See accompanying notes to consolidated financial statements and management's
discussion and analysis of financial condition and results of operations.

See accompanying notes to consolidated financial statements and management's
discussion and analysis of financial condition and results of operations.

See accompanying notes to consolidated financial statements and management's
discussion and analysis of financial condition and results of operations.

See accompanying notes to consolidated financial statements and management's
discussion and analysis of financial condition and results of operations.

The accompanying consolidated financial statements include the accounts of LabOne, Inc. and its wholly- owned subsidiaries Lab One Canada Inc., Systematic Business Services, Inc. (SBSI) and ExamOne World Wide, Inc. (ExamOne). All significant intercompany transactions have been eliminated in consolidation.

The financial information furnished herein as of June 30, 2001 and for the periods ended June 30, 2001 and 2000 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, 2000 has been derived from the audited financial statements as of that date. The financial statements have been prepared in conformity with generally accepted accounting principles 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, 2000.

This Quarterly report on Form 10-Q may contain "forward-looking statements," including, but not limited to: projections of revenues, income or loss, capital expenditures, statements of plans and objectives, statements of future economic performance and statements of assumptions underlying such statements. Forward-looking statements can often be identified by the use of forward-looking terminology, such as "believes," "expects," "may," "will," "should," "could," "intends," "plans," "estimates" or "anticipates," or variations thereof or similar expressions. They involve risks, uncertainties and assumptions. The Company's future results of operations, financial condition and business operations may differ materially from those expressed in these forward-looking statements. 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 and pricing of laboratory tests performed by the Company, the extent of market acceptance of the Company's services in the healthcare and substance abuse testing industries, intense competition, labor costs, bad debts, the loss of one or more significant customers, changes in government regulations and attitude toward regulation of the Company's services, 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, including the Cautionary Statement filed as Exhibit 99 to the Company's Annual Report on Form 10-K for the year ended December 31, 2000. Investors are cautioned not to put undue reliance on any forward-looking statement.

The company operates three divisions: risk assessment services, healthcare and substance abuse testing (SAT). The following table presents selected financial information for each segment:

The risk assessment services segment operating income for 2001 includes intersegment charges of $1.0 million for the quarter from the healthcare segment primarily for hepatitis and other miscellaneous medical testing and $0.3 million from the SAT segment for drug screening and confirmations. Indirect expenses are allocated to the operational segments based on the relative revenue of each segment on a monthly basis. General corporate expense represents unallocated expenses, principally the amortization of goodwill resulting from mergers and acquisitions. There were no material changes in assets or in the basis of segmentation or measurement of segment operating income or loss.

In the normal course of business, LabOne had certain lawsuits pending at June 30, 2001. During 2000 and 2001, LabOne became a co-defendant in several cases challenging toxicology results, including the processes and science underlying the determination of substituted or adulterated specimens submitted for toxicology testing. In July 2001, the Company announced that a jury awarded $400,000 in compensatory damages to a flight attendant based upon the drug testing results reported by LabOne. The Company believes that it has properly applied regulatory guidelines required for such testing and is considering all options in response to the verdict, including an appeal. The Company is insured for the loss and has reserved for any potential insurance deductibles related to these cases. Management believes that the resolution of these claims will have no material adverse impact on the Company's results of operations.

The Comptroller of the State of Texas conducted an audit of LabOne for sales and use tax compliance for the years 1991 through 1997 and contended that LabOne's insurance laboratory services are taxable under the Texas tax code. The original assessment of $1.9 million was reduced to only include sales of services for applicants who were residents of Texas. LabOne paid the revised assessment of $521,000 under protest in 2000 and is petitioning the Court for recovery of these amounts, including an additional $47,000 filed and paid in protest during 2001 for the period 1998 through August 1999.

SELECTED FINANCIAL DATA

LabOne provides high-quality 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 provides underwriting support services to the insurance industry. The laboratory tests performed by the Company are specifically designed to assist an insurance company in objectively evaluating the mortality and morbidity risks of policy applicants. The majority of the testing is performed on specimens of individual life insurance policy applicants. The Company also provides testing services on specimens of individuals applying for medical and disability policies. Through its subsidiaries, SBSI and ExamOne, the Company provides specimen collection, paramedical examinations, telephone inspections, motor vehicle reports, attending physician statements, and claims investigation services.

LabOne's laboratory testing services are provided to the healthcare industry as an aid in the diagnosis and treatment of patients. LabOne operates only one highly automated and centralized laboratory, which the Company believes has significant economic advantages over other conventional laboratory competitors. LabOne primarily markets its clinical testing services to the payers of healthcare costs (insurance companies and self-insured groups). The Company does this through exclusive arrangements with managed care organizations and through Lab Card®, a Laboratory Benefits Management program.

LabOne's substance abuse testing services are provided for employers who adhere to drug screening guidelines. LabOne is certified by the Substance Abuse and Mental Health Services Administration to perform substance abuse testing services for federally regulated employers and is currently marketing 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 mandated drug screening guidelines.

SECOND QUARTER ANALYSIS

Net sales increased 43% in the second quarter 2001 to $56.0 million from $39.2 million in the second quarter 2000. The increase of $16.8 million is due to increases in risk assessment services revenue of $11.3 million, healthcare laboratory revenue of $3.3 million and substance abuse testing (SAT) revenue of $2.2 million.

The risk assessment services division revenue increased $11.3 million to $36.7 million primarily due to growth of ExamOne revenue. The total number of insurance applicants tested in the second quarter 2001 increased by 9% as compared to the same quarter last year, and the average revenue per applicant increased 1%. Insurance information services revenue increased 39% primarily due to growth in SBSI services and tele-underwriting services.

During the second quarter, healthcare revenue increased 40% to $11.6 million as compared to $8.3 million in the prior year primarily due to increased testing volumes and a 12% increase in average revenue per patient. SAT revenue increased 41% to $7.7 million in 2001 from $5.5 million in 2000 due to an increase in testing volumes.

Cost of sales increased $13.8 million or 54% in the second quarter 2001 as compared to the prior year, due primarily to increases in outside services including paramed collections and physician statement fees, payroll, postage, and lab supplies expense. Paramedical services increased primarily due to continued growth of the ExamOne paramedical operations. Payroll, postage, and lab and kit supplies increased due to the additional specimen volume in the laboratory testing segments. Insurance cost of sales, including all of the above mentioned factors, increased from $16.2 million in the second quarter 2000 to $26.1 million in 2001. Healthcare cost of sales were $7.6 million as compared to $5.7 million in the second quarter 2000 due to the additional specimen volume. SAT cost of sales were $5.9 million as compared to $3.8 million in the second quarter 2000 due to the additional specimen volume.

As a result of the above factors, gross profit for the quarter increased $3.0 million or 23% from $13.4 million in 2000 to $16.4 million in 2001. Risk assessment services gross profit increased $1.3 million on an increase in revenue of $11.3 million. Healthcare gross profit increased $1.5 million on an increase in revenue of $3.3 million. SAT gross profit increased $0.2 million on an increase in revenue of $2.2 million.

Selling, general and administrative expenses increased $3.2 million (28%) in the second quarter 2001 as compared to the prior year due primarily to increases in payroll expenses, amortization expense and bad debt expense. Risk assessment services overhead expenditures, including allocations, increased to $7.4 million in 2001 from $6.2 million in the second quarter 2000 due to a larger overhead allocation and payroll base. Healthcare overhead expenditures, including allocated overhead, were $4.5 million as compared to $3.2 million in 2000 due primarily to an increase in payroll and bad debt expense. SAT overhead expenditures, including allocated overhead, increased to $2.2 million as compared to $1.5 million in 2000 primarily due to amortization expense related to the termination of an exclusive product distribution agreement.

Operating income decreased from $1.7 million in the second quarter 2000 to $1.5 million in 2001. The risk assessment services segment operating income on an allocated basis was $3.2 million in 2001 as compared to $3.0 million in the second quarter 2000. The healthcare segment improved from an operating loss of $0.7 million in 2000 to an operating loss of $0.5 million in 2001 on an allocated basis. The SAT segment declined to an operating loss of $0.4 million in the second quarter 2001 from a gain of $0.1 million in 2000 on an allocated basis. Unallocated operating expenses, primarily merger goodwill amortization, remained flat at $0.8 million in the second quarter 2001.

Non operating expense declined $0.1 million primarily due to lower interest expense and increased interest income. The effective income tax rate decreased from 67% in 2000 to 38% in 2001. The high tax rate in 2000 is due to nondeductible amortization expense. In 2001, the decrease in the effective income tax rate was due to a deferred tax adjustment in the second quarter.

The combined effect of the above factors resulted in net earnings of $0.6 million or $0.06 per share in the second quarter 2001 as compared to $0.4 million or $0.03 per share in 2000. The weighted average number of shares outstanding in the second quarter of 2001 and 2000 were 10,758,500 and 10,721,272, respectively.

YEAR-TO-DATE ANALYSIS

Revenue in the six month period ended June 30, 2001 was $106.1 million as compared to $79.7 million in the same period last year. The increase of $26.3 million or 33% is due to increases in risk assessment services revenue of $15.8 million, healthcare revenue of $6.6 million and SAT revenue of $3.9 million.

Risk assessment services revenue increased from $53.7 million to $69.4 million year to date primarily due to ExamOne revenue growth. The total number of laboratory tested insurance applicants in the six month period increased by 6% as compared to the last year while the average revenue per applicant declined slightly.

Healthcare laboratory revenue increased 42% from $15.8 million during the first six months of 2000 to $22.4 million for the same period in 2001 due to 35% higher testing volumes and higher average revenue per patient. SAT revenue increased 38% from $10.3 million in 2000 to $14.2 million in 2001 primarily due to a 43% increase in testing volumes, partially offset by lower revenue per specimen.

Cost of sales increased $22.2 million year to date as compared to the prior year. This increase is due primarily to increases in paramedical services, payroll expenses, lab supplies, inbound freight and insurance information services. Risk assessment services cost of sales increased to $48.7 million from $34.3 million in 2000. Healthcare cost of sales were $14.8 million as compared to $10.7 million during the first six months of 2000, and SAT cost of sales were $11.0 million compared to $7.4 million in 2000.

Gross profit for the first six months increased from $27.4 million in 2000 to $31.5 million in 2001. Risk assessment services gross profit increased $1.4 million. Healthcare gross profit increased $2.5 million, and SAT gross profit increased $0.2 million.

Selling, general and administrative expenses increased $4.1 million (17%) in the six month period ended June 30, 2001 as compared to the prior year primarily due to increases in payroll, amortization expense and depreciation expense. Risk assessment services overhead expenditures, including allocations, increased from $13.1 million to $14.6 million in 2001, primarily due to growth of ExamOne. Healthcare expenditures, including allocated overhead, were $8.7 million as compared to $6.4 million in 2000, and SAT expenses, including allocations, increased to $3.4 million in 2001 as compared to $3.1 million in 2000 due to amortization expense related to the termination of an exclusive product distribution agreement.

Operating income remained constant at $3.3 million in the first six months of 2000 and 2001. The risk assessment services segment, including allocations, had operating income of $6.1 million as compared to $6.2 million in the first six months last year. On an allocated basis, the healthcare segment had an operating loss of $1.1 million for the six month period ended June 30, 2001 as compared to an operating loss of $1.3 million in 2000. The SAT segment, including allocations, had an operating loss of $0.2 million in 2001 as compared to an operating loss of $0.1 million in 2000. Unallocated operating expenses for the corporate segment related to corporate and merger expenses were $1.5 million for the first six months in both years.

Net interest expense remained constant during the first six months of 2001 as compared to 2000 due to increased borrowings offset by lower interest rates. The effective income tax rate decreased from 65% in 2000 to 55% in 2001 primarily due to a deferred tax adjustment offsetting part of the nondeductible amortization expense.

The combined effect of the above factors resulted in net earnings of $1.0 million or $0.09 per share in the six month period ended June 30, 2001 as compared to $0.8 million or $0.07 per share in the same period last year. The weighted average number of shares outstanding in the first six months of 2001 and 2000 were 10,742,204 and 11,022,643, respectively.

Net additions to property, plant and equipment in the first six months of 2001 were $4.0 million primarily due to software and information systems development. Additions in 2000 were $4.8 million, primarily related to investment in information systems infrastructure.

Net long-term debt increased $1.0 million during the six month period, with borrowings on the line of credit increasing to $24 million. The total line of credit available is $28 million, which includes a $3 million bridge that expires September 30, 2001. The current interest rate, plus financing fees, on the line of credit is approximately 4.5% and is based on a 30 day LIBOR rate. The Company is currently negotiating additional debt facilities.

Interest on the Company's industrial revenue bond is based on a taxable seven-day variable rate and is currently approximately 4.6%. The Company expects to repay the bond over the remaining nine years at approximately $1.85 million per year plus interest. The next principal payment on the bonds is due September 1, 2001 for $1.85 million.

During the second quarter 2001, the Company did not repurchase any shares of common stock. The total number of shares of LabOne stock held in treasury at June 30, 2001 was approximately 2.3 million at a total cost of $34.4 million or $15.13 per share.

At June 30, 2001, LabOne had total cash and investments of $3.1 million as compared to $1.6 million at December 31, 2000. The Company expects to fund operations from a combination of cash flows from operations and short-term borrowings.

PART II. OTHER INFORMATION

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

(a) The annual stockholders' meeting was held on May 24, 2001.

(c) Brief description of each matter voted:

Item 6. - Exhibits and Reports on Form 8-K

(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.