 million in 2003. Risk assessment gross profit increased 12% or $1.8 million on an increase in revenue of $5.9 million. Healthcare gross profit increased 47% or $3.1 million on an increase in revenue of $7.4 million. SAT gross profit increased 21% or $0.4 million.

Selling, general and administrative expenses increased $3.2 million or 21% in the third quarter 2003 as compared to the prior year. This increase is primarily due to increases in payroll expenses, consulting expense, bad debt accruals and insurance expense. Risk assessment overhead expenditures increased to $4.5 million in 2003 from $4.2 million in the third quarter 2002. Healthcare overhead expenditures increased to $4.7 million as compared to $3.7 million in 2002 due primarily to an increase in payroll and bad debt expense. SAT overhead expenditures remained steady at $0.8 million for the quarter.

Operating earnings increased from $7.3 million in the third quarter 2002 to $9.3 million in 2003. The risk assessment segment operating earnings were $11.6 million in 2003 as compared to $10.1 million in the third quarter 2002. The healthcare segment operating earnings were $5.0 million in 2003 as compared to $2.9 million in 2002. The SAT segment operating earnings were $1.4 million in the third quarter 2003 as compared to $1.1 million in 2002. General corporate operating expenses increased to $8.7 million from $6.8 million in the third quarter 2002 primarily due to higher payroll, consulting and insurance expenses.

Non operating expense decreased $0.2 million primarily due to lower interest expense. The effective income tax rate was 37% in the third quarter 2003 as compared to 40% in 2002. The federal, state and Canadian income tax rates produce a statutory tax rate of approximately 39% of pre-tax income. The Company, pursuant to certain state income tax credits available to it, is able to reduce its effective rate upon usage of these credits. Upon exercise of certain employee non-qualified stock options during 2002, the usage of the state income tax credits became unavailable due to the reduction in state taxable income thereby increasing the reported effective tax rate.

The combined effect of the above factors resulted in net earnings of $5.4 million in the third quarter 2003 as compared to $3.7 million in 2002. Convertible preferred dividends in the third quarter 2003 were $0.8 million and earnings available to common shareholders were $4.6 million (See "Financial Position, Liquidity and Capital Resources").

Basic earnings per share in the third quarter 2003 were $0.39, and fully diluted earnings per share were $0.32. Basic earnings per share in the third quarter 2002 were $0.26, and fully diluted earnings per share were $0.23. The basic weighted average number of shares outstanding in the third quarter of 2003 and 2002 were 11,908,231 and 11,623,275, respectively. The fully diluted weighted average number of shares outstanding in 2003 and 2002 were 16,974,911 and 16,467,374, respectively.

YEAR TO DATE ANALYSIS

Net sales increased 15% in the nine month period ended September 30, 2003, to $254.0 million from $220.3 million in the same period last year. The increase of $33.8 million was due to increases in healthcare laboratory revenue of $20.6 million and risk assessment services revenue of $13.7 million, partially offset by a decrease in SAT revenue of $0.5 million. Total revenue in the first nine months of 2003 from clinical and risk assessment laboratory services was $151.2 million as compared to $135.5 million in 2002.

Healthcare revenue increased 47% in the first nine months of 2003 to $64.7 million as compared to $44.1 million in the prior year. Total patients tested increased 38% due to growth in LabOne's customer base and the addition of CPL. Average revenue per patient increased 7%. Healthcare revenue from the acquisition of CPL was $9.0 million for the first nine months of 2003. SAT revenue decreased 2% to $20.2 million in 2003 from $20.7 million in 2002 due to a 3% decrease in testing volumes, partially offset by a 1% increase in average revenue per specimen.

The risk assessment services division revenue increased $13.7 million to $169.1 million primarily due to growth in ExamOne revenue, teleunderwriting revenue and medical records retrieval revenue. ExamOne revenue increased $8.1 million, medical records retrieval revenue increased $5.1 million and teleunderwriting revenue increased $4.1 million in the nine month period. These increases were partially offset by a 6% decrease in insurance laboratory testing revenue. The total number of insurance applicants tested in the first nine months decreased 9% compared to last year due to a lower number of life insurance policies written and competitive pressures. Average revenue per insurance applicant increased 2%.

Cost of sales increased $20.5 million or 13% in the nine month period as compared to the prior year. This increase was primarily due to growth in the clinical laboratory division and the acquisition of CPL. Additionally, the insurance division experienced increases in medical records retrieval fees, paramedical collections and information services fees, partially offset by lower supply expenses. Medical records retrieval fees increased due to growth in medical records retrieval revenue and the acquisition of ScanTech. Paramedical services increased primarily due to continued growth of the ExamOne paramedical operations. Risk assessment cost of sales, including the above mentioned factors, increased to $120.8 million in 2003 from $112.9 million in 2002. Healthcare cost of sales in the nine month period were $38.1 million as compared to $24.4 million in 2002. SAT cost of sales expenses decreased to $14.4 million as compared to $15.5 million in 2002.

As a result of the above factors, year to date gross profit increased 20% or $13.2 million from $67.4 million in 2002 to $80.7 million in 2003. Risk assessment gross profit increased 13% or $5.7 million on an increase in revenue of $13.5 million. Healthcare gross profit increased 35% or $6.9 million on an increase in revenue of $20.6 million. SAT gross profit increased 12% or $0.6 million on a decrease in revenue of $0.5 million.

Selling, general and administrative expenses increased $7.4 million or 16% in the first nine months of 2003 as compared to the prior year. The increase is primarily due to increases in payroll expenses, bad debt accruals, consulting expense and insurance expense. Risk assessment overhead expenditures increased to $13.5 million in 2003 from $13.0 million in 2002 primarily due to a software write-off included as depreciation expense, and consulting expense, partially offset by lower commission accruals. Healthcare overhead expenditures were $14.3 million as compared to $11.3 million in 2002 due to the addition of CPL and an increase in bad debt expense. SAT overhead expenditures decreased to $2.4 million as compared to $2.6 million in 2002 primarily due to lower bad debt accruals and payroll expense.

Operating income increased from $19.9 million in the first nine months of 2002 to $25.7 million in 2003. The risk assessment segment operating income was $34.7 million in 2003 as compared to $29.5 million in 2002. The healthcare segment operating income was $12.4 million in 2003 as compared to $8.5 million in 2002. The SAT segment operating income year to date was $3.4 million in 2003 as compared to $2.7 million in 2002. Administrative operating expenses increased to $24.8 million from $20.8 million in 2002 primarily due to higher payroll, insurance expenses and consulting fees.

Non operating expense decreased $0.8 million primarily due to decreased interest expense. The effective income tax rate was 37% in the first nine months of 2003 as compared to 39% in 2002.

The combined effect of the above factors resulted in net income of $15.0 million in 2003 as compared to net income of $10.5 million in 2002. In the first nine months of 2003, preferred dividends were $2.3 million and earnings available to common shareholders were $12.6 million.

Basic earnings per share year to date 2003 were $1.07 and fully diluted earnings per share were $0.89. Basic earnings per share were $0.73 and diluted earnings per share were $0.65 in 2002. The basic weighted average number of shares outstanding in the first nine months of 2003 and 2002 were 11,757,079 and 11,390,203, respectively. The fully diluted weighted average number of shares outstanding in 2003 and 2002 were 16,796,264 and 16,173,311, respectively.

LabOne's working capital position increased by $6.8 million to $47.2 million at September 30, 2003, from $40.4 million at December 31, 2002. During the first nine months of 2003, net cash provided by operations was $19.2 million as compared to $13.3 million in 2002. The increase is due to higher net income, partially offset by changes in current asset and liability accounts.

During the first nine months of 2003, net additions to property, plant and equipment were $5.9 million primarily due to software and information systems development. Cash used for acquisitions of businesses was $7.2 million, which was principally recorded as intangibles and operating assets. Net additions to property, plant and equipment in the first nine months of 2002 were $6.3 million and cash used for acquisitions of paramedical businesses was $4.4 million.

On August 1, 2003, the Company acquired ScanTech Solutions, L.L.C., from Protective Life Corporation for $6.0 million and entered into long-term agreements to provide certain Protective Life affiliates with teleunderwriting, paramedical examination, laboratory testing and medical document retrieval services. This transaction was funded with cash from operations.

The Company reduced its line of credit borrowings in the nine month period by $5.0 million to $47 million from $52 million at December 31, 2002. Under the Company's line of credit, which expires in 2005, the total funds available are up to $100 million. The interest expense on the line of credit is based on the LIBOR rate plus a range of 125 to 225 basis points and, including bank fees, is currently approximately 2.9%. The Company pays a commitment fee on the unused portion of 0.5% annually. Interest on the industrial revenue bonds issued to finance the construction of the Company's facility is based on a taxable seven-day variable rate which, including letter of credit and remarketing fees, is approximately 2.1% as of October 31, 2003.

At September 30, 2003, LabOne had total cash and cash equivalents of $9.7 million as compared to $8.1 million at December 31, 2002. The Company expects to fund operations from a combination of cash flows from operations and borrowings under the Company's revolving credit agreement.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires the use of estimates and assumptions and 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.

Revenue Recognition

While many operational aspects are subject to complex federal, state and local regulations, the accounting for LabOne's business is generally straightforward. The Company recognizes revenues for its services when those services are provided to the client. Revenues related to clinical healthcare billings include adjustments for revenue disallowances estimated at the time the revenue is booked.

Reserve for Doubtful Accounts

The estimate of reserves for doubtful accounts involves a standardized monthly approach to review the collectibility of receivables based on contractual agreements and the aging of accounts receivable. Contractual agreements, historical collection patterns and payor reimbursement experience are integral in the estimation of reserves for doubtful accounts. In addition, the current state of billing functions is assessed in order to identify any known collection or reimbursement issues in order to assess the impact, if any, on reserve estimates, which involve judgment. Adjustments to the reserve for contractual agreements are reported as a reduction in revenues. Other adjustments to the reserve are recorded as an adjustment to bad debt expense within selling, general and administrative expenses. The collection and reserves processes, along with the monitoring of billing processes, helps to reduce the risk associated with material revisions to reserve estimates resulting from adverse changes in collection and reimbursement experience and billing functions. Based on the amounts reserved for uncollectible accounts in 2002, a 10% increase or decrease in current year reserve for uncollectible accounts would have had an impact of approximately $0.5 million.

Software Developed for Internal Use

Certain internal and external costs incurred in connection with developing or obtaining software for internal use are capitalized in accordance with the American Institute of Certified Public Accountants' Statement of Position 98-1, Accounting for the Costs of Computer Software Developed or Obtained for Internal Use. These capitalized costs are included in property and equipment on the consolidated balance sheets and are subject to amortization, over the estimated useful life of the software, beginning when the software project is complete. The Company periodically reviews the lives and values of its capitalized software and makes adjustments if necessary.

Goodwill and Intangible Assets

The Company allocates the purchase price of acquired businesses in accordance with SFAS No. 141, Business Combinations. A portion of the purchase price is assigned to each individual asset acquired on the basis of its fair value. Intangible assets are recognized as assets apart from goodwill if they arise from contractual or other legal rights. If intangible assets do not arise from contractual or other legal rights, they are recognized as assets apart from goodwill only if they are capable of being separated from the acquired entity and sold, transferred, licensed, rented, or exchanged. Intangible assets recognized apart from goodwill have a determinable life and are amortized accordingly. The excess of the purchase price over the sum of the amounts assigned to the tangible assets and any separately recognized intangible assets acquired less liabilities assumed is recognized as goodwill.

The Company evaluates the recoverability and measures the potential impairment of goodwill under SFAS 142. Management of and internal reporting for the Company's principal business segments are differentiated as these segments perform distinct business activities. Management believes these business segments represent appropriate reporting units for the evaluation of impairment.

The impairment test is a two-step process that begins with the estimation of the fair value of the reporting units to determine if any impairment exists. The second step measures the amount of the impairment, if any. The estimate of fair value considers publicly available information regarding the market capitalization of the Company, as well as the financial projections and future prospects of business, including growth opportunities and likely operational improvements, and comparable sales prices, if available. To assess potential impairment, the estimate of fair value for the Company is compared to the book value of the consolidated net assets. If the book value of the consolidated net assets is greater than the estimate of fair value, the Company then proceeds 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's goodwill is greater than its implied fair value, an impairment loss will be recognized in the amount of the excess. The Company believes its estimation methods are reasonable and reflective of common valuation practices.

An interest rate risk exposure exists due to LabOne's variable interest rates associated with its liability of $47.0 million borrowing on its line of credit and $10.8 million in industrial revenue bonds. The interest expense on the line of credit is based on the LIBOR rate plus a range of 125 to 225 basis points and is approximately 2.9% at October 31, 2003. The interest expense incurred on the bonds is based on a taxable seven-day variable rate which, including letter of credit and remarketing fees, is approximately 2.1% as of October 31, 2003. Any future increase in interest rates would result in additional interest expense which could be material. An assumed 10% increase in interest rates (representing approximately 30 basis points) would potentially increase interest expense on these instruments by $0.2 million annually.

The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Company's reports filed pursuant to the Securities Exchange Act of 1934, as amended (the "Exchange Act"), is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms. Disclosure controls and procedures also are designed to ensure that such information is accumulated and communicated to the Company's management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system's objectives will be met.

Management of the Company, including the Chief Executive Officer and Chief Financial Officer, conducted an evaluation as of the end of the period covered by this report, of the effectiveness of the Company's disclosure controls and procedures. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective as of the end of the period covered by this report. Management of the Company, including the Chief Executive Officer and Chief Financial Officer, also conducted an evaluation of the Company's internal control over financial reporting to determine whether any changes occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting. Based on that evaluation, there has been no such change during the quarter covered by this report.

(a) Exhibits

(b) Reports on Form 8-K

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.