This Annual report on Form 10-K may contain "forward-looking statements," including, but not limited to: projections of revenues, income or loss, margins, capital expenditures, cost savings and synergies, the payment or non-payment of dividends and other financial items, statements of plans and objectives, statements of future economic performance and statements of assumptions underlying such statements, and statements of the Company's or management's intentions, hopes, beliefs, expectations or predictions of the future. Forward-looking statements can often 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 this Form 10-K.

ITEM 1. BUSINESS

LabOne, Inc., a Missouri corporation, provides risk assessment services for the insurance industry, laboratory testing services for the healthcare industry and substance abuse testing services for employers and third party administrators. 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") and Central Plains Laboratories, L.L.C. ("CPL"), are hereinafter collectively referred to as either LabOne or the Company. The Company's website can be found on the internet at www.LabOne.com. The Company's annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports are available free through the Company's website as soon as reasonably practicable after such reports and amendments are filed with the SEC, generally on the same day. These documents may also be found at the SEC's website at www.sec.gov.

LabOne's risk assessment services comprise underwriting and claims support services including teleunderwriting, specimen collection and paramedical examinations, laboratory testing, telephone inspections, motor vehicle reports, claims investigation services and medical information retrieval to the insurance industry. The laboratory tests performed and data gathered 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 services include 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, which the Company believes has significant economic advantages over other laboratory competitors. LabOne markets its clinical testing services to managed care companies, insurance companies, self-insured groups and physicians.

LabOne's clinical services also include substance abuse testing ("SAT") services provided to 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 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 mandated drug screening guidelines.

Effective August 31, 2001, LabOne purchased all of the outstanding capital stock of Osborn Group, Inc., ("Osborn") a leading provider of laboratory testing and other risk assessment services to the life insurance industry. Intellisys, Inc., Applied BioConcepts Inc. and Osborn Laboratories (Canada) Inc., wholly-owned subsidiaries of Osborn Group, were included in the purchase. As a result of the transaction, LabOne was able to consolidate Osborn's testing and other operations to LabOne's Lenexa, Kansas facility. To fund the acquisition and related expenses of the transaction, Welsh, Carson, Anderson & Stowe, IX, L.P. and related purchasers ("WCAS") invested a total of $50 million in convertible preferred stock and subordinated debt in LabOne pursuant to a Securities Purchase Agreement dated August 31, 2001. See "Liquidity and Capital Resources" for further discussion of the issued securities.

The following table summarizes the Company's revenues and volumes from services provided to the risk assessment and clinical market segments (in thousands):

(See Note 7 of Notes to Consolidated Financial Statements for operating
earnings and identifiable assets by segment.)

Risk Assessment Services:

Life insurance companies require an objective means of evaluating the insurance risk posed by policy applicants in order to establish the appropriate level of premium payments, or to determine whether to issue a policy. Because decisions of this type are based on statistical probabilities of mortality and morbidity, insurance companies generally require quantitative data reflecting the applicant's general health. LabOne utilizes standardized specimen collection, medical questionnaires and laboratory testing, tailored to the needs of the insurance industry and reported in a uniform format. This information provides insurance companies with a consistent and efficient means of evaluating the mortality and morbidity risks posed by policy applicants.

The Company's involvement in the life underwriting process often begins when LabOne personnel conduct telephone interviews tailored to obtain the medical history for a new life insurance policy applicant. This teleunderwriting process includes a series of medical questions, which may reflex to additional questions based on an applicant's response.

Following the completion of an individual's application for life insurance, a paramedical company is contacted to arrange for collection of a blood and/or urine specimen. ExamOne's paramedical contractors perform paramedical examinations and collect specimens from individual insurance applicants using custom-designed collection kits and containers. Insurance agents also collect oral fluid or urine specimens using LabOne's kits. These kits and containers are delivered to LabOne's laboratory via overnight delivery services or mail, bar coded for identification and tested according to each insurance company's specifications.

LabOne's insurance laboratory testing services consist of certain specimen profiles that provide insurance companies with specific information that may indicate liver or kidney disorders, diabetes, the risk of cardiovascular disease, bacterial or viral infections and other health risks. The Company also offers tests to detect the presence of antibodies to human immunodeficiency virus ("HIV"). Standardized laboratory testing can verify responses on a policy application to such questions as whether the applicant is a user of tobacco products, certain controlled substances or certain prescription drugs. Cocaine use has been associated with increased risk of accidental death and cardiovascular disorders, and as a result of cocaine use in the United States and Canada, insurance companies test most policy applicants to detect its presence. Therapeutic drug testing also detects the presence of certain prescription drugs used by an applicant to treat a life-threatening medical condition that may not be revealed by a physical examination.

LabOne assists with the administration and tracking of data for applicants during the information gathering process. The Company can obtain medical records or attending physician statements so underwriters can review the complete medical history of applicants. Additional applicant information in the form of inspection reports can be gathered quickly and cost-effectively either by telephone or in the field. Motor vehicle reports are ordered automatically based on insurance company specifications or on demand by the underwriter. The Company can collect, process and provide imaged reports of these various pieces of information electronically through LabOne NET® directly to the insurance company's underwriting department.

CaseView, LabOne's proprietary requirements management software, allows underwriters to order laboratory testing and other services, check the status of those requests, review results electronically, request add-on tests or services based on the results and to manage the underwriting services they order through LabOne and its subsidiaries. Through its subsidiary, Intellisys, the Company also offers CaseOne, a service that provides a single source solution for underwriting requirements management for insurance clients.

Clinical Services:

Clinical healthcare laboratory tests are generally requested by physicians to diagnose and monitor diseases and other medical conditions through the detection of substances in blood and other specimens. Laboratory testing is generally categorized as either clinical testing, which is performed on bodily fluids including blood and urine, or anatomic pathology testing, which is performed on tissue specimens. Clinical and anatomic pathology tests are frequently performed for physician offices and hospitals in connection with the diagnosis and treatment of illnesses. The most frequently requested tests include blood chemistry analyses, urinalyses, blood cell counts, Pap smears and AIDS-related tests. Tests not performed at LabOne are sent out for testing, and the results of these outsourced tests are transmitted into the Company's computer system for reporting along with the results of testing completed by LabOne.

The Company developed and provides the Lab Card® program as a method of marketing outpatient laboratory services directly to payors such as self-insured groups and insurance companies. It uses a unique benefit design that shares the cost savings with the patient and the payor by creating an incentive for the patient to direct laboratory work to LabOne. The patient generally incurs no out-of-pocket expense when the Lab Card is used, and the insurance company or self-insured group receives substantial savings on its laboratory charges.

Additionally, LabOne has several exclusive arrangements with managed care organizations, including Coventry Healthcare of Kansas City, BlueCross BlueShield of Tennessee, BlueCross BlueShield of Kansas City and Universal Care of Tennessee. With these arrangements, the managed care organizations may direct testing for their members through LabOne. In conjunction with these agreements, LabOne provides utilization and disease management reporting to the managed care organizations.

Substance abuse testing is marketed to large employers, third party administrators and occupational health providers. Certification by the Substance Abuse and Mental Health Services Administration enables the Company to offer substance abuse testing services to federally regulated industries.

Specimens for substance abuse testing, both urine and oral fluid, are typically collected by independent agencies or employers that use LabOne's forms and collection supplies. Specimens are sealed with bar coded, tamper-evident seals and shipped overnight to the Company. Automated systems monitor the specimens throughout the screening and confirmation process. Negative results are typically reported within 12 hours of accessioning in the laboratory. Initial positive specimens are verified by the gas chromatography/mass spectrometry method, and confirmed positive results are generally reported within 72 hours of accessioning in the laboratory. Results can be transmitted electronically to the client's secured computer, printer or fax machine, or the client can use LabOne's LabLink software or secure web site to retrieve, store, search and print their drug testing results.

LabOne's principal operation is located in Lenexa, Kansas, where it operates a highly automated and centralized laboratory. The Company intends to consolidate routine and esoteric clinical laboratory testing in this facility while maintaining anatomic pathology and rapid response capabilities, as well as customer service on a regional basis.

The Company's operations are designed to facilitate the testing of a large number of specimens and to report the results to clients, generally within 24 hours of receipt of the specimens. The Company has internally developed, custom-designed laboratory and business processing systems. This centralized network system provides an automated link between LabOne's testing equipment, data processing equipment and clients' computer systems thus providing clients with the ability to customize their initial testing and follow-up testing requirements by several parameters to best meet their needs.

As a result of the significant number of tests it has performed over the past several years, LabOne has compiled and maintains a large statistical database of test results. These summary statistics are useful to the actuarial and underwriting departments of an insurance client in comparing that client's test results to the results obtained by the Company's entire client base. Company-specific and industry-wide reports are frequently distributed to clients on subjects such as coronary risk analysis, cholesterol and drugs of abuse. Additionally, the Company's statistical engineering department is capable of creating customized reports to assist managed care entities for HEDIS reporting, disease management and utilization tracking to help manage healthcare costs.

The Company considers the confidentiality of its test results and other personal data processed to be of primary importance, and has established procedures to ensure that this information remains secure and confidential.

Substantially all of the reagents and materials used by the Company in conducting its testing are commercially purchased or internally developed and most are available from multiple sources.

LabOne's business is subject to significant federal and state regulation. Changes in regulation may significantly increase the costs of doing business.

LabOne is licensed under the Clinical Laboratory Improvement Amendments of 1988 and maintains additional licenses for clinical and risk assessment testing with all states where such licenses are required. LabOne is certified by the Substance Abuse and Mental Health Services Administration to perform testing to detect drugs of abuse in federal employees and in workers governed by federal regulations. The Company is subject to federal and state regulation relating to the handling and disposal of medical waste and hazardous waste and federal regulation by the Food and Drug Administration, the Occupational Safety and Health Administration related to workplace safety and several agencies related to the transportation of laboratory specimens.

Congress has enacted the Health Insurance Portability and Accountability Act of 1996 ("HIPAA"). Pursuant to HIPAA, LabOne will be required to maintain administrative, technical, and physical safeguards to protect the security and confidentiality of Protected Health Information against unauthorized use or disclosure. LabOne's security and privacy officers lead efforts to meet the upcoming requirements; the most significant of which is the April 2003 compliance date for the privacy regulations. Compliance with the HIPAA requirements has already, and will continue to, require significant resources.

LabOne's Regulatory Affairs department oversees quality programs to ensure that accurate and reliable test results are released to clients. This is accomplished by incorporating both internal and external quality improvement programs in each area of the laboratory. In addition, quality improvement specialists share the responsibility with all LabOne employees of an ongoing commitment to quality and safety in all laboratory operations. Internal quality and educational programs are designed to identify opportunities for improvement in laboratory services and to meet all required safety, training and education issues. These programs help ensure the reliability and confidentiality of test results.

Procedure manuals in all areas of the laboratory are developed and written to help maintain uniformity and accuracy and follow regulatory guidelines. Tests on control samples with known results are performed frequently to maintain and verify accuracy in the testing process. Complete documentation provides record keeping for employee reference and meets regulatory requirements. All employees are thoroughly trained to meet standards mandated by OSHA in order to maintain a safe work environment. The Superblind® Program is used to challenge every aspect of service at LabOne from account setup and specimen arrival to testing, reporting and through final billing. Approximately 500 sample kits are prepared and submitted anonymously each month. These samples have at least 15 different indicators each representing over 7,500 challenges to the testing, handling and reporting procedures.

LabOne participates in proficiency testing programs with the College of American Pathologists, the American Association of Bioanalysts and the states of New York, Florida, Pennsylvania and Wisconsin.

LabOne has appointed a Chief Compliance Officer and 14 co-compliance officers representing corporate security, operations, legal, human resources, regulatory affairs, billing, sales, finance, administration, and information systems and technology functions within LabOne. Additionally, the Company has developed the LabOne Compliance Plan, based on the Model Compliance Plan recommended by the Office of Inspector General of the Department of Health and Human Services, to ensure compliance with federally-funded programs where LabOne seeks reimbursement for laboratory testing services.

LabOne's client base consists of insurance companies, managed care organizations, third-party administrators ("TPAs"), physician practices, hospitals and employers primarily in North America. The Company believes that its ability to provide prompt and accurate results on a cost-effective basis, and its responsiveness to customer needs have been important factors in servicing existing business.

All of the Company's sales representatives for the risk assessment market have significant business experience in the insurance and paramedical industry or clinical laboratory-related fields. These representatives call on major clients several times each year, usually meeting with a medical director or vice president of underwriting. An important part of the Company's marketing effort is directed toward providing its existing clients and prospects with information pertaining to the benefits of, and trends in, laboratory testing, applicant interviews and other medical information gathering. The Company's sales representatives and its senior management also attend and sponsor insurance industry underwriters' and medical directors' meetings.

The Company's sales representatives for clinical healthcare services are experienced in clinical laboratory-related fields, and each currently works in a specific geographic area. Marketing efforts are directed at insurance carriers, self-insured employers and trusts, third party benefit administrators, physician practices, hospitals and other organizations nationwide.

Marketing for substance abuse testing is primarily directed at Fortune 1000 companies, occupational health clinics and TPAs. The Company's strategy is to offer consistent, quality services, nationwide, at competitive prices. The Company's marketing focuses on LabOne's ability to offer multiple reporting methods, next-flight-out options, dedicated client service representatives and rapid reporting of results.

The Company believes that the risk assessment services market in the United States and Canada is a $1 billion industry. The Company serves approximately 20% of this market. The primary competition in the market includes Hooper Holmes, Inc. and Examination Management Services, Inc. In this market, LabOne has developed long-term client relationships and a reputation for providing quality services at competitive prices tailored specifically to the insurance industry's needs. The risk assessment market continues to be highly competitive with the primary focus on the ability to provide rapid, comprehensive and high quality information services. The Company continues to develop innovative data management services and technological solutions that differentiate its products from competitors. These services and solutions enable LabOne's clients to expedite the underwriting and claims processes, saving time and reducing underwriting costs.

During 2000, LabOne was selected by State Farm Insurance Companies ("State Farm") to be its national account manager for the collection and testing of specimens from its life and health insurance applicants. In July of 2001, the Company completed the implementation of this unique national account management program in all 50 states and Canada. Additionally, the Company provides teleunderwriting services for State Farm life insurance applicants. The Company believes the success of this account management program can serve as a validated model for other such programs managed by the Company in the future, and provides a competitive advantage. Due to this arrangement, total revenue recognized by LabOne from State Farm for the years ended December 31, 2002 and 2001 represented 12% and 13%, respectively of total revenue. The loss of the State Farm account would have a material adverse effect on the Company's revenues and operating income.

The laboratory testing segment of the clinical market is a $35 billion industry, which is highly fragmented and very competitive. The Company faces competition from numerous independent clinical laboratories and hospital-owned or physician-owned laboratories. Certain of the Company's competitors are significantly larger and have substantially greater financial resources than LabOne. The Company has established a solid client base through the use of Lab Card® and exclusive arrangements with managed care entities to provide laboratory services and information reporting.

LabOne competes in the employment substance abuse testing segment nationwide, presently estimated to be approximately a $400 million industry. There are currently 54 laboratories certified by the Substance Abuse and Mental Health Services Administration. Two major clinical chains, which collectively constitute the majority of the substance abuse testing market, are the Company's major competitors. The Company's focus is fast turnaround with high-quality, low-cost service, with a strategic position of offering oral fluid based drug screening.

LabOne's business plan is to be the premier provider of certified and accredited, cost effective laboratory and information services to life and health insurance companies, self-insured employers, TPAs and physician practices. The Company feels that its centralized, quality controlled processes and low-cost operating structure enable it to compete effectively.

Lab One Canada Inc. markets insurance testing services to Canadian clients, with laboratory testing performed primarily in the United States. The following table summarizes the revenue, profit and assets applicable to the Company's domestic operations and its subsidiary, Lab One Canada Inc.

The Company evaluates new commercially available tests and technologies, or develops new assays, and compares them to competing products in order to select the most accurate and efficient laboratory procedures. Additionally, LabOne's medical directors and scientists present findings to clients to aid them in choosing the best tests available to meet their requirements.

The Company has approximately 2,100 employees, including 100 part-time employees, representing an increase of 450 employees from the same time in 2002. None of the Company's employees are represented by a labor union. The Company believes its relations with employees are good.

ITEM 2. PROPERTIES

The Company's principal operations are located on 54 acres in Lenexa, Kansas, approximately 15 miles from Kansas City, Missouri. Its 268,000 square foot, custom-designed facility houses the Company's laboratory, administrative and warehouse functions. The facility is owned by the Company and financed through industrial revenue bonds issued by the City of Lenexa, Kansas. The remaining balance on the bonds is $12.6 million. The laboratory has certain enhancements that improve the efficiency of operations. Conveyor systems transport inbound test kits through the opening and set-up process, and remove waste. All automated testing equipment requiring purified water is linked directly to a centralized water-purification system. Over 50,000 square feet of raised flooring allows laboratory instruments and computer systems to be arranged or moved quickly and easily. The security system includes proximity card readers to control access and a ceiling detector system to prevent foreign substances from being thrown into the laboratory. In addition, three diesel generators and a UPS battery system are on-line in the event of electrical power shortage. These back-up power sources allow specimen testing and data processing to continue until full power is restored, thus assuring LabOne's clients of continuous laboratory operation.

In conjunction with the acquisition of Central Plains Laboratories in December 2002, the Company leases approximately 22,000 square feet in Hays, Kansas, comprising two laboratories and office space. These leases expire in 2006 and 2007. LabOne leases 20 locations in the Midwest, which serve as LabOne Service Centers. These facilities provide specimen collection services for patients and are typically located in medical office buildings. Lab One Canada Inc. leases office space in Ontario Canada, which is used for sales and client services. This lease expires in 2003. Additionally, Lab One Canada Inc. leases space in Quebec Canada for assembly and distribution of specimen collection kits for Canadian insurance testing and insurance applicant interviews. This lease expires in 2005. SBSI utilizes two facilities in Independence, Missouri, under leases expiring in 2003. Effective January 1, 2002, LabOne added a 50,000 square foot facility in Lee's Summit, Missouri, under lease until 2011 to perform teleunderwriting interviews and to process attending physician statements. ExamOne has a five-year lease expiring in 2004 for a facility used as office space in Voorhees, New Jersey, and leases locations across the United States as regional paramedical offices.

ITEM 3. LITIGATION

In the normal course of business, LabOne was the subject of certain lawsuits pending at December 31, 2002. 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.

ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS

None

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

The Registrant's common stock trades on The Nasdaq Stock Market® under the symbol LABS. As of March 1, 2003, the outstanding shares were held by approximately 5,400 shareholders either directly or in street name.

The Company did not pay a dividend during 2002 or 2001. Additionally, the Company's line of credit with JPMorgan Chase Bank and Wachovia Bank, N.A. includes a restrictive payment covenant. The Board of Directors will review the dividend policy on a periodic basis, but presently has no plans to pay a dividend in the near future.

The following are the high and low prices of LabOne's common stock for each quarter of 2002 and 2001:

ITEM 6. SELECTED FINANCIAL DATA

The following table summarizes certain selected financial data regarding the Company. This information should be read in conjunction with Item 7, MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS and Item 15. (a) (1) and (2), CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE. The balance sheet data as of December 31, 2002, 2001, 2000, 1999 and 1998, and the statement of operations data for each of the years in the five-year period ended December 31, 2002, have been derived from the Company's Consolidated Financial Statements, which have been audited by KPMG LLP, the Company's independent certified public accountants.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Revenue for the year ended December 31, 2002, was $298.1 million as compared to $233.9 million in 2001. The increase of $64.2 million, or 27%, was due to increases in risk assessment revenue of $50.6 million and clinical healthcare revenue of $14.3 million, partially offset by a decrease in clinical SAT revenue of $0.7 million. Risk assessment revenue increased to $210.0 million from $159.3 million in 2001 due primarily to increases of $17.0 million in paramedical testing, $16.5 million in laboratory testing and $17.2 million of other insurance services revenue. Paramedical revenue increased due to an increase in the number of paramedical exams performed. Laboratory testing for risk assessment services increased primarily due to the acquisition of the Osborn group on August 31, 2001 and a first quarter increase in applicant volumes believed to be related to post 9-11. Other insurance services increased due to growth in teleunderwriting and physician statement reports. Healthcare laboratory revenue increased to $60.9 million in 2002 from $46.6 million in 2001 due to a 17% increase in testing volumes and a 12% increase in the average revenue per patient. SAT revenue decreased to $27.2 million in 2002 from $27.9 million in 2001 primarily due to a 5% decrease in testing volumes.

Cost of sales increased $40.5 million, or 25%, for the year as compared to the prior year. This increase is primarily due to increases in paramedical collections, payroll, material costs and physician and motor vehicle reports. Risk assessment cost of sales increased to $151.7 million as compared to $113.1 million during 2001 due to the growth of ExamOne, teleunderwriting interviews; and the increase in laboratory specimen volumes. Clinical healthcare cost of sales increased to $33.7 million as compared to $29.6 million during 2001 due to increased specimen volumes. Clinical SAT cost of sales decreased to $20.4 million as compared to $22.6 million during 2001 due to cost saving on payroll and material costs, and lower specimen volumes.

As a result of the above factors, gross profit increased $23.7 million, or 35%, to $92.3 million in 2002 from $68.6 million in 2001. Risk assessment gross profit increased $12.0 million, or 26%, to $58.3 million in 2002. Clinical healthcare gross profit improved $10.1 million, to $27.1 million in 2002 from $17.0 million in 2001. Clinical SAT gross profit increased $1.6 million to $6.9 million in 2002 from $5.3 million last year.

Selling, general and administrative ("SGA") expenses decreased $0.4 million, or 1%, in 2002 as compared to 2001 primarily due to lower amortization expense partially offset by increases in payroll expenses and reserves for doubtful accounts. Amortization expense decreased $7.9 million. Amortization in 2001 included goodwill amortization of $4.2 million, non cash warrant amortization related to the WCAS financing of $3.2 million and non cash amortization of $0.6 million for warrants issued in exchange for an exclusive marketing arrangement. Payroll expenses increased $5.7 million or 19% for the year primarily due to an investment in corporate information systems personnel and clinical healthcare and risk assessment commission expenses related to the higher testing volumes. Reserves for doubtful accounts increased in conjunction with the increase in revenue. Risk assessment SGA decreased to $17.2 million as compared to $17.6 million in 2001 due to the elimination of $1.3 million of goodwill amortization, partially offset by increases in payroll, allowances for doubtful accounts and sales expenses. Clinical healthcare SGA increased to $15.3 million compared to $13.6 million in 2001 due to an increase in reserves for doubtful accounts and payroll expense partially offset by savings on Lab Card production expenses. Clinical SAT SGA decreased to $3.3 million in 2002 from $4.1 million due to lower payroll expense and the one time warrant amortization of $0.6 million in 2001. Corporate SGA decreased to $28.0 million from $29.1 million in 2001 due to the elimination of goodwill amortization and the WCAS warrant amortization in 2001, partially offset by an increase in payroll expenses.

Operating income increased 568% to $28.4 million in 2002 from $4.3 million in 2001. Risk assessment services had operating income of $41.0 million as compared to $28.7 million in 2001. Clinical healthcare services operating income increased to $11.9 million in 2002 from $3.5 million in 2001. Clinical SAT operating income improved to $3.6 million in 2002 from $1.3 million in 2001. Corporate operating expenses for the year decreased to $28.0 million from $29.1 million in 2001.

Nonoperating expense increased $2.0 million in 2002 as compared to 2001, primarily due to increased interest expense. The effective tax rate during 2002 was 39% compared to 150% in 2001. The high effective tax rate in 2001 was due to amortization expenses, which were not deductible for tax purposes.

The combined effect of the above factors resulted in net income of $14.8 million, or $0.91 per diluted share as compared to a net loss of $1.0 million, or $0.18 per share, in 2001.

Revenue for the year ended December 31, 2001, was $233.9 million as compared to $169.2 million in 2000. The increase of $64.7 million, or 38%, was due to increases in risk assessment revenue of $50.0 million, clinical healthcare revenue of $11.3 million and clinical SAT revenue of $3.4 million. Risk assessment services revenue increased to $159.3 million from $109.3 million in 2000 due primarily to increases of $28.1 million in paramedical testing and an increase of $16.8 million in laboratory testing. Laboratory testing for risk assessment services increased due to an increase in the base level of LabOne insurance applicants tested and $9.4 million of revenue from acquired Osborn clients effective September 2001. Clinical healthcare laboratory revenue increased to $46.6 million in 2001 from $35.3 million in 2000 due to a 23% increase in testing volumes and an increase in the average revenue per patient. Clinical SAT revenue increased to $27.9 million in 2001 from $24.5 million in 2000 primarily due to an 11% increase in testing volumes.

Cost of sales increased $51.0 million, or 45%, for the year as compared to the prior year. This increase is primarily due to increases in paramedical collections, payroll and material costs due to the growth of ExamOne and growth in the insurance and healthcare laboratory testing markets. Risk assessment services cost of sales increased to $113.1 million as compared to $72.7 million during 2000 due to the growth of ExamOne and the acquisition of Osborn. Clinical healthcare cost of sales was $29.6 million as compared to $23.6 million during 2000. Clinical SAT cost of sales was $22.6 million as compared to $18.0 million during 2000. The increases in the clinical healthcare and SAT segments are due primarily to increased testing volumes.

As a result of the above factors, gross profit increased $13.7 million, or 25%, to $68.6 million in 2001 from $54.9 million in 2000. Risk assessment gross profit increased $9.6 million, or 26%, to $46.2 million in 2001. Clinical healthcare gross profit improved $5.3 million, to $17.0 million in 2001 from $11.7 million in 2000. Clinical SAT gross profit decreased $1.2 million to $5.3 million in 2001 from $6.5 million last year.

Selling, general and administrative expenses increased $13.2 million, or 26%, in 2001 as compared to 2000 primarily due to increases in payroll and benefits and amortization expenses. Payroll expenses increased $5.5 million or 23% for the year due to growth in the risk assessment, healthcare and corporate overhead divisions and the accrual of profit sharing bonuses in 2001. Amortization expense increased $3.9 million due to non cash warrant expenses of $3.2 million related to the WCAS financing and $0.6 million related to warrants issued in exchange for an exclusive marketing arrangement. Risk assessment SGA increased to $17.6 million as compared to $13.3 million in 2000 primarily due to the addition of Osborn and growth in ExamOne. Clinical healthcare SGA increased to $13.6 million compared to $10.2 million in 2000 due to an increase in reserves for doubtful accounts and payroll expense. Clinical SAT SGA increased to $4.1 million in 2001 from $4.0 million. Corporate SGA increased to $29.1 million from $23.6 million in 2000 due to the warrant amortization and payroll expenses.

Operating income increased 14% to $4.3 million in 2001 from $3.7 million in 2000. Risk assessment services had operating income of $28.7 million as compared to $23.4 million in 2000. Clinical healthcare operating income increased to $3.5 million in 2001 from $1.4 million in 2000. Clinical SAT operating income declined to $1.3 million in 2001 from $2.5 million in 2000. Corporate operating expenses for the year increased to $29.1 million from $23.6 million in 2000.

Nonoperating expense decreased $0.2 million in 2001 as compared to 2000, primarily due to lower interest expense. The effective tax rate during 2001 was 150% compared to 138% in 2000. The high effective tax rate was due to amortization expenses, which were not deductible for tax purposes.

The combined effect of the above factors resulted in a net loss of $1.0 million, or $0.18 per share as compared to a net loss of $0.5 million, or $0.05 per share, in 2000.

The following is management's analysis of certain existing trends that have been identified as potentially affecting the future financial results of the Company. Due to the potential for a rapid rate of change in any number of factors associated with the risk assessment and clinical industries, it is difficult to quantify with any degree of certainty LabOne's future volumes, sales, margins or net earnings.

The risk assessment services market continues to be highly competitive. The primary focus of the competition has been on lower pricing for laboratory and paramedical services, and the ability to deliver integrated services such as total account management and electronic connectivity. LabOne is focusing on its commitment to customer service, provision of quality products and services at competitive prices and continuous development of innovative data management services and technological solutions that differentiate us from competitors.

During 2002, LabOne continued to contract with national life insurance carriers to provide teleunderwriting services. Under the terms of these contracts, LabOne personnel conduct telephone interviews relating to the medical histories of new life insurance policy applicants. The Company anticipates that there will be continued increases in these services during 2003.

Revenue from the ExamOne division increased $17.0 million in 2002. The paramedical industry historically returns a lower gross margin than LabOne's other market segments. In most cases, a substantial percentage of the revenue from a specimen collection is paid to a contractor who owns and operates an independent local office that arranges for the collection. If the revenue from ExamOne continues to grow as a percentage of total LabOne revenue, its lower gross margins will add to the total profitability of LabOne but will reduce the average gross profit percentage of revenue.

Although future volumes of laboratory specimens for risk assessment testing are expected to be lower than in 2002 when the Company realized a substantial increase believed to be related to 9-11, the Company continues to offer additional tests, such as screening for hepatitis C, prostrate specific antigen and C reactive protein, as a cost effective underwriting tool. The Company has realized some acceptance of these additional tests by its clients.

In clinical healthcare, the Company continued its trend of growth through the Lab Card® Program, marketing to physician practices and new managed care agreements. Membership with the Lab Card Program is approximately 3.5 million members. The program continued to expand through new members as well as increased utilization from existing members.

The Company serves approximately 800,000 managed care members under exclusive managed care outpatient laboratory service arrangements. The Company continues to add network approvals for healthcare plans in focused regional physician markets to increase penetration. Managed care organizations, and the physicians who are under their contracts, continue to choose LabOne for its quality controlled testing, disease management data capabilities, and responsive customer service and support.

Development of new clinical tests and proprietary methodologies for use by healthcare providers continues to expand. Recent discoveries or potential technology breakthroughs could enable rapid acceleration of this development and subsequent demand for these tests. These tests are often characterized by higher processing costs or limited access through specific laboratories. LabOne's response to this trend has been to internalize methodologies for these tests, thus lowering costs, and to seek adequate reimbursement for these tests from payors and clients. The ability of outside firms to advance new tests and create demand for them, offset by the Company's ability to successfully limit the expense impact of such tests and to be adequately reimbursed, may pressure clinical healthcare gross margins in the future. Alternatively, LabOne's responsive strategy may create advantages over smaller, less equipped competition.

The clinical SAT market is sensitive to economic conditions and levels of new employment. Due to the recent economic downturn, the Company has not experienced any appreciable revenue growth in this market.

LabOne's working capital position increased to $40.4 million at December 31, 2002, from $30.3 million at December 31, 2001. This increase is due to cash provided by operations and net financing activities exceeding capital additions and acquisitions. Net cash provided by operations increased to $21.2 million in 2002 from $14.0 million in 2001 primarily due to improved operating results. Accounts receivable grew to $48.7 million as of December 31, 2002, from $42.1 million as of December 31, 2001, due to the increase in revenue. Total cash and investments at December 31, 2002, were $8.1 million, as compared to $5.9 million at December 31, 2001. Management expects to be able to fund operations from a combination of cash flow from operations and borrowings.

During 2002, the Company spent $17.2 million for capital investments and $8.0 million for capital expenditures. Capital investments for 2002 included the acquisition of Central Plains Laboratories in Hays, Kansas, for $12.1 million in cash and an additional $4.6 million for several paramedical affiliates. During 2001, the Company spent $53.0 million for capital investments and $8.6 million for capital expenditures. The amount spent in 2001 included $50.6 million for the purchase of Osborn and $2.4 million on the acquisition of various paramedical operations. Capital expenditures in 2001 included $6.3 million for software development and information systems.

To finance the purchase of the Osborn Group in 2001, LabOne issued $35 million of convertible preferred stock, 350,000 warrants to purchase LabOne stock at $0.01 per share and $15 million of subordinated debt to WCAS in exchange for $50 million cash. The preferred stock is convertible into LabOne common stock at a rate of $8.32 per share and earns a paid-in-kind dividend at a fixed rate of 8% compounded semiannually. The convertible preferred stock may be converted at the Company's election after August 31, 2004, if the common stock is trading at or above $16.64 per share for 30 out of 45 consecutive trading days. Final redemption of the convertible preferred stock on August 31, 2008, may be paid in cash or stock at the Company's election. The $15 million of subordinated debt bore a fixed interest rate of 11% and was refinanced on December 31, 2002.

Interest on the industrial revenue bonds issued to finance the construction of the Company's Lenexa facility is based on a taxable seven-day variable rate which, including letter of credit and remarketing fees, is approximately 2.5% as of February 1, 2003. The bonds mature over the next seven years in increments of $1.8 million per year plus interest. The fourth principal payment of $1.85 million was paid in September 2002.

The Company converted to a new line of credit during 2002 with a total availability of $100 million. The line was co-arranged by J.P. Morgan Securities, Inc. and Wachovia Securities, Inc. The Company currently has $52 million outstanding on this line. Interest on the Company's line of credit is based on the LIBOR rate plus a range of 125 to 225 basis points; and including bank fees is approximately 3.1% as of February 1, 2003.

During the first quarter 2000, the Board of Directors approved a stock repurchase program pursuant to which LabOne is authorized to repurchase up to $10 million of its common stock. The Company repurchased 841,000 shares at a cost of approximately $5.9 million during 2000. No subsequent repurchases have been made to date.

The following table summarizes certain contractual obligations as of December 31, 2002:

In June 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No. 143, Accounting for Asset Retirement Obligations. SFAS No. 143 requires that the fair value of the liability for an asset retirement obligation be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. The associated asset retirement costs are capitalized as part of the carrying amount of the long-lived assets. For the Company, this statement is effective January 1, 2003. The Company does not expect that the adoption will have a material impact on its financial statements.

In July 2002, FASB issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities (effective January 1, 2003). SFAS No. 146 replaces current accounting literature and requires the recognition of costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. The Company does not believe the adoption of SFAS No. 146 will have a material effect on the Company's financial statements.

In November 2002, the FASB issued Interpretation No. 45, Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness to Others. The Interpretation clarifies that a guarantor is required to recognize, at inception of a guarantee, a liability for the fair value of the obligation undertaken. The initial recognition and measurement provisions of the Interpretation are applicable to guarantees issued or modified after December 31, 2002, and are not expected to have a material effect on the Company's financial position, results of operations or cash flows.

In January 2003, the FASB issued Interpretation No. 46, Consolidation of Variable Interest Entities, an interpretation of ARB No. 51. This Interpretation addresses the consolidation by business enterprises of variable interest entities as defined in the Interpretation. The Interpretation applies immediately to variable interests in variable interest entities created or obtained after January 31, 2003. The application of this Interpretation is not expected to have a material effect on the Company's financial position, results of operations or cash flows.

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.

ITEM 7(a). QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

An interest rate risk exposure exists due to LabOne's variable interest rates associated with its liability of $52.0 million borrowing on its line of credit and $12.6 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 3.1% at February 1, 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 2.5% as of February 1, 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.

A foreign currency risk exposure exists due to billing Canadian subsidiary revenue in Canadian dollars and the direct laboratory expenses associated with this revenue being incurred in US dollars. This exposure is not considered to be material.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

See ITEM 15.(a).

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information included under the captions entitled "Election of Directors" and "Management of LabOne" in the Company's definitive proxy statement to be filed with the Commission pursuant to Regulation 14A with respect to its annual meeting of stockholders to be held May 21, 2003, is incorporated into Item 10 by reference.

ITEM 11. EXECUTIVE COMPENSATION

The information included under the caption entitled "Executive Compensation" in the Company's definitive proxy statement to be filed with the Commission pursuant to Regulation 14A with respect to its annual meeting of stockholders to be held May 21, 2003, is incorporated into Item 11 by reference, except the information contained in the Proxy Statement under the captions "Compensation Committee Report on Executive Compensation" and "Comparison of Five Year Cumulative Total Return Among LabOne, Nasdaq Composite Index and Peer Group" is not incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information included under the captions entitled "Security Ownership of Management" and "Security Ownership of Certain Beneficial Owners" in the Company's definitive proxy statement to be filed with the Commission pursuant to Regulation 14A with respect to its annual meeting of stockholders to be held May 21, 2003, is incorporated into Items 12 by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information included under the caption entitled "Certain Relationships and Related Transactions" in the Company's definitive proxy statement to be filed with the Commission pursuant to Regulation 14A with respect to its annual meeting of stockholders to be held May 21, 2003, is incorporated into Item 13 by reference.

ITEM 14. CONTROLS AND PROCEDURES

The Company maintains disclosure controls and procedures and internal controls designed to ensure that information required to be disclosed in our filings under the Securities and Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms. The principal executive and financial officers have evaluated our disclosure controls and procedures within 90 days prior to the filing of this annual report on Form 10-K and have concluded that such disclosure controls and procedures are effective.

Subsequent to the evaluation by the principal executive and financial officers, there were no significant changes in internal controls or other factors that could significantly affect internal controls, including any corrective actions with regard to significant deficiencies and material weaknesses.

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K

(a) (1) and (2) -- The following consolidated financial statements and schedule are attached as a separate section of this report entitled "Consolidated Financial Statements and Schedule":

INDEPENDENT AUDITORS' REPORT

CONSOLIDATED FINANCIAL STATEMENTS:
   Consolidated Balance Sheets, December 31, 2002 and 2001
   Consolidated Statements of Operations, Years Ended
      December 31, 2002, 2001 and 2000
   Consolidated Statements of Stockholders' Equity,
      Years Ended December 31, 2002, 2001 and 2000
   Consolidated Statements of Cash Flows, Years Ended
      December 31, 2002, 2001 and 2000
   Notes to Consolidated Financial Statements

SCHEDULE:
   Schedule II - Valuation and qualifying accounts

All other schedules are omitted because they are not applicable, not required, or the information is included in the Consolidated Financial Statements or the notes thereto.

(b) Reports on Form 8-K

A Form 8-K current report dated November 7, 2002, was filed with the Commission reporting under Item 9. Regulation FD Disclosure, the content of the third quarter conference call to investors.

A Form 8-K current report dated November 14, 2002, containing the certifications by the Chief Executive Officer and the Chief Financial Officer of the third quarter financial information in the Form 10-Q required pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, was filed with the Commission under Item 9. Regulation FD Disclosure.

A Form 8-K current report dated November 26, 2002, was filed with the Commission under Item 9. Regulation FD Disclosure providing earnings and revenue guidance.

A Form 8-K current report dated December 3, 2002, was filed with the Commission reporting under Item 9. Regulation FD Disclosure, the Company's acquisition of Central Plains Laboratory in Hays, Kansas.

(c) Exhibits required by Item 601 of Regulation S-K

   (Exhibits follow the Schedule):

* Incorporated by reference pursuant to Rule 12b-23
** Management Compensatory Plan
*** Non-Management Director Compensatory Plan

These exhibits may be obtained by stockholders of Registrant upon written
request to LabOne, Inc., 10101 Renner Blvd., Lenexa, KS 66219.

(d) Not applicable

Pursuant to the requirements of Section 13 of the Securities Exchange Act of 1934, Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.