8-K/A

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 8-K/A

CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

Date of Report (Date of Earliest Event Reported): October 31, 2005

Commission file number 001-12215

Quest Diagnostics Incorporated

1290 Wall Street West

Lyndhurst, NJ 07071

(201) 393-5000

Delaware

(State of Incorporation)

16-1387862

(I.R.S. Employer Identification Number)

Quest Diagnostics Incorporated hereby amends Item 2.01 of its Current Report on Form 8-K (Date of Report: October 31, 2005) as follows:

The financial statements and proforma combined financial information required to be filed pursuant to Rule 3-05 of Regulation S-X and Article 11 of Regulation S-X under the Securities Act of 1933, as amended, are included in this current report on Form 8-K under Item 9.01.

Item 9.01. Financial Statements and Exhibits

Exhibits

99.1 Financial statements of businesses acquired. The financial statements of LabOne, Inc. as of December 31, 2004 and 2003 and for the three years ended December 31, 2004, 2003 and 2002 are included as Exhibit 99.1.

99.2 Financial statements of businesses acquired. The financial statements of LabOne, Inc. as of September 30, 2005 and December 31, 2004 and for the three and nine months ended September 30, 2005 and 2004 are included as Exhibit 99.2.

99.3 Pro forma financial information. The unaudited pro forma combined balance sheet of Quest Diagnostics as of September 30, 2005 and the unaudited pro forma combined statements of operations of Quest Diagnostics for the nine months ended September 30, 2005 and the year ended December 31, 2004 are included as Exhibit 99.3.

Signature

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 hereunto duly authorized.

January 17, 2006

QUEST DIAGNOSTICS INCORPORATED

By: /s/  Robert A. Hagemann

Robert A. Hagemann

Senior Vice President and Chief Financial Officer

EX-99

Exhibit 99.1

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders
LabOne, Inc.:

      We have audited the accompanying consolidated balance sheets of LabOne, Inc. and subsidiaries (the Company) as of December 31, 2004 and 2003, and the related consolidated statements of operations, stockholders’ equity and comprehensive income, and cash flows for each of the years in the three-year period ended December 31, 2004. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

      We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

      In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of LabOne, Inc. and subsidiaries as of December 31, 2004 and 2003, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2004, in conformity with U.S. generally accepted accounting principles.

      We also have audited, in accordance with the standards of the PCAOB, the effectiveness of LabOne’s internal control over financial reporting as of December 31, 2004, based on criteria established in Internal Control—Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated March 11, 2005 expressed an unqualified opinion on management’s assessment of, and the effective operation of, internal control over financial reporting.

KPMG LLP

Kansas City, Missouri
March 11, 2005

LABONE, INC. AND SUBSIDIARIES
Consolidated Balance SheetsDecember 31, 2004 and 2003
(in thousands, except share and per share data)

	2004			2003
ASSETS
Current assets:
Cash and cash equivalents	$	24,070		$	4,651
Accounts receivable, net of allowance for doubtful accounts of $4,594 in 2004 and $6,123 in 2003		73,027			57,928
Inventories		7,473			5,472
Prepaid expenses and other current assets		6,506			5,202
Deferred income taxes		5,556			4,990
Total current assets		116,632			78,243
Property, plant and equipment, net		62,860			47,405
Goodwill		138,163			99,103
Intangible assets, net		20,860			11,345
Other long-term assets		4,707			1,526
Total assets	$	343,222		$	237,622
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	20,467		$	13,617
Accrued payroll and benefits		17,131			11,769
Other accrued expenses		3,381			2,787
Current portion of long-term debt		1,925			2,014
Total current liabilities		42,904			30,187
Deferred income taxes		8,694			5,619
Long-term debt		111,549			56,094
Other		108			21
Total liabilities		163,255			91,921
Commitments and contingencies
Stockholders’ equity:
Common stock, $0.01 par value per share. Authorized 40,000,000 shares; issued 18,027,729 shares		180			180
Additional paid-in capital		87,027			84,066
Retained earnings		102,974			76,250
Accumulated other comprehensive loss		(94	)		(245	)
Treasury stock of 796,260 shares in 2004 and 1,144,840 shares in 2003, at cost		(10,120	)		(14,550	)
Total stockholders’ equity		179,967			145,701
Total liabilities and stockholders’ equity	$	343,222		$	237,622

See accompanying notes to consolidated financial statements.

LABONE, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
Years Ended December 31, 2004, 2003 and 2002
(in thousands, except per share data)

	2004			2003			2002
Sales	$	468,236		$	346,020		$	298,146
Cost of sales:
Cost of sales expense		313,607			232,602			201,840
Depreciation and amortization		6,736			4,473			3,991
Total cost of sales		320,343			237,075			205,831
Gross profit		147,893			108,945			92,315
Selling, general and administrative:
Selling, general and administrative expenses		92,394			66,832			58,409
Depreciation and amortization		10,372			6,564			5,475
Total selling, general and administrative		102,766			73,396			63,884
Operating earnings		45,127			35,549			28,431
Other income (expense):
Interest income		228			117			300
Interest expense		(5,144	)		(3,017	)		(4,486	)
Other, net		224			56			20
Total other expense, net		(4,692	)		(2,844	)		(4,166	)
Earnings before income taxes		40,435			32,705			24,265
Provision for income taxes		13,711			11,973			9,425
Net earnings	$	26,724		$	20,732		$	14,840
Preferred stock dividends	$	—		$	(2,699	)	$	(2,932	)
Net earnings available to common shareholders	$	26,724		$	18,033		$	11,908
Earnings per common share:
Basic	$	1.56		$	1.44		$	1.04
Diluted	$	1.53		$	1.23		$	0.91
Weighted average common shares outstanding:
Basic		17,079			12,476			11,453
Diluted		17,478			16,893			16,237

See accompanying notes to consolidated financial statements.

LABONE, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders’ Equity and Comprehensive Income
Years Ended December 31, 2004, 2003 and 2002
(in thousands, except share data)

	Preferred stock			Common stock		Additional paid-in capital			Retained earnings			Accumulated other comprehensive income (loss)			Treasury stock			Comprehensive income		Total stockholders’ equity
Balance as of December 31, 2001	$	35,933		$	130	$	53,924		$	46,309		$	(870	)	$	(33,836	)			$	101,590
Comprehensive income:
Net earnings		—			—		—			14,840			—			—		$	14,840		14,840
Adjustment from foreign currency translation		—			—		—			—			3			—			3		3
Comprehensive income																		$	14,843
Preferred stock dividends payable in kind		2,932			—		—			(2,932	)		—			—					—
Stock options exercised (661,491 shares)		—			—		(5,068	)		—			—			13,149					8,081
Tax benefit from exercise of stock options		—			—		2,485			—			—			—					2,485
Warrants exercised (250,000 shares)		—			—		(2,477	)		—			—			4,970					2,493
Directors’ stock compensation (872 shares)		—			—		2			—			—			17					19
Purchase of treasury stock (422,391 shares)		—			—		—			—			—			(9,452	)				(9,452	)
Balance as of December 31, 2002		38,865			130		48,866			58,217			(867	)		(25,152	)				120,059
Comprehensive income:
Net earnings		—			—		—			20,732			—			—		$	20,732		20,732
Adjustment from foreign currency translation		—			—		—			—			622			—			622		622
Comprehensive income																		$	21,354
Preferred stock dividends payable in kind		2,699			—		—			(2,699	)		—			—					—
Conversion of preferred stock (41,564 shares) to common stock (4,995,753 shares)		(41,564	)		50		41,295			—			—			219					—
Stock options exercised (321,938 shares)		—			—		(168	)		—			—			4,999					4,831
Tax benefit from exercise of stock options		—			—		992			—			—			—					992
Warrants exercised (350,000 shares)		—			—		(6,919	)		—			—			6,923					4
Directors’ stock compensation (875 shares)		—			—		—			—			—			17					17
Purchase of treasury stock (79,670 shares)		—			—		—			—			—			(1,556	)				(1,556	)
Balance as of December 31, 2003		—			180		84,066			76,250			(245	)		(14,550	)				145,701
Comprehensive income:
Net earnings		—			—		—			26,724			—			—		$	26,724		26,724
Adjustment from foreign currency translation		—			—		—			—			151			—			151		151
Comprehensive income																		$	26,875
Stock options exercised (346,922 shares)		—			—		503			—			—			4,409					4,912
Tax benefit from exercise of stock options		—			—		2,303			—			—			—					2,303
Stock-based compensation		—			—		126			—			—			—					126
Directors’ stock compensation (1,658 shares)		—			—		29			—			—			21					50
Balance as of December 31, 2004	$	—		$	180	$	87,027		$	102,974		$	(94	)	$	(10,120	)			$	179,967

See accompanying notes to consolidated financial statements.

LABONE, INC. AND SUBSIDIARIES
Consolidated Statements of Cash FlowsYears Ended December 31, 2004, 2003 and 2002
(in thousands)

	2004			2003			2002
Cash flows from operating activities:
Net earnings	$	26,724		$	20,732		$	14,840
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization		18,249			11,892			9,812
Provision for loss on accounts receivable		9,171			6,250			5,638
Income tax benefit from exercise of stock options		2,303			992			2,485
Deferred income taxes		2,512			(96	)		127
Stock-based compensation		126			—			—
Directors’ stock compensation		50			17			19
(Gain) loss on sale of property, plant and equipment		113			(8	)		(29	)
Change in assets and liabilities, net of effects of acquisitions:
Accounts and notes receivable		(21,004	)		(14,371	)		(10,064	)
Inventories		(612	)		(733	)		(54	)
Prepaid expenses and other current assets		(1,149	)		(961	)		101
Accounts payable		6,290			(2,187	)		193
Accrued payroll and benefits		5,362			2,621			145
Other accrued expenses		373			(359	)		(1,469	)
Other		30			65			(585	)
Net cash provided by operating activities		48,538			23,854			21,159
Cash flows from investing activities:
Capital expenditures		(24,489	)		(9,719	)		(8,031	)
Acquisitions of businesses		(60,518	)		(13,273	)		(17,244	)
Proceeds from sale of property, plant and equipment		50			59			57
Acquisition of patents and trademarks		(43	)		(912	)		—
Purchase of investment		—			—			(250	)
Net cash used in investing activities		(85,000	)		(23,845	)		(25,468	)
Cash flows from financing activities:
Net proceeds (payments) on line of credit		(46,253	)		(5,000	)		24,000
Net proceeds from issuance of convertible debentures		100,119			—			—
Payments on subordinated debt		—			—			(15,000	)
Debt issue costs		(858	)		(207	)		(1,726	)
Payments on other long-term debt		(2,006	)		(2,020	)		(1,923	)
Proceeds from exercise of stock options		4,912			4,831			8,081
Purchase of treasury stock		—			(1,556	)		(9,452	)
Proceeds from exercise of stock warrants		—			4			2,493
Net cash provided by (used in) financing activities		55,914			(3,948	)		6,473
Effect of foreign currency translation on cash		(33	)		482			(6	)
Net increase (decrease) in cash and cash equivalents		19,419			(3,457	)		2,158
Cash and cash equivalents at beginning of year		4,651			8,108			5,950
Cash and cash equivalents at end of year	$	24,070		$	4,651		$	8,108

LABONE, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years Ended December 31, 2004, 2003 and 2002
(in thousands)

	2004			2003			2002
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Income taxes	$	9,726		$	12,666		$	7,038
Interest		4,130			2,116			4,553
Supplemental schedule of non-cash investing and financing activities:
Preferred stock dividends payable in kind	$	—		$	2,699		$	2,932
Details of acquisitions:
Fair value of assets acquired	$	61,343		$	14,484		$	19,344
Liabilities assumed		(825	)		(1,211	)		(1,612	)
Liabilities issued		—			—			(488	)
Cash paid for acquisitions	$	60,518		$	13,273		$	17,244

See accompanying notes to consolidated financial statements.

LABONE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2004, 2003 and 2002

(1) Summary of Significant Accounting Policies

Description of Business

      LabOne, Inc. (“LabOne” or the “Company”) is a diagnostic services provider. The services and information LabOne and its subsidiaries provide include: risk assessment information services for the insurance industry; diagnostic healthcare testing; and substance abuse testing services and related employee qualification products.

Principles of Consolidation

      The consolidated financial statements include the accounts of LabOne and its wholly owned subsidiaries. All significant intercompany transactions have been eliminated in consolidation.

Use of Estimates in the Preparation of Consolidated Financial Statements

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

Revenue Recognition

      The Company recognizes revenues for its services when those services are provided to the customer. Revenues related to clinical healthcare billings include adjustments for revenue disallowances estimated at the time the revenue is recorded. These revenue disallowances represent contractual adjustments which reflect the difference between gross charges billed and the amounts that third-party payers such as managed care organizations are contractually required to pay for laboratory services.

Concentration of Business Risk

      One risk assessment customer comprised 8%, 10% and 12% of total sales for 2004, 2003 and 2002, respectively. The Company has a contract with this customer for a ten-year period ending in 2010 that the customer may terminate prior to expiration if the Company encounters service level failures that materially impact the services provided.

Disclosures about Fair Value of Financial Instruments

      Fair value of cash and cash equivalents, receivables and payables approximates carrying value due to the short-term nature of these instruments.

Cash and Cash Equivalents

      Cash and cash equivalents consist of demand deposits in banks, marketable securities with maturities of three months or less, money market investments and overnight investments that are stated at cost, which approximates market value.

Accounts Receivable

      Accounts receivable are recorded at the invoiced amount and do not bear interest. The allowance for doubtful accounts is the Company’s best estimate of the amount of probable credit losses in the Company’s existing accounts receivable. The estimate of the allowance for doubtful

LABONE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2004, 2003 and 2002

accounts involves a standardized monthly review of the collectibility of receivables based on contractual obligations and the aging of accounts receivable. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. The Company does not have any off-balance sheet credit exposure related to its customers.

Inventories

      Inventories consist of laboratory supplies, completed specimen collection kits for sale to clients and various materials used in the assembly of specimen collection kits. Inventory is valued at the lower of cost (first-in, first-out) or market.

Property, Plant and Equipment

      Additions to property, plant and equipment are recorded at cost, which includes interest capitalized during construction. Facilities leased pursuant to revenue bond financing transactions are accounted for as purchases, with the cost of the leased property included in property, plant and equipment and the related obligation included in long-term debt.

      Depreciation and amortization are computed using the straight-line method over the estimated useful lives of the assets as follows:

Building	30 years
Laboratory equipment	3–5 years
Data processing equipment and software	3–6 years
Office and transportation equipment	5–7 years
Leasehold improvements	Shorter of 5 years or life of lease

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, plant and equipment and are subject to amortization over their estimated useful lives, beginning when the software project is put in service. The Company periodically reviews the estimated remaining useful lives and carrying values of its capitalized software and makes adjustments if necessary.

Cost of Borrowings

      Costs directly related to the issuance of debt are deferred and amortized over the period the debt is expected to be outstanding using the interest method. Unamortized costs of $3,989,000 and $883,000 as of December 31, 2004 and 2003, respectively, are included in other long-term assets.

Goodwill and Other Intangible Assets

      Goodwill represents the excess of costs over fair value of net assets of businesses acquired. The Company applies the provisions of Financial Accounting Standards Board (“FASB”) Statement of Financial Accounting Standards (“SFAS”) No. 141, Business Combinations, and SFAS No. 142, Goodwill and Other Intangible Assets. Goodwill and intangible assets acquired in a purchase business combination and determined to have an indefinite useful life are not amortized, but instead tested for impairment at least annually in accordance with the provisions of SFAS No. 142. In addition, SFAS No. 142 requires that intangible assets with estimable useful lives be amortized

LABONE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2004, 2003 and 2002

over their useful lives to their estimated residual values and reviewed for impairment in accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets.

      SFAS No. 142 requires the Company to perform an annual assessment of whether there is an indication that goodwill is impaired. To accomplish this, the Company is required to identify its reporting units and determine the carrying value of each reporting unit by assigning the assets and liabilities, including the existing goodwill and intangible assets, to those reporting units. The Company is required to determine the fair value of each reporting unit and compare it to the carrying amount of the reporting unit. The fair value of the reporting units exceeded the carrying amount based on the Company’s analysis and the Company was not required to recognize an impairment loss in 2004, 2003 or 2002.

Impairment of Long-lived Assets

      In accordance with SFAS No. 144, long-lived assets, such as property, plant and equipment, and purchased intangibles subject to amortization are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset.

Income Taxes

      Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

Stock Option Plans

      The Company applies the intrinsic-value based method of accounting prescribed by Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations including FASB Interpretation No. 44, Accounting for Certain Transactions involving Stock Compensation, an interpretation of APB Opinion No. 25, to account for its fixed-plan stock options. Under this method, compensation expense is recorded on the date of grant only if the current market price of the underlying stock exceeds the exercise price. SFAS No. 123, Accounting for Stock-Based Compensation, as amended by SFAS No. 148, Accounting for Stock-Based Compensation—Transition and Disclosure, an amendment of FASB Statement No 123, established accounting and disclosure requirements using a fair-value based method of accounting for stock-based employee compensation plans. As allowed by SFAS No. 123, as amended by SFAS No. 148, the Company has elected to continue to apply the intrinsic-value based method of accounting described above and has adopted only the disclosure requirements of SFAS No. 123.

LABONE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2004, 2003 and 2002

      The following table illustrates the effect on net earnings if the fair-value based method had been applied to all outstanding and unvested options in each period.

	2004			2003			2002
	(in thousands, except per share data)
Net earnings, as reported	$	26,724		$	20,732		$	14,840
Deduct total stock-based employee compensation expense determined under fair-value based method for all stock options, net of tax		(1,612	)		(1,485	)		(1,211	)
Pro forma net earnings	$	25,112		$	19,247		$	13,629
Basic earnings per share:
As reported	$	1.56		$	1.44		$	1.04
Pro forma	$	1.47		$	1.33		$	0.93
Diluted earnings per share:
As reported	$	1.53		$	1.23		$	0.91
Pro forma	$	1.44		$	1.14		$	0.84

      The weighted average per share fair value of stock options granted during 2004, 2003 and 2002 was $12.80, $11.20 and $10.87, respectively, on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions:

	2004		2003		2002
Expected dividend yield		0.0%		0.0%		0.0%
Risk-free interest rate		2.3%		1.4%		4.1%
Expected volatility factor		39.8%		53.9%		55.4%
Expected life (years)		5.8		4.4		5.5

Earnings Per Share

      Basic earnings per share is computed using net earnings available to common shareholders divided by the weighted average number of common shares outstanding. Diluted earnings per share includes the effects of outstanding stock options and common shares issuable upon conversion of convertible preferred stock and convertible senior debentures, if dilutive. In addition, the related preferred stock dividends are added back to income since they would not be paid if the preferred stock were converted to common stock. There was no dilutive effect of conversion of the debentures as the market price of LabOne common stock was below the conversion price, and the par value of the debentures would be settled in cash. Subject to adjustment under certain circumstances as described in the terms of the convertible debentures, the conversion obligation is generally based upon the product of the conversion rate then in effect (25.4463 as of December 31, 2004) and the closing price of LabOne common stock over the measurement period. Should the debentures become convertible under the terms of the conversion rights with a stock price of $51.09 (130% of the conversion price) over the measurement period, the conversion obligation would be approximately $1,300 (25.4463 x $51.09), and the settlement upon conversion would consist of $1,000 cash and 5.87 shares ($300/$51.09) of common stock, per $1,000 principal amount of debentures converted, assuming none of the adjustment provisions in the debenture applied to such calculation.

LABONE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2004, 2003 and 2002

      The following table reconciles the weighted average common shares used in the basic earnings per share calculation and the weighted average common shares and common share equivalents used in the diluted earnings per share calculation:

	2004		2003		2002
	(in thousands)
Weighted average common shares for basic earnings per share		17,079		12,476		11,453
Dilutive effect of employee stock options		399		300		290
Dilutive effect of common shares issuable upon conversion of preferred stock		—		4,117		4,494
Weighted average common shares for dilutive earnings per share		17,478		16,893		16,237

Recently Issued and Adopted Accounting Standards

      In December 2004, the FASB issued SFAS 123R which requires the measurement of all employee share-based payments to employees, including grants of employee stock options, using a fair-value-based method and the recording of such expense in the consolidated statements of income. The accounting provisions of SFAS 123R are effective for reporting periods beginning after June 15, 2005. The pro forma disclosures previously permitted under SFAS 123 no longer will be an alternative to financial statement recognition.

      In September, 2004, the Emerging Issues Task Force of the Financial Accounting Standards Board (the “EITF”) reached a conclusion on EITF Issue No. 04-8 “The Effect of Contingently Convertible Debt on Diluted Earnings Per Share.” Contingently convertible debt instruments (“Co-Cos”) are subject to the if-converted method under SFAS No. 128, “Earnings Per Share” (SFAS No. 128), regardless of whether a stock price-related conversion contingency included in the instrument has been met. Under prior interpretations of SFAS No. 128, issuers of Co-Cos exclude the potential common shares underlying the Co-Cos from the calculation of diluted earnings per share until the market price or other contingency is met. The effective date of EITF 04-8 is for periods ending after December 15, 2004. The Company accounts for the debentures in accordance with the EITF. As of December 31, 2004, there was no dilutive effect of conversion of the debentures as the market price of LabOne common stock was below the conversion price, and the par value of the debentures would be settled in cash.

Reclassifications

      Certain amounts in the prior year consolidated financial statements have been reclassified to conform to the current year presentation.

LABONE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2004, 2003 and 2002

(2) Acquisitions

2004 Acquisitions

      The following table summarizes the estimated fair value of the assets acquired and liabilities assumed for businesses acquired during 2004:

	Laboratory Operations of The Health Alliance		Northwest Toxicology		Paramedical Service Providers
	(in thousands)
Current assets	$	1,614	$	2,718	$	778
Property, plant and equipment		2,932		812		222
Goodwill		29,490		7,506		1,562
Intangible assets:
Non compete and non solicitation agreements		1,200		300		76
Customer contract		3,500		—		—
Customer relationships		5,200		950		1,994
Other long-term assets		—		11		5
Total assets acquired		43,936		12,297		4,637
Current liabilities		—		22		762
Current portion of long-term debt		—		34		—
Total liabilities assumed		—		56		762
Net assets acquired	$	43,936	$	12,241	$	3,875

Laboratory Operations of The Health Alliance

      On January 4, 2004, the Company acquired, for cash, substantially all of the assets associated with the core laboratory operations of The Health Alliance of Greater Cincinnati (the “Health Alliance”) for $43,936,000, including transaction and other costs of $1,586,000. The core laboratory operations acquired provide outreach laboratory testing services for physicians in the Greater Cincinnati area and reference laboratory for the six hospitals affiliated with the Health Alliance. In connection with the acquisition, the Company entered into a long-term service agreement for the Company to provide reference testing for the Health Alliance hospitals and management of their six immediate response laboratories.

      Goodwill of $29,490,000, including workforce in place, was assigned to the clinical—healthcare services segment and is expected to be deductible for tax purposes. The amortization periods for the intangible assets acquired are: non compete and non solicitation agreement—10.0 years; customer contract—5.0 years; and customer relationships—10.0 years.

Northwest Toxicology

      On March 1, 2004, the Company acquired, for cash, substantially all of the net assets of the drug testing division, Northwest Toxicology, from NWT Inc. for $12,241,000, which included transaction costs of $82,000 and the purchase of $2,662,000 in net working capital. The acquisition resulted in additional urine and oral fluid testing volumes directed to LabOne’s Lenexa, Kansas laboratory, and furthers the Company’s capabilities to include drugs of abuse testing in blood, expanded specimen validity testing, medical professional and other esoteric drug testing.

      Goodwill of $7,506,000, including workforce in place, was assigned to the clinical—substance abuse testing segment and is expected to be deductible for tax purposes. The amortization periods

LABONE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2004, 2003 and 2002

for the intangible assets acquired are: non compete and non solicitation agreement—10.0 years and customer relationships—10.0 years.

Paramedical Service Providers

      During 2004, the Company acquired, for cash, five paramedical service provider companies in the United States and one paramedical service provider company in Canada. The acquired businesses provide paramedical examinations that are used to assist life insurance companies in objectively evaluating the mortality and morbidity risks posed by policy applicants.

      Goodwill of $1,562,000 was assigned to the risk assessment services segment and is expected to be deductible for tax purposes. The weighted average amortization periods for the non compete and non solicitation agreements and customer relationships are 10.0 years and 8.7 years, respectively.

2003 Acquisitions

      The following table summarizes the estimated fair value of the assets acquired and liabilities assumed for businesses acquired during 2003:

	ScanTech		Lab Acquisition		Paramedical Service Providers
	(in thousands)
Current assets	$	1,411	$	—	$	5
Property, plant and equipment		498		280		112
Goodwill		—		800		1,828
Intangible assets:
Non compete and non solicitation agreements		100		—		160
Customer contracts		5,000		4,000		—
Customer relationships		143		—		68
Total assets acquired		7,152		5,080		2,173
Current liabilities		1,149		—		—
Long-term debt		62		—		—
Total liabilities assumed		1,211		—		—
Net assets acquired	$	5,941	$	5,080	$	2,173

ScanTech

      On August 6, 2003, the Company acquired, for cash, ScanTech Solutions, L.L.C. (“ScanTech”) from Protective Life Corporation. ScanTech is a leading provider of medical record retrieval services to life insurance carriers in the United States. In connection with the acquisition, the Company entered into long-term agreements to provide certain Protective Life affiliates with teleunderwriting, paramedical examination, laboratory testing and medical record retrieval services.

      The amortization periods for the intangible assets acquired are: non compete and non solicitation agreement—5.0 years; customer contract—5.0 years; and customer relationships—5.0 years.

LABONE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2004, 2003 and 2002

Lab Acquisition

      On October 10, 2003, the Company acquired, for cash, the insurance testing laboratory of MetLife, Inc. In connection with the acquisition, the Company entered into a long-term agreement to provide laboratory testing services to MetLife, Inc. and its affiliated entities.

      Goodwill of $800,000 was assigned to the risk assessment services segment. The amortization period for the customer contract is 6.0 years.

Paramedical Service Providers

      During 2003, the Company acquired, for cash, three paramedical service companies in the United States. The acquired businesses provide paramedical examinations that are used to assist life insurance companies in objectively evaluating the mortality and morbidity risks posed by policy applicants.

      Goodwill of $1,828,000 was assigned to the risk assessment services segment. The weighted average amortization periods for the non compete and non solicitation agreements and customer relationships are 4.9 years and 5.0 years, respectively.

2002 Acquisitions

      The following table summarizes the estimated fair value of the assets acquired and liabilities assumed for businesses acquired during 2002:

	Central Plains Laboratories		Paramedical Service Providers
	(in thousands)
Current assets	$	2,385	$	5
Property, plant and equipment		787		147
Goodwill		9,371		4,830
Intangible assets:
Non compete and non solicitation agreements		600		119
Customer contract		1,000		—
Customer relationships		100		—
Total assets acquired		14,243		5,101
Current liabilities		1,217		12
Deferred income taxes		383		—
Total liabilities assumed		1,600		12
Net assets acquired	$	12,643	$	5,089
Consideration:
Cash	$	12,643	$	4,601
Notes payable		—		488
Total	$	12,643	$	5,089

Central Plains Laboratories

      On December 1, 2002, the Company acquired Central Plains Laboratories, L.L.C. (“CPL”) located in Hays, Kansas. HMC Services Corporation owned a 70% limited liability company interest and PCS Laboratory Services Group, Inc. (“PCS”) owned a 30% limited liability company interest in CPL, constituting all of the issued and outstanding ownership interests of CPL. Pursuant to the Stock and Limited Liability Company Interest Purchase Agreement, the Company purchased

LABONE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2004, 2003 and 2002

all of the issued and outstanding shares of common stock of HMC Services Corporation from Hays Medical Center and purchased the remaining 30% limited liability company interest in CPL from PCS. The purchase price was $12,584,000 and transaction costs were $59,000. As a result of the transaction, CPL became a wholly owned subsidiary of the Company.

      Goodwill of $9,371,000 was assigned to the clinical—healthcare services segment. The weighted average amortization periods for the intangible assets acquired are: non compete and non solicitation agreement—6.7 years; customer contract—5.0 years; and customer relationships—10.0 years.

      The agreement also provides for the payment of contingent consideration during each of the following two years based on a percentage of earnings before interest, taxes, depreciation and amortization of CPL, as defined. The 2004 and 2003 contingent consideration was $255,000 and $127,000, respectively, and has been recorded as additional goodwill.

      CPL owns two laboratory facilities, a clinical laboratory facility and an anatomic pathology laboratory facility. Hays Medical Center has the right to repurchase the assets of the facilities (both individually or combined) if either (1) the Laboratory Services Agreement between CPL and Hays Medical Center is terminated due to certain events or (2) at any time after December 1, 2004. The purchase price for the assets is an amount equal to the net book value of the tangible assets of the facility on the day prior to the closing of the sale.

Paramedical Service Providers

      During 2002, the Company acquired ten paramedical service companies in the United States. The acquired businesses provide paramedical examinations that are used to assist life insurance companies in objectively evaluating the mortality and morbidity risks posed by policy applicants.

      Goodwill of $4,830,000 was assigned to the risk assessment services segment. The weighted average amortization periods for the non compete and non solicitation agreements are 4.6 years.

      All of the above acquisitions have been accounted for under the purchase method and, accordingly, the operating results of the acquired companies have been included in the consolidated statements of operations from the dates of acquisition. Certain of these acquisitions are subject to contingent payment agreements which will be recorded when earned. Supplemental pro forma information for these acquisitions is not included, as such business combinations are not material individually or in the aggregate.

(3) Property, Plant and Equipment

      Property, plant and equipment consist of the following:

	2004		2003
	(in thousands)
Land	$	2,576	$	2,576
Building		29,343		28,966
Laboratory equipment		22,528		24,699
Data processing equipment and software		56,808		42,510
Office and transportation equipment		16,629		14,199
Leasehold improvements		2,156		1,840
Construction in progress		12,122		1,839
		142,162		116,629
Less accumulated depreciation and amortization		79,302		69,224
	$	62,860	$	47,405

LABONE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2004, 2003 and 2002

(4) Goodwill and Other Intangible Assets

Goodwill

      The changes in the carrying amount of goodwill for 2004 and 2003 are as follows:

	Risk assessment services			Clinical– Healthcare services		Clinical– Substance abuse testing		Total
	(in thousands)
Balance as of December 31, 2002	$	86,938		$	9,371	$	—	$	96,309
Acquisitions		2,628			—		—		2,628
Purchase accounting adjustments		(67	)		130		—		63
Foreign currency translation adjustments		103			—		—		103
Balance as of December 31, 2003		89,602			9,501		—		99,103
Acquisitions		1,562			29,490		7,506		38,558
Additional consideration paid		142			255		—		397
Foreign currency translation adjustments		105			—		—		105
Balance as of December 31, 2004	$	91,411		$	39,246	$	7,506	$	138,163

      The amount of goodwill acquired during 2004 and 2003 that is subject to deductible amortization for income tax purposes is $38,558,000 and $2,628,000, respectively.

Other Intangible Assets

      Other intangible assets consist of the following:

	December 31, 2004					December 31, 2003
	Weighted average amortization period	Gross carrying amount		Accumulated amortization		Gross carrying amount		Accumulated amortization
		(in thousands)
Amortizing intangible assets:
Non compete and non solicitation agreements	7.7 years	$	3,170	$	690	$	1,303	$	402
Customer contracts	5.3 years		13,500		3,311		10,000		745
Customer relationships	9.8 years		8,052		689		310		23
Acquired patents and trademarks	8.1 years		955		127		912		10
		$	25,677	$	4,817	$	12,525	$	1,180

      Aggregate amortization expense for amortizable intangible assets for 2004, 2003 and 2002 was $3,936,000, $1,004,000 and $195,000, respectively. Estimated amortization expense for the next five years is: $3,975,000 in 2005, $3,950,000 in 2006, $3,906,000 in 2007, $3,129,000 in 2008 and $1,664,000 in 2009.

LABONE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2004, 2003 and 2002

(5) Long-term Debt

      Long-term debt consists of the following:

	2004		2003
	(in thousands)
3.5% convertible senior debentures	$	103,500	$	—
Taxable industrial revenue bonds, Series 1998A, principal payable annually in equal installments through September 1, 2009, interest payable monthly at a rate adjusted weekly based on short-term United States treasury obligations (3.3% as of December 31, 2004), secured by the Company’s Lenexa, Kansas laboratory facility and an irrevocable bank letter of credit		9,000		10,800
Line of credit, variable interest rate (4.2% as of December 31, 2004), principal due August 11, 2009		829		47,000
Other		187		359
Total long-term debt		113,516		58,159
Less:
Current portion		1,925		2,014
Unamortized discount		42		51
Long-term debt, net	$	111,549	$	56,094

      During 2004, the Company issued $103,500,000 of 3.50% convertible senior debentures due June 15, 2034. The debentures may be converted, under certain circumstances, into a combination of cash and common stock of the Company at an initial rate equivalent to a conversion price of $39.30 per share of common stock, subject to certain adjustments. Holders may convert the debentures if the common stock price exceeds 130% of the conversion price for 20 trading days in the 30 trading day period ending on the last trading day of the preceding fiscal quarter. Upon conversion, the Company will deliver cash equal to the lesser of the aggregate principal amount of debentures to be converted and the conversion obligation, and common stock in respect of the remainder, if any, of the conversion obligation. The Company may not redeem the debentures prior to June 20, 2009. Holders of the debentures may require the Company to repurchase some or all of the debentures on June 15, 2011, 2014 and 2024 and upon certain specified corporate transactions. The fair value of the convertible senior debentures was $113.8 million compared to the carrying value of $103.5 million at December 31, 2004. Fair value has been determined based on the quoted market price.

      The Company maintains a $175 million credit agreement co-arranged by JPMorgan Chase Bank and Wachovia Securities along with other participating banks. The credit agreement is secured by substantially all assets excluding the Company’s Lenexa, Kansas laboratory facility. The line of credit bears interest at a variable rate and requires a commitment fee of 0.5% on the unused portion of the commitment. The interest rate and commitment fee are based on a leverage ratio for the Company, as defined in the agreement. The line of credit is due on August 11, 2009. Based on covenants, $74.8 million was available for borrowing as of December 31, 2004.

      Under the terms of the agreement, the Company must limit capital expenditures and maintain a certain level of consolidated net worth and certain other financial ratios. As of December 31, 2004, the Company was in compliance with all financial covenants related to the line of credit.

LABONE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2004, 2003 and 2002

      Aggregate maturities of long-term debt as of December 31, 2004 are as follows:

	Convertible debentures		Bonds payable		Line of credit		Other		Total
	(in thousands)
2005	$	—	$	1,800	$	—	$	125	$	1,925
2006		—		1,800		—		48		1,848
2007		—		1,800		—		14		1,814
2008		—		1,800		—		—		1,800
2009		—		1,800		829		—		2,629
Thereafter		103,500		—		—		—		103,500
	$	103,500	$	9,000	$	829	$	187	$	113,516

(6) Stockholders’ Equity

Preferred Stock

      In 2001, the Company sold a total of $50,000,000 in preferred stock and subordinated debt to Welsh, Carson, Anderson & Stowe (“WCAS”) pursuant to a Securities Purchase Agreement. The Company issued $35,000,000 of convertible preferred stock and $15,000,000 of 11% subordinated debt to WCAS in exchange for $50,000,000 in cash. During 2002, the subordinated debt was refinanced from borrowings on the Company’s line of credit.

      The $35,000,000 of preferred stock consisted of two distinct series of stock in the original issuance: 14,000 shares of Series B-1 convertible preferred stock, par value of $1,000 per share, accruing paid-in-kind dividends at 8%; and 21,000 shares of Series B-2 preferred stock, par value $1,000, accruing paid-in-kind dividends at 18%. Upon shareholder approval, which occurred on January 31, 2002, the Series B-2 preferred stock was retroactively converted into Series B-1 convertible preferred stock with paid-in-kind dividends accruing at the Series B-1 rate of 8% beginning September 1, 2001.

      The 35,000 shares of Series B-1 convertible preferred stock, plus accreted paid-in-kind dividends, was convertible into LabOne common stock at any time at the holder’s option until August 31, 2008 at the rate of $8.32 per common share. During the third and fourth quarters of 2003, all outstanding shares of Series B-1 convertible preferred stock, plus accreted paid-in-kind dividends, were converted into 4,995,753 shares of LabOne common stock.

Stock Warrants

      In addition to the issuance of B-1 convertible preferred stock in 2001, the Company issued 350,000 warrants with a strike price of $0.01 to the holders of the B-1 preferred stock. The warrants were exercisable immediately. The market price at the date of the grant was $9.25, resulting in an intrinsic value of $9.24 per warrant. These warrants were exercised in 2003.

Rights Plan

      LabOne has a shareholder rights plan, which grants shareholders other than the acquiring person the right to purchase common stock at one-half of the market price if any person becomes the beneficial owner of 15% or more of the outstanding shares of common stock, subject to exceptions set forth in the plan.

LABONE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2004, 2003 and 2002

Stock Compensation

      The Company has long-term incentive plans, which provide for granting awards, including stock options, to officers, directors and employees for shares of LabOne common stock. The Company has granted certain stock options which entitle the grantee to purchase shares for a price equal to the fair market value at date of grant with option terms of up to ten years. The stock options generally vest ratably over five years subject to early vesting upon the occurrence of defined events. As of December 31, 2004, there were 1,808,297 additional shares available for grant under the plans.

      A summary of the Company’s stock option plans as of December 31, 2004, 2003 and 2002 and changes during the years then ended is presented below:

	2004					2003					2002
Fixed options	Number of shares			Weighted average exercise price		Number of shares			Weighted average exercise price		Number of shares			Weighted average exercise price
Outstanding at beginning of year		1,749,090		$	18.03		1,910,509		$	16.91		1,557,140		$	12.54
Granted		517,280			31.30		184,992			24.36		1,052,197			20.13
Exercised		(346,922	)		14.16		(321,938	)		15.01		(661,491	)		12.22
Forfeited		(139,041	)		24.56		(24,473	)		18.57		(37,337	)		8.44
Outstanding at end of year		1,780,407		$	22.13		1,749,090		$	18.03		1,910,509		$	16.91
Options exercisable at year-end		790,563		$	16.92		912,404		$	14.72		985,931		$	13.51

      The following table summarizes information about stock options as of December 31, 2004:

	Options outstanding						Options exercisable
Range of exercise prices	Number outstanding		Weighted average remaining contractual life (years)		Weighted average exercise price		Number exercisable		Weighted average exercise price
$ 5.75–$ 7.70		172,886		5.6	$	7.06		172,886	$	7.06
$ 9.38–$ 9.38		5,000		4.6		9.38		5,000		9.38
$11.63–$12.22		42,600		3.1		11.97		42,600		11.97
$14.38–$17.81		484,966		5.6		16.47		300,734		16.84
$18.95–$24.15		488,321		7.4		23.80		230,989		23.59
$26.41–$29.61		155,354		9.0		28.55		38,354		28.33
$30.15–$31.65		431,280		9.5		31.47		—		—
		1,780,407		7.3	$	22.13		790,563	$	16.92

(7) Income Taxes

      The components of earnings before income taxes are as follows:

	2004		2003		2002
	(in thousands)
Domestic	$	37,646	$	30,054	$	24,592
Foreign		2,789		2,651		(327	)
Total	$	40,435	$	32,705	$	24,265

LABONE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2004, 2003 and 2002

      The components of current and deferred income taxes are as follows:

	2004			2003			2002
	(in thousands)
Current:
Federal	$	9,229		$	10,604		$	8,285
State		1,122			585			1,003
Foreign		848			880			10
Total current		11,199			12,069			9,298
Deferred:
Federal		4,112			(83	)		113
State		(1,513	)		(22	)		(3	)
Foreign		(87	)		9			17
Total deferred		2,512			(96	)		127
	$	13,711		$	11,973		$	9,425

      Total income taxes differ from the amounts computed by applying the federal statutory income tax rate of 35% to earnings before income taxes for the following items:

	2004			2003			2002
	(in thousands)
Application of statutory income tax rate	$	14,152		$	11,447		$	8,493
Goodwill amortization		(12	)		(12	)		(8	)
Changes in valuation allowance		—			77			(173	)
Foreign taxes, net		(195	)		(39	)		141
State income taxes, net		(254	)		365			650
Other, net		20			135			322
	$	13,711		$	11,973		$	9,425

      The tax effects of temporary differences that create significant portions of the deferred tax assets and deferred tax liabilities are as follows:

	2004			2003
	(in thousands)
Deferred current income tax assets (liabilities):
Accrued vacation	$	1,113		$	811
Accrued expenses not deducted for tax		630			1,186
Allowance for doubtful accounts		3,248			2,899
State income tax credits, net of federal tax		650			—
Other items		(85	)		94
Total deferred current income tax assets		5,556			4,990
Deferred noncurrent tax assets (liabilities):
Depreciation and amortization, including capitalized software		(7,702	)		(3,990	)
Goodwill and other intangibles		(1,675	)		(401	)
Other items		(84	)		(1,228	)
State income tax credits, net of federal tax		1,321			1,874
		(8,140	)		(3,745	)
Valuation allowance—state income tax credits, net of federal tax		(554	)		(1,874	)
Total deferred noncurrent tax liabilities, net		(8,694	)		(5,619	)
Total deferred income tax, net	$	(3,138	)	$	(629	)

LABONE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2004, 2003 and 2002

      In conjunction with building its laboratory facility in Lenexa, Kansas, the Company applied and was certified for the Kansas High Performance Incentive Program (“HPIP”) tax credit. In order to utilize these HPIP credits against Kansas income tax, the Company must be recertified annually by the Kansas Department of Commerce (KDC). The credit may only be used to offset Kansas income tax generated by operation of the Lenexa, Kansas facility. The credit, if unused, may be carried forward for a period of ten years, provided the Company continues to meet the annual recertification requirements. In the fourth quarter of 2004, the KDC and the Company entered into an agreement stipulating that the Company could utilize the 1999 and 2002 HPIP credits as originally earned. This agreement allowed the Company to remove the valuation allowance against these credits during fourth quarter, 2004.

      On its Kansas income tax returns, the Company used the Kansas HPIP tax credit to offset Kansas income tax of $819,000 (estimated), $1,084,000 and $466,000 during 2004, 2003 and 2002, respectively. The Company’s available Kansas HPIP tax credit for 2004 and 2003, respectively, net of the current year’s estimated usage, was $3,033,000 and $2,883,000 with a valuation allowance of $852,000 and $2,883,000.

      In conjunction with the construction of its laboratory facility in Cincinnati, Ohio, the Company has entered into tax credit agreements with both the State of Ohio and the City of Cincinnati. The term of these tax credit agreements extends from 2006–2015 and grants the Company state and local income tax credits based on wages paid to new hires at the new laboratory facility. The Company also has entered into a ten-year property tax exemption agreement with the City of Cincinnati for certain real and personal property taxes generated by the new construction and equipment purchased for use in that facility. In January, 2005, the Company received approval for a $500,000 grant from the State of Ohio to be applied to purchases of new equipment at the facility.

      The Company has not recognized a deferred tax liability for temporary differences between the basis in its investment in its Canadian subsidiaries and the U.S. federal income tax basis thereof. Relying on the APB-23 exception, the Company deems these investments, and temporary differences thereon, as essentially permanent in duration. Should the Company repatriate the $5,800,000 of undistributed earnings of these subsidiaries, the US and Canadian tax liability that would be accrued, but not currently recognized in the financial statements, is approximately $435,000. The tax is composed of $289,000 Canadian withholding tax and $146,000 in state income taxes. The Company anticipates that the U.S. federal income tax of $3,400,000 would be fully offset by foreign tax credits. At this time, the Company does not plan to utilize the temporary dividends received deduction on repatriated foreign earnings that is part of the American Jobs Creation Act of 2004.

(8) Benefit Plans

      The Company maintains a money purchase pension plan for all employees who have completed six months of service and have attained age twenty and one-half years. The plan is a defined contribution plan under which the Company contributes a percentage of a participant’s annual compensation. The Company’s contributions, net of forfeitures, to the plan were $6,331,000, $4,265,000 and $4,252,000 for 2004, 2003 and 2002, respectively.

      The Company has a profit sharing (401(k)) plan for all employees who have completed six months of service and a minimum of five hundred hours of service and have attained the age of twenty and one-half years. The Company contributes on behalf of each participant an amount equal to 50% of the participant’s annual contributions, but not in excess of 5% of the participant’s annual compensation. The Company’s contributions are invested in LabOne common stock. The

LABONE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2004, 2003 and 2002

Company’s contributions, net of forfeitures, to the plan were $2,573,000, $1,620,000 and $1,568,000 for 2004, 2003 and 2002, respectively.

(9) Business Segment Information

      The Company operates principally in two lines of business: risk assessment services, which is segregated into insurance laboratory, paramedical services and other insurance services, and clinical, which is segregated into healthcare services and substance abuse testing. Risk assessment services includes laboratory testing on policy applicants and specimen collection and paramedical examinations for life insurance companies. Risk assessment also includes other insurance services to the life insurance industry including teleunderwriting, telephone inspections, motor vehicle reports and medical record retrieval. Clinical includes laboratory testing services for the healthcare industry as an aid in the diagnosis and treatment of patients. The Company markets its clinical testing services to managed care companies, insurance companies, self-insured groups, hospitals and physicians. Clinical also includes substance abuse testing provided to employers to support their drug free workplace programs. The Company is certified by the Substance Abuse and Mental Health Services Administration to perform substance abuse testing for federally regulated employers and currently markets these services throughout the country to both regulated and nonregulated employers.

      Operating earnings (loss) of each segment is computed as sales less directly identifiable expenses. In computing operating earnings (loss) of the segments, none of the following items have been allocated: general corporate expenses such as administrative, management and information systems expenses; amortization of acquired identifiable intangible assets not associated with a specific segment; or total other expenses. General corporate assets are principally cash, fixed assets and goodwill not identified with a specific segment. The accounting policies of the segments are the same as those of the Company as set forth in Note 1.

LABONE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2004, 2003 and 2002

      Following is a summary of segment information as of and for the years ended December 31, 2004, 2003, and 2002:

	2004			2003			2002
	(in thousands)
Sales:
Risk assessment services:
Insurance laboratory	$	86,859		$	88,818		$	93,892
Paramedical services		102,720			85,363			74,235
Other insurance services		71,493			56,554			41,869
Total risk assessment services		261,072			230,735			209,996
Clinical:
Healthcare services		166,732			88,455			60,906
Substance abuse testing		40,432			26,830			27,244
Total clinical		207,164			115,285			88,150
Total	$	468,236		$	346,020		$	298,146
Operating earnings (loss):
Risk assessment services:
Insurance laboratory	$	36,007		$	38,993		$	37,790
Paramedical services		11,478			8,437			5,678
Other insurance services		10,214			5,275			3,744
Risk assessment sales group		(6,672	)		(5,368	)		(6,228	)
Total risk assessment services		51,027			47,337			40,984
Clinical:
Healthcare services		27,989			17,862			11,893
Substance abuse testing		7,355			4,558			3,575
Total clinical		35,344			22,420			15,468
General corporate expenses		(41,244	)		(34,208	)		(28,021	)
Total other expense, net		(4,692	)		(2,844	)		(4,166	)
Earnings before income taxes		40,435			32,705			24,265
Provision for income taxes		13,711			11,973			9,425
Net earnings	$	26,724		$	20,732		$	14,840
Identifiable assets:
Risk assessment services	$	154,241		$	133,812		$	119,914
Clinical:
Healthcare services		88,051			37,101			28,004
Substance abuse testing		23,857			10,731			10,504
Total clinical		111,908			47,832			38,508
General corporate assets		77,073			55,978			58,269
Total identifiable assets	$	343,222		$	237,622		$	216,691

LABONE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2004, 2003 and 2002

	2004		2003		2002
	(in thousands)
Capital expenditures:
Risk assessment services:
Insurance laboratory	$	1,339	$	1,128	$	373
Paramedical services		854		287		209
Other insurance services		902		778		2,781
Risk assessment sales group		162		21		13
Total risk assessment services		3,257		2,214		3,376
Clinical:
Healthcare services		10,640		1,635		252
Substance abuse testing		1,668		290		584
Total clinical		12,308		1,925		836
General corporate		8,924		5,580		3,819
Total capital expenditures	$	24,489	$	9,719	$	8,031
Depreciation and amortization:
Risk assessment services:
Insurance laboratory	$	3,627	$	2,140	$	1,430
Paramedical services		1,161		811		604
Other insurance services		1,383		1,655		1,505
Risk assessment sales group		94		63		72
Total risk assessment services		6,265		4,669		3,611
Clinical:
Healthcare services		5,291		1,957		1,166
Substance abuse testing		1,048		924		1,052
Total clinical		6,339		2,881		2,218
General corporate		4,504		3,487		3,538
Total depreciation and amortization	$	17,108	$	11,037	$	9,367

(10) Commitments and Contingencies

Litigation

      The Company is a party to various claims or lawsuits related to services performed in the ordinary course of the Company’s activities. The Company’s management and legal counsel anticipate potential claims resulting from such matters that would not be covered by insurance and have appropriately provided for these claims in the consolidated financial statements. The Company believes that the ultimate resolution of these matters will not materially affect the consolidated financial statements of the Company.

Leases

      The Company has several noncancelable operating leases, primarily for land and building, and other commitments that expire through 2012. Rental expense for these operating leases during 2004, 2003 and 2002 amounted to $5,875,000, $4,114,000 and $3,288,000, respectively.

LABONE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2004, 2003 and 2002

      Future minimum lease payments and other commitments under these agreements as of December 31, 2004 are:

	(in thousands)
2005	$	4,299
2006		2,881
2007		1,985
2008		1,435
2009		1,186
2010 and thereafter		1,518
	$	13,304

      On August 10, 1999, the former LabOne, Inc. was merged into its parent corporation, Lab Holdings, Inc. (formerly Seafield Capital Corporation, formerly BMA Corporation) upon the approval of the shareholders of both companies. The combined company’s name was then changed to LabOne, Inc. Prior to the merger, Lab Holdings, Inc. was subject to contingent obligations under leases and other instruments incurred in connection with real estate activities and other operations of its predecessor, BMA Corporation. The management of LabOne has assessed the risk related to the probability of default by third parties regarding its continuing obligations under certain land leases with two Hawaiian trusts relating to approximately 2.3 acres of land upon which the Hyatt Regency Waikiki Hotel is built and a land lease for a parking garage in Reno, Nevada.

      The Hawaii obligations arise out of certain land leases and subleases that were entered into by Business Men’s Assurance Company of America (“BMAA”), a subsidiary of BMA Corporation, and Bankers Life of Nebraska (now known as Ameritas Life) as tenants in common (jointly and severally liable—collectively the “Original Obligors”) in connection with the development of the Hyatt Regency Waikiki Hotel. In the years following the initial leases, the improvements (hotel and convention center) were sold and re-sold to third parties. In connection with these sales, the land was subleased to the purchasing party. While the sublessee assumed all obligations, the Original Obligors and the subsequent obligors were not released by the land owners. During 1990, in connection with the sale of BMAA, Lab Holdings, Inc. gave an indemnity to the purchaser, Generali-Assicurazioni Generali S.p.A., against liabilities that may arise from the subject leases. Also during 1990, Lab Holdings, Inc. transferred its right title and interest to the subject leases to Scout Development Corporation (“Scout”), a subsidiary of Syntroleum Corporation. Scout assumed all of the liability and indemnified Lab Holdings, Inc. In the event that the Hyatt Regency Waikiki Hotel should fail to pay its rent and real estate taxes on the subject land, this default could trigger liability for LabOne, Scout and Ameritas Life. This liability is not recorded in the Company’s balance sheets since the contingent liability is considered remote.

      The current rent payments for the subject leases are $0.8 million per year plus real estate taxes of approximately $1.6 million for the most recent year available. The lease amount is fixed until the year 2006 at which time the lease calls for a negotiated increase. The formula for the increase is the product of the fair market value of the land times the market rate of return for similar land. The market rate of return to be used in the calculation has a floor of seven percent and the resulting base rent cannot decrease from the prior period. Based on current market values, the Company projects that in 2007, the annual lease obligations for the subject parcels would be approximately $5.8 million. There are subsequent renegotiations in 2017, 2027 and 2037 subject to the same formula. This lease expires in 2047. The Company believes the leasehold improvements are significantly more valuable than the lease obligations. In the event of default by the property owner, the risk of this lease would be shared with Scout and Ameritas Life.

LABONE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2004, 2003 and 2002

      The Company, through its predecessor Lab Holdings, Inc., is a lessee of a land lease for a parking garage in Reno, Nevada. The lease was assigned to Scout in August 1990. Lab Holdings, Inc. was not released from the land lease by the landowner. The property was sold in 2000. Minimum annual lease payments for the land lease are $0.3 million, adjusted for the Consumer Price Index, plus real estate taxes and insurance. The land lease expires in August 2023. Should the property owner default on its obligations under the land lease, Scout would have rights to claim the parking garage and sell the asset. Should Scout default on its obligations, LabOne would be obligated for the land lease payments. Management of the Company believes that the sale of the asset and the assignment of the land lease would cover the contingent liability exposure for this lease, and as such, no liability is recorded on the Company’s balance sheet.

(11) Quarterly Financial Data (Unaudited)

      A summary of unaudited quarterly results of operations for 2004 and 2003 is as follows:

	Three Months Ended
	March 31		June 30		September 30		December 31
	(in thousands, except per share data)
2004:
Sales	$	112,825	$	117,483	$	117,839	$	120,090
Gross profit		35,207		36,876		37,001		38,809
Earnings before income taxes		9,474		10,075		10,286		10,601
Net earnings		5,880		6,287		6,615		7,943
Basic earnings per share	$	0.35	$	0.37	$	0.39	$	0.46
Diluted earnings per share	$	0.34	$	0.36	$	0.38	$	0.45
2003:
Sales	$	81,928	$	83,963	$	88,115	$	92,014
Gross profit		25,838		26,876		27,952		28,279
Earnings before income taxes		7,278		7,931		8,540		8,956
Net earnings		4,551		5,045		5,387		5,749
Basic earnings per share	$	0.32	$	0.36	$	0.39	$	0.37
Diluted earnings per share	$	0.27	$	0.30	$	0.32	$	0.33

EX-99

Exhibit 99.2

LABONE, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(in thousands, except share and per share data)

	September 30, 2005			December 31, 2004
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	15,302		$	24,070
Accounts receivable, net of allowance for doubtful accounts of $5,722 in 2005 and $4,594 in 2004		84,380			73,027
Inventories		7,723			7,473
Prepaid expenses and other current assets		7,024			6,506
Deferred income taxes		8,717			5,556
Total current assets		123,146			116,632
Property, plant and equipment, net		86,212			62,860
Goodwill		140,495			138,163
Intangible assets, net		18,038			20,860
Other long-term assets		4,117			4,707
Total assets	$	372,008		$	343,222
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	23,804		$	20,467
Income taxes payable		3,240			—
Accrued payroll and benefits		13,314			17,131
Other accrued expenses		4,128			3,381
Current portion of long-term debt		1,849			1,925
Total current liabilities		46,335			42,904
Deferred income taxes		9,180			8,694
Long-term debt		109,734			111,549
Other		67			108
Total liabilities		165,316			163,255
Commitments and contingencies
Stockholders’ equity:
Common stock, $0.01 par value per share. Authorized 40,000,000 shares; issued 18,027,729 shares		180			180
Additional paid-in capital		89,984			87,027
Retained earnings		123,070			102,974
Accumulated other comprehensive income (loss)		155			(94	)
Treasury stock of 526,963 shares in 2005 and 796,260 shares in 2004, at cost		(6,697	)		(10,120	)
Total stockholders’ equity		206,692			179,967
Total liabilities and stockholders’ equity	$	372,008		$	343,222

See accompanying notes to consolidated financial statements.

LABONE, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(in thousands, except per share data)
(unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2005			2004			2005			2004
Revenues	$	127,265		$	117,839		$	379,224		$	348,146
Cost of sales:
Cost of sales expenses		85,333			79,126			251,635			234,128
Depreciation and amortization		1,820			1,712			5,120			4,934
Total cost of sales		87,153			80,838			256,755			239,062
Gross profit		40,112			37,001			122,469			109,084
Selling, general and administrative:
Selling, general and administrative expenses		26,875			22,730			76,960			68,020
Depreciation and amortization		3,388			2,670			9,167			7,502
Total selling, general and administrative		30,263			25,400			86,127			75,522
Operating earnings		9,849			11,601			36,342			33,562
Other income (expense):
Interest income		171			54			507			121
Interest expense		(1,399	)		(1,340	)		(3,951	)		(3,814	)
Other, net		243			(29	)		163			(35	)
Total other expense, net		(985	)		(1,315	)		(3,281	)		(3,728	)
Earnings before income taxes		8,864			10,286			33,061			29,834
Provision for income taxes		3,458			3,671			12,965			11,053
Net earnings	$	5,406		$	6,615		$	20,096		$	18,781
Earnings per common share:
Basic	$	0.31		$	0.39		$	1.15		$	1.10
Diluted	$	0.30		$	0.38		$	1.12		$	1.08
Weighted average common shares outstanding:
Basic		17,496			17,113			17,423			17,039
Diluted		18,129			17,477			17,908			17,459

See accompanying notes to consolidated financial statements.

LABONE, INC. AND SUBSIDIARIES
Consolidated Statement of Stockholders’ Equity
Nine Months Ended September 30, 2005
(in thousands, except share data)
(unaudited)

	Common stock		Additional paid-in capital		Retained earnings		Accumulated other comprehensive loss			Treasury stock			Comprehensive income		Total stockholders’ equity
Balance as of December 31, 2004	$	180	$	87,027	$	102,974	$	(94	)	$	(10,120	)			$	179,967
Comprehensive income:
Net earnings		—		—		20,096		—			—		$	20,096		20,096
Adjustment from foreign currency translation		—		—		—		249			—			249		249
Comprehensive income													$	20,345
Stock options exercised (267,947 shares)		—		609		—		—			3,406					4,015
Tax benefit from exercise of options		—		2,204		—		—			—					2,204
Stock-based compensation		—		109		—		—			—					109
Directors’ stock compensation (1,350 shares)		—		35		—		—			17					52
Balance as of September 30, 2005	$	180	$	89,984	$	123,070	$	155		$	(6,697	)			$	206,692

See accompanying notes to consolidated financial statements.

LABONE, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(in thousands)
(unaudited)

	Nine months ended September 30,
	2005			2004
Cash flows from operating activities:
Net earnings	$	20,096		$	18,781
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization		14,836			13,396
Provision for loss on accounts receivable		8,384			6,833
Income tax benefit from exercise of stock options		2,204			1,558
Deferred income taxes		(2,671	)		220
Stock-based compensation		109			—
Directors’ stock compensation		52			50
Loss on sale of property, plant and equipment		136			63
Change in assets and liabilities, net of effects of acquisitions:
Accounts receivable		(19,737	)		(19,068	)
Inventories		(249	)		464
Prepaid expenses and other current assets		(518	)		(1,240	)
Accounts payable		3,337			9,178
Income taxes payable		3,240			—
Accrued payroll and benefits		(3,816	)		5,425
Other accrued expenses		747			1,762
Other		35			(131	)
Net cash provided by operations		26,185			37,291
Cash flows from investing activities:
Capital expenditures		(34,808	)		(16,162	)
Acquisition of businesses		(2,440	)		(60,110	)
Proceeds from sale of property, plant and equipment		75			36
Acquisition of patents		(5	)		(40	)
Net cash used in investing activities		(37,178	)		(76,276	)
Cash flows from financing activities:
Net payments on line of credit		—			(46,253	)
Net proceeds from issuance of convertible debentures		—			100,144
Debt issue costs		—			(845	)
Payments on other long-term debt		(1,951	)		(2,011	)
Proceeds from exercise of stock options		4,015			3,875
Net cash provided by financing activities		2,064			54,910
Effect of foreign currency translation on cash		161			16
Net increase (decrease) in cash and cash equivalents		(8,768	)		15,941
Cash and cash equivalents at beginning of period		24,070			4,651
Cash and cash equivalents at end of period	$	15,302		$	20,592

See accompanying notes to consolidated financial statements.

LABONE, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(in thousands)
(unaudited)

	Nine Months Ended September 30,
	2005		2004
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Income taxes	$	9,051	$	8,955
Interest		2,668		2,195
Supplemental schedule of non-cash investing and financing activities:
Details of acquisitions:
Fair value of assets acquired	$	2,440	$	60,928
Liabilities assumed		—		(818	)
Cash paid for acquisitions	$	2,440	$	60,110

(1) Basis of Presentation

Description of Business

      LabOne, Inc. (“LabOne” or the “Company”) is a diagnostic services provider. The services and information LabOne and its subsidiaries provide include: risk assessment information services for the insurance industry; diagnostic healthcare testing; and substance abuse testing services and related employee qualification products.

      The financial information furnished herein as of September 30, 2005, and for the periods ended September 30, 2005 and 2004, 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 its cash flows. The balance sheet information as of December 31, 2004 has been derived from the audited consolidated financial statements as of that date. The financial statements have been prepared in conformity with generally accepted accounting principles 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 have been condensed or omitted. These condensed, consolidated financial statements should be read in conjunction with the accompanying consolidated financial statements and notes thereto as of December 31, 2004 and 2003, and for each of the years in the three-year period ended December 31, 2004.

(2) Earnings Per Share

      Basic earnings per share is computed using net earnings divided by the weighted average number of common shares outstanding. Diluted earnings per share includes the effects of outstanding stock options and the dilutive effect of the convertible debentures. The par value of the debentures would be settled in cash. Subject to adjustment under certain circumstances as described in the terms of the convertible debentures, the conversion obligation is generally based upon the product of the conversion rate then in effect (25.4463 as of September 30, 2005) and the closing price of LabOne common stock over the measurement period. Should the debentures become convertible under the terms of the conversion rights with a stock price of $51.09 over the measurement period, the conversion obligation would be approximately $1,300 (25.4463 x $51.09), and the settlement upon conversion would consist of $1,000 cash and 5.87 shares ($300/$51.09) of common stock, per $1,000 principal amount of debentures converted, assuming none of the adjustment provisions in the debenture applied to such calculation.

      The following table reconciles the weighted average common shares used in the basic earnings per share calculation and the weighted average common shares and common share equivalents used in the diluted earnings per share calculation:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2005		2004		2005		2004
	(in thousands)
Weighted average common shares for basic earnings per share		17,496		17,113		17,423		17,039
Dilutive effect of employee stock options		454		364		421		420
Dilutive effect of convertible debentures		179		—		64		—
Weighted average common shares for dilutive earnings per share		18,129		17,477		17,908		17,459

(3) Stock-based Compensation

      The Company applies the intrinsic-value based method of accounting prescribed by Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations including FASB Interpretation No. 44, Accounting for Certain Transactions involving Stock Compensation, an interpretation of APB Opinion No. 25, to account for its fixed-plan stock options. Under this method, compensation expense is recorded on the date of grant only if the current market price of the underlying stock exceeds the exercise price. Statement of Financial Accounting Standards (“SFAS”) No. 123, Accounting for Stock-Based Compensation, as amended by SFAS No. 148, Accounting for Stock-Based Compensation—Transition and Disclosure, an amendment of FASB Statement No. 123, established accounting and disclosure requirements using a fair-value based method of accounting for stock-based employee compensation plans. As allowed by SFAS No. 123, as amended by SFAS No. 148, the Company has elected to continue to apply the intrinsic-value based method of accounting described above and has adopted only the disclosure requirements of SFAS No. 123.

      The following table illustrates the effect on net earnings if the fair-value based method had been applied to all outstanding and unvested options in each period.

	Three Months Ended September 30,						Nine Months Ended September 30,
	2005			2004			2005			2004
	(in thousands)
Net earnings, as reported	$	5,406		$	6,615		$	20,096		$	18,781
Deduct total stock-based employee compensation expense determined under fair-value based method for all stock options, net of tax		(536	)		(528	)		(1,600	)		(1,302	)
Pro forma net earnings	$	4,870		$	6,087		$	18,496		$	17,479
Basic earnings per share:
As reported	$	0.31		$	0.39		$	1.15		$	1.10
Pro forma	$	0.28		$	0.36		$	1.06		$	1.03
Diluted earnings per share:
As reported	$	0.30		$	0.38		$	1.12		$	1.08
Pro forma	$	0.27		$	0.35		$	1.03		$	1.00

(4) Business Segment Information

      The Company operates principally in two lines of business: risk assessment services and clinical. Risk assessment services is segregated into insurance laboratory, paramedical services and other insurance services. Clinical is segregated into healthcare services and substance abuse testing.

      During the third quarter, the Company announced that it had entered into an agreement with Quest Diagnostics to be acquired. Costs related to the acquisition incurred during the quarter and year are identified in the table below.

      Following is a summary of segment information:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2005			2004			2005			2004
	(in thousands)
Revenues:
Risk assessment services:
Insurance laboratory	$	19,546		$	20,708		$	61,304		$	65,231
Paramedical services		27,883			26,129			83,252			75,799
Other insurance services		18,105			17,809			55,415			53,171
Total risk assessment services		65,534			64,646			199,971			194,201
Clinical:
Healthcare services		49,228			42,241			142,769			124,275
Substance abuse testing		12,503			10,952			36,484			29,670
Total clinical		61,731			53,193			179,253			153,945
Total	$	127,265		$	117,839		$	379,224		$	348,146
Operating earnings:
Risk assessment services:
Insurance laboratory	$	7,421		$	8,543		$	24,350		$	26,876
Paramedical services		2,893			3,203			8,550			8,533
Other insurance services		1,938			2,475			6,640			7,900
Risk assessment sales group		(1,502	)		(1,752	)		(4,740	)		(4,884	)
Total risk assessment services		10,750			12,469			34,800			38,425
Clinical:
Healthcare services		9,235			7,591			29,932			19,888
Substance abuse testing		1,819			1,976			5,558			5,105
Total clinical		11,054			9,567			35,490			24,993
General corporate expenses		(9,912	)		(10,435	)		(31,905	)		(29,856	)
Acquisition related costs		(2,043	)		—			(2,043	)		—
Total other expenses, net		(985	)		(1,315	)		(3,281	)		(3,728	)
Earnings before income taxes		8,864			10,286			33,061			29,834
Provision for income taxes		3,458			3,671			12,965			11,053
Net earnings	$	5,406		$	6,615		$	20,096		$	18,781

(5) Business Acquisitions

      During the first nine months of 2005, the Company made acquisition related payments of $2.4 million primarily for the elimination of an earn-out agreement and contingent payments under prior purchase agreements.

(6) Commitments and Contingencies

      The Company is a party to various claims or lawsuits related to services performed in the ordinary course of the Company’s activities. The Company’s management and legal counsel anticipate potential claims resulting from such matters that would not be covered by insurance and have appropriately provided for these claims in the consolidated financial statements. The Company believes that the ultimate resolution of these matters will not materially affect the consolidated financial statements of the Company.

(7) Recently Issued Accounting Standards

      In December 2004, the FASB issued SFAS 123R which requires the measurement of all employee share-based payments to employees, including grants of employee stock options, using a

fair-value-based method and the recording of such expense in the consolidated statements of operations. Due to the Securities and Exchange Commission’s delay of the effective date of this pronouncement, the Company plans to adopt the accounting provisions of SFAS 123R for the first quarter of 2006. The pro forma disclosures previously permitted under SFAS 123 no longer will be an alternative to financial statement recognition.

      In September, 2004, the Emerging Issues Task Force of the Financial Accounting Standards Board (the “EITF”) reached a conclusion on EITF Issue No. 04-8 “The Effect of Contingently Convertible Debt on Diluted Earnings Per Share.” Contingently convertible debt instruments (“Co-Cos”) are subject to the if-converted method under SFAS No. 128, “Earnings Per Share” (SFAS No. 128), regardless of whether a stock price-related conversion contingency included in the instrument has been met. Under prior interpretations of SFAS No. 128, issuers of Co-Cos exclude the potential common shares underlying the Co-Cos from the calculation of diluted earnings per share until the market price or other contingency is met. The effective date of EITF 04-8 is for periods ending after December 15, 2004. The Company accounts for the debentures in accordance with the EITF.

Subsequent Event—Acquisition of LabOne Inc., and Subsidiaries by Quest Diagnostics

      On August 8, 2005, the Company entered into a definitive agreement (the “merger agreement”) with Quest Diagnostics Incorporated (“Quest Diagnostics”), which provided for Quest Diagnostics to acquire all of the outstanding shares of the Company’s common stock and assume the Company’s existing debt. On November 1, 2005, Quest Diagnostics acquired all of the outstanding common shares of LabOne for $43.90 per share in an all-cash transaction valued at approximately $947 million, including approximately $138 million of assumed debt of LabOne.

      As a result of the change in control, as defined in the indenture to the Company’s debentures, at any time from November 1, 2005 until December 1, 2005 the holders of the debentures have the right to have the debentures repurchased by the Company for 100% of the principal amount of the debentures, plus accrued and unpaid interest thereon through November 30, 2005, or the right to have the debentures converted into the amount the respective holder would have received if the holder had converted the debentures prior to November 1, 2005, plus an additional premium. As provided in the indenture, the conversion rate has increased so that each $1,000 principal amount of the debentures is convertible into cash in the amount of approximately $1,280.88 if converted by December 1, 2005.

      In addition, pursuant to the merger agreement, LabOne’s outstanding stock options became fully vested and exercisable, and were cancelled in exchange for the right to receive an amount, for each share subject to the stock option, equal to the excess of $43.90 per share over the exercise price per share of such option.

      The Company incurred $2.0 million in direct transaction costs associated with the merger agreement as of September 30, 2005. Such costs have been included in selling, general and administrative expenses in the consolidated statement of operations for the nine months ended September 30, 2005.

EX-99

Exhibit 99.3

Quest Diagnostics Incorporated

Unaudited Pro Forma Combined Financial Statements

On November 1, 2005, Quest Diagnostics Incorporated (the “Company” or “Quest Diagnostics”) completed its acquisition (the “Acquisition”) of LabOne, Inc. (“LabOne”) in a transaction valued at approximately $947 million, including approximately $138 million of assumed debt of LabOne. LabOne provides health screening and risk assessment services to life insurance companies, as well as clinical diagnostic testing services to patients and healthcare providers and drugs-of-abuse testing to employers.

Under the terms of the merger agreement, Quest Diagnostics acquired all of the outstanding common shares of LabOne. In connection with the Acquisition, Quest Diagnostics paid $43.90 per common share in cash, or $768 million in total, to acquire all of the outstanding common shares of LabOne. In addition, Quest Diagnostics paid $33 million in cash for outstanding stock options of LabOne. Pursuant to the terms of the merger agreement, LabOne’s outstanding stock options became fully vested and exercisable and were cancelled in exchange for the right to receive an amount, for each share subject to the stock option, equal to the excess of $43.90 per share over the exercise price per share of such option. The aggregate purchase price of $809 million includes transaction costs of approximately $8 million.

In conjunction with the acquisition of LabOne, Quest Diagnostics repaid approximately $127 million of debt, representing substantially all of LabOne’s existing outstanding debt as of November 1, 2005.

Quest Diagnostics financed the all-cash purchase price and related transaction costs associated with the LabOne acquisition, and the repayment of substantially all of LabOne’s outstanding debt with the net proceeds from a $900 million private placement of senior notes (the “Senior Notes”), completed on October 31, 2005, and cash on-hand.

The following unaudited pro forma combined financial statements of the Company have been prepared to illustrate the effects of the following transactions:

Quest Diagnostics’ purchase, on November 1, 2005, of LabOne, its financing of the all-cash purchase price and related transaction costs associated with the LabOne acquisition, and the repayment of substantially all of LabOne’s outstanding debt with cash on-hand and the net proceeds from its $900 million private placement of senior notes.

The Acquisition will be accounted for under the purchase method. As such, the cost to acquire LabOne will be allocated to the respective assets and liabilities acquired based on their estimated fair values at the closing of the Acquisition. A preliminary allocation of the costs to acquire LabOne has been made to certain of the assets and liabilities of LabOne in the accompanying unaudited pro forma combined financial statements based on preliminary estimates. The Company is continuing to assess the estimated fair values of the assets and liabilities acquired. Accordingly, the final allocation may be different from the amounts reflected in the accompanying unaudited pro forma combined financial statements. The unaudited pro forma combined balance sheet as of September 30, 2005 gives effect to the Acquisition, the repayment of substantially all of LabOne’s existing outstanding debt and the issuance of the Senior Notes as if they had occurred on September 30, 2005. The unaudited pro forma combined statements of operations assume these transactions were effected on January 1, 2004.

The costs related to the integration of LabOne’s operations into the Company's laboratory network are not included in the unaudited pro forma combined balance sheet as of September 30, 2005. We have not yet finalized the integration plan for LabOne, as such, we have not yet finalized our estimate of integration costs. We expect a significant portion of these costs will require cash outlays and will primarily relate to severance and other integration-related costs, including the elimination of excess capacity and workforce reductions. To the extent that the costs relate to actions that impact LabOne's employees and operations, such costs will be accounted for as a cost of the Acquisition and will be included in goodwill. To the extent that the costs relate to actions that impact the Company's employees and operations, such costs will be accounted for as a charge to earnings in the periods that the related actions are taken.

The unaudited pro forma combined statements of operations do not include the costs of integrating LabOne, nor do they include the estimated annual synergies expected to be realized upon completion of the integration of LabOne.

The pro forma adjustments, and the assumptions on which they are based, are described in the accompanying notes to the unaudited pro forma combined financial statements.

The unaudited pro forma combined financial statements are presented for illustrative purposes only to aid in your analysis of the impact to the Company of the Acquisition and the issuance of the Senior Notes. The unaudited pro forma combined financial statements are not necessarily indicative of the combined financial position or results of operations that would have been realized had the Company and LabOne been a single entity during the periods presented. In addition, the unaudited pro forma combined financial statements are not necessarily indicative of the future results of the Company. The unaudited pro forma combined financial statements and related notes should be read in conjunction with the historical financial statements of the Company and LabOne.

2

Quest Diagnostics Incorporated and Subsidiaries

Unaudited Pro Forma Combined Balance Sheet

September 30, 2005

(in thousands)

Assets		Quest Diagnostics		LabOne		Adjustments			Pro forma Combined
Current assets:
Cash and cash equivalents		$	210,089	$	15,302	$	891,370	(a)
						(809,066)		(c)
						(11,942)		(d)
						(127,661)		(e)	$	168,092
Accounts receivable, net of allowance for doubtful accounts		693,792		84,380		—			778,172
Inventories		78,173		7,723		—			85,896
Deferred income taxes		101,458		8,717		—			110,175
Prepaid expenses and other current assets		67,830		7,024		—			74,854
	Total current assets	1,151,342		123,146		(57,299)			1,217,189
Property, plant and equipment, net		670,862		86,212		—			757,074
Goodwill, net		2,524,596		140,495		550,418		(c)(6)	3,215,509
Intangible assets, net		9,824		18,038		121,462		(c)(2)	149,324
Deferred income taxes		30,583		—		—			30,583
Other assets		147,527		4,117		6,278		(a)
						(3,407)		(c)(3)	154,515
	Total assets	$	4,534,734	$	372,008	$	617,452		$	5,524,194
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable and accrued expenses		$	686,607	$	44,486	$	(3,618)	(b)
						(11,942)		(d)	$	715,533
Short-term borrowings and current portion of long-term debt		504,900		1,849		—			506,749
	Total current liabilities	1,191,507		46,335		(15,560)			1,222,282
Long-term debt		349,399		109,734		897,648		(a)
						26,199		(c)(4)
						(127,661)		(e)	1,255,319
Deferred income taxes		—		9,180		43,518		(c)(5)	52,698
Other liabilities		166,087		67		—			166,154
	Total liabilities	1,706,993		165,316		824,144			2,696,453
Stockholders’ equity		2,827,741		206,692		3,618		(b)
						(210,310)		(c)(6)	2,827,741
	Total liabilities and stockholders' equity	$	4,534,734	$	372,008	$	617,452		$	5,524,194

See accompanying notes to the unaudited pro forma combined financial statements

3

Quest Diagnostics Incorporated and Subsidiaries

Unaudited Pro Forma Combined Statement of Operations

For The Nine Months Ended September 30, 2005

(in thousands, except per share data)

		Quest Diagnostics		LabOne		Adjustments			Pro Forma Combined
Net revenues		$	4,068,835	$	379,224	$	11,711	(f) (1)	$	4,459,770
Operating costs and expenses:
Cost of services		2,385,780		256,755		11,711		(f) (1)
						18,412		(f) (2)	2,672,658
Selling, general and administrative expenses		937,448		86,127		(18,412)		(f) (2)
						(3,009)		(f) (3)
						(75)		(f) (4)
						(1,884)		(g)	1,000,195
Amortization of intangible assets		2,776		—		3,009		(f) (3)
						1,870		(h)	7,655
Other operating (income) expense, net		8,569		—		(31)		(f) (4)	8,538
	Total operating costs and expenses	3,334,573		342,882		11,591			3,689,046
Operating income		734,262		36,342		120			770,724
Other income (expense):
Interest expense, net		(37,263)		(3,444)		(32,921)		(i)	(73,628)
Minority share of (income) expense		(14,918)		—		18		(f) (4)	(14,900)
Equity earnings in unconsolidated
	joint ventures	19,506		—		—			19,506
Other income (expense), net		(6,125)		163		(124)		(f) (4)	(6,086)
	Total non-operating expenses	(38,800)		(3,281)		(33,027)			(75,108)
Income before taxes		695,462		33,061		(32,907)			695,616
Income tax expense (benefit)		279,514		12,965		(13,777)		(j)	278,702
Net income		$	415,948	$	20,096	$	(19,130)		$	416,914
Earnings per common share:
Basic		$	2.06						$	2.06
Diluted		$	2.02						$	2.02
Weighted average common shares outstanding:
Basic		202,332							202,332
Diluted		206,214							206,214

See accompanying notes to the unaudited pro forma combined financial statements

4

Quest Diagnostics Incorporated and Subsidiaries

Unaudited Pro Forma Combined Statement of Operations

For The Year Ended December 31, 2004

(in thousands, except per share data)

		Quest Diagnostics		LabOne		Adjustments			Pro Forma Combined
Net revenues		$	5,126,601	$	468,236	$	16,082	(f) (1)	$	5,610,919
Operating costs and expenses:
Cost of services		2,990,712		320,343		16,082		(f) (1)
						19,139		(f) (2)	3,346,276
Selling, general and administrative expenses		1,227,746		102,766		(19,139)		(f) (2)
						(3,936)		(f) (3)
						(67)		(f) (4)	1,307,370
Amortization of intangible assets		6,703		—		3,936		(f) (3)
						2,569		(h)	13,208
Other operating (income) expense, net		10,223		—		(249)		(f) (4)	9,974
	Total operating costs and expenses	4,235,384		423,109		18,335			4,676,828
Operating income		891,217		45,127		(2,253)			934,091
Other income (expense):
Interest expense, net		(57,949)		(4,916)		(44,055)		(i)	(106,920)
Minority share of (income) expense		(19,353)		—		(101)		(f) (4)	(19,454)
Equity earnings in unconsolidated
	joint ventures	21,049		—		—			21,049
Other income (expense), net		162		224		(215)		(f) (4)	171
	Total non-operating expenses	(56,091)		(4,692)		(44,371)			(105,154)
Income before taxes		835,126		40,435		(46,624)			828,937
Income tax expense (benefit)		335,931		13,711		(18,463)		(j)	331,179
Net income		$	499,195	$	26,724	$	(28,161)		$	497,758
Earnings per common share:
Basic		$	2.45						$	2.44
Diluted		$	2.35						$	2.34
Weighted average common shares outstanding:
Basic		203,920							203,920
Diluted		214,145							214,145

See accompanying notes to the unaudited pro forma combined financial statements

5

Quest Diagnostics Incorporated and Subsidiaries

Notes To Unaudited Pro Forma Combined Financial Statements

BALANCE SHEET PRO FORMA ADJUSTMENTS

(a) Reflects the cash proceeds from Quest Diagnostics’ $900 million private placement of senior notes (the “Senior Notes”) pursuant to Rule 144A under the Securities Act. The Company used the net proceeds from the Senior Notes, together with cash on hand, to pay the all-cash purchase price and related transaction costs associated with the acquisition of LabOne and to repay substantially all of LabOne’s existing outstanding debt. The Senior Notes were priced in two tranches: (a) $400 million aggregate principal amount of 5.125% senior notes due November 1, 2010, issued at a discount of $0.8 million; and (b) $500 million aggregate principal amount of 5.45% senior notes due November 1, 2015, issued at a discount of $1.6 million. The Senior Notes will require semiannual interest payments.

The gross proceeds have been reduced for debt financing costs of $6.3 million. Such costs will be capitalized and amortized over the respective term of the Senior Notes.

(b) Reflects special charges incurred and expensed by LabOne in conjunction with the LabOne acquisition as follows (in millions):

		Increase (decrease) in
		Accounts payable and accrued expenses		Retained earnings		Additional paid-in capital		Total stockholders’ equity
Stock based compensation  charge associated with  outstanding LabOne stock  options	(b)(1)	$	—	$	(32.9)	$	32.9	$	—
Accrued merger costs and  expenses	(b)(2)		11.9		(11.9)		—		(11.9)
Tax benefit associated  with the stock based compensation expense and  merger related expenses  outlined above	(b)(3)		(15.5)		15.5		—		15.5
Total pro forma     adjustment		$	(3.6)	$	(29.3)	$	32.9	$	3.6

(b) (1) Represents $32.9 million of non-cash expenses related to stock based compensation associated with modifications to LabOne’s outstanding stock options resulting from the merger agreement between LabOne and Quest Diagnostics. Pursuant to the merger agreement, LabOne’s outstanding stock options became fully vested and exercisable, and were cancelled in exchange for the right to receive an amount, for each share subject to the stock option, equal to the excess of $43.90 per share over the exercise price per share of such option. The stock based compensation for the options would be recorded as a charge to earnings with an offsetting increase in additional paid-in capital. In the accompanying unaudited pro forma combined balance sheet, this non-recurring charge incurred in conjunction with the acquisition of LabOne, is reflected as a reduction in retained earnings within common stockholders’ equity.

(b) (2) Represents the accrual of additional direct transaction costs, primarily comprised of investment banking and legal fees, incurred and expensed by LabOne in conjunction with the closing of the merger agreement between LabOne and Quest Diagnostics.

(b) (3) Reflects an incremental tax rate of approximately 40% applied to the stock-based compensation expense and accrued merger costs and expenses. The amount of the pro forma tax benefit has been reduced for the impact of LabOne's merger costs and expenses of which $5.6 million are not deductible for tax purposes.

(c) Reflects the purchase of all the outstanding common shares and stock options of LabOne, and the payment of transaction costs associated with the acquisition of LabOne. In connection with the acquisition, Quest Diagnostics paid $43.90 per common share in cash, or $768 million in total, to acquire all of the outstanding common shares of LabOne. In addition, Quest Diagnostics paid $33 million in cash for outstanding stock options of LabOne. Pursuant to the merger agreement, LabOne’s outstanding stock options became fully vested and exercisable and were cancelled in exchange for the right to receive an amount, for each share subject to the stock option, equal to the excess of $43.90 per share over the exercise price per share of such option. The aggregate purchase price of $809 million includes transaction costs of approximately $8 million.

The components of acquisition cost as are follows (in millions):

Components of Acquisition Cost
Purchase price to acquire all of LabOne’s outstanding common stock	$	768.3
Cash paid for outstanding stock options of LabOne	32.9
Transaction costs incurred by Quest Diagnostics, consisting primarily of fees and expenses of investment bankers, attorneys and accountants	7.9
Total acquisition cost / Cash paid to fund LabOne purchase price and related transaction costs	$	809.1

6

The preliminary allocation of acquisition cost to the LabOne assets and liabilities acquired under the purchase method of accounting is as follows (in millions):

Preliminary Purchase Price Allocation
Net assets of LabOne per historical balance sheet as of September 30, 2005	$	206.7
Increase (decrease) in net assets due to:
Special charges incurred by LabOne in conjunction with the LabOne acquisition, net of taxes and the increase in stockholders’ equity related to the stock based compensation associated with LabOne’s outstanding stock options, net of taxes (see note (b) above)		3.6
Adjusted historical net assets of LabOne		210.3	(c) (1)
Adjustments to record net assets acquired based on estimated fair values:
Intangible assets		121.5	(c) (2)
Other assets		(3.4)	(c) (3)
Long-term debt		(26.2)	(c) (4)
Deferred income taxes – noncurrent		(43.5)	(c) (5)
Incremental goodwill recorded		550.4	(c) (6)
Total acquisition cost	$	809.1

(c) (1) Includes $140.5 million of goodwill and $18.0 million of intangible assets recorded in LabOne’s historical balance sheet as of September 30, 2005.

(c) (2) Based on the amount of intangible assets recorded in LabOne's historical balance sheet as of September 30, 2005, a pro forma adjustment of $121.5 million is reflected in the unaudited pro forma combined balance sheet at September 30, 2005 to adjust LabOne’s historical net book value to the respective asset’s estimated fair value. Quest Diagnostics management determined, in consultation with third-party valuation specialists, that certain assets acquired in the LabOne acquisition qualify for recognition as intangible assets apart from goodwill in accordance with Statement of Financial Accounting Standards No. 141, “Business Combinations” (“SFAS 141”). The estimated fair value of intangible assets acquired include customer related intangibles of $130.1 million and tradenames of $9.4 million.

(c) (3) Represents the reduction in unamortized deferred financing costs of $3.4 million related to LabOne’s outstanding debt repaid in conjunction with the LabOne acquisition.

(c) (4) Represents the increase in the carrying value of LabOne’s outstanding debt as of September 30, 2005 to its estimated fair value. As a result of the change in control of LabOne, the holders of LabOne’s outstanding 3.5% Convertible Senior Debentures (the “Debentures”), had the right from November 1, 2005 to December 1, 2005 to: (i) have their Debentures repurchased by LabOne for 100% of the principal amount of the Debentures, plus accrued and unpaid interest thereon through November 30, 2005; or (ii) have their Debentures converted into the amount the respective holder would have received if the holder had converted the Debentures prior to November 1, 2005, plus an additional premium. As provided in the indenture to Debentures, the conversion rate had increased so that each $1,000 principal amount of the Debentures was convertible into cash in the amount of approximately $1,280.88 if converted by December 1, 2005. As a result of the change in control of LabOne, of the total outstanding principal balance of the Debentures of $103.5 million, $99 million of principal was converted for $126.8 million in cash, reflecting a premium of $27.8 million. The remaining outstanding principal of the Debentures totaling $4.5 million was adjusted to its estimated fair value of $2.9 million, reflecting a discount of $1.6 million based on the net present value of the estimated remaining obligations, at current interest rates.

(c) (5) The increase in noncurrent deferred income taxes of $43.5 million primarily represents a $55.2 deferred tax liability associated with the difference between the assigned values and the tax bases of the $139.5 million of intangible assets reflected in the preliminary purchase price allocation (as indicated (c) (2) above), partially offset by a deferred tax benefit of $11.7 million, principally associated with the pro forma adjustments to the carrying value of LabOne’s outstanding debt as of September 30, 2005 (as indicated in (c)(3) and(c)(4) above).

(c) (6) Based on the preliminary purchase price allocation of the acquisition cost of the LabOne acquisition and the amount of goodwill recorded in LabOne’s historical balance sheet as of September 30, 2005, a pro forma adjustment of $550.4 million, representing incremental goodwill acquired, was reflected in the unaudited pro forma combined balance sheet at September 30, 2005.

The decrease in common stockholders’ equity of $210.3 million primarily represents the elimination of LabOne’s historical net equity of $206.7 million and the impact of the special charges incurred and expensed by LabOne in conjunction with the LabOne acquisition of $3.6 million (as outlined in footnote (b) above).

(d) Reflects the payment of the cash portion of LabOne’s accrued merger costs and expenses accrued for in (b) above.

(e) Reflects the repayment of substantially all of LabOne’s outstanding debt as of September 30, 2005 consisting of the following (in millions):

Principal amount of Debentures converted for cash	$	99.0
Premium paid on converted Debentures		27.8
Total repayments related to Debentures		126.8
Other debt repayments		0.9
Total repayments of LabOne debt	$	127.7

7

STATEMENT OF OPERATIONS PRO FORMA ADJUSTMENTS

(f) In order to provide more meaningful comparisons, Quest Diagnostics recorded this pro forma adjustment to reclassify certain costs and expenses in the historical financial statements of LabOne on a basis consistent with that of Quest Diagnostics. These adjustments have no net impact on results of operations and are primarily associated with the reclassification of:

(1) Billings for certain freight and shipping costs into net revenues;

(2) Information technology costs in support of providing services into cost of services and certain occupancy costs into general and administrative expenses;

(3) Amortization of intangible assets; and

(4) Other miscellaneous income and expense items such as foreign currency transaction gains and losses.

(g) Reflects the pro forma adjustment to remove non-recurring merger costs of $1.9 million, consisting of direct transaction costs incurred and expensed by LabOne in conjunction with the merger agreement between LabOne and Quest Diagnostics.

(h) Reflects the pro forma impact on the amortization of intangible assets. In connection with the preliminary purchase price allocation, Quest Diagnostics management determined, in consultation with third-party valuation specialists, that certain assets acquired in the LabOne acquisition qualify for recognition as intangible assets apart from goodwill in accordance with Statement of Financial Accounting Standards No. 141, “Business Combinations” (“SFAS 141”). The estimated fair value of intangible assets acquired include customer related intangibles of $130.1 million and tradenames of $9.4 million. For purposes of determining the pro forma adjustment to amortization of intangible assets, the customer related intangibles are being amortized over an estimated useful life of 20 years. The tradename intangibles are considered to have an indefinite life and are not subject to amortization; rather such assets would be subject to an annual test for impairment.

(i) The pro forma adjustment to net interest expense represents the difference between LabOne’s historical net interest expense associated with LabOne’s Debentures and revolving credit facilities, and the assumed interest expense associated with Quest Diagnostics’ Senior Notes, the net proceeds of which were used to finance the acquisition of LabOne and related transaction costs, and the repayment of substantially all of LabOne’s existing outstanding debt. The Senior Notes were priced in two tranches: (a) $400 million aggregate principal amount of 5.125% senior notes due November 1, 2010, issued at a discount of $0.8 million; and (b) $500 million aggregate principal amount of 5.45% senior notes due November 1, 2015, issued at a discount of $1.6 million. The pro forma net interest expense adjustment for the nine months ended September 30, 2005 is comprised of pro forma interest expense associated with Senior Notes of $36.0 million, partially offset by a reduction in LabOne’s historical interest expense of $3.6 million, primarily associated with the assumed repayment of $99.0 million of principal of LabOne’s Debentures. The pro forma net interest expense adjustment for the year ended December 31, 2004 is comprised of pro forma interest expense associated with Senior Notes of $48.1 million, partially offset by a reduction in LabOne’s historical interest expense of $4.7 million, primarily associated with the assumed repayment of $99.0 million of principal of LabOne’s Debentures.

(j) The pro forma adjustment to income tax expense represents the estimated income tax impact of the pro forma adjustments at an incremental tax rate of approximately 40%. The effective tax rate related to the pro forma adjustments for the nine months ended September 30, 2005 is impacted by LabOne’s merger costs and expenses incurred in conjunction with the merger agreement between LabOne and Quest Diagnostics, the majority of which are not deductible for tax purposes (as indicated in (g) above).

8