UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended March 31, 2005

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

For the transition period from to

Commission file number 001-16217

SPECIALTY LABORATORIES, INC.

(Exact Name of Registrant as Specified in Its Charter)

California (State or Other Jurisdiction of Incorporation or Organization)	95-2961036 (IRS Employer Identification No.)

27027 Tourney Road
Valencia, California 91355 (Address of principal executive offices, including zip code)

Registrant’s Telephone Number, Including Area Code: (661) 799-6543

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

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

As of May 2, 2005, there were approximately 23,125,555 shares of Common Stock outstanding, no par value.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q, including the information incorporated herein by reference, contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These statements relate to expectations concerning matters that are not historical facts. Words such as “projects,” “believes,” “anticipates,” “will,” “estimate,” “plans,” “expects,” “intends,” and similar words and expressions are intended to identify forward-looking statements. These forward-looking statements are based on the current expectations, assumptions, estimates and projections about Specialty Laboratories, Inc. and the clinical laboratory industry. Although we believe that such forward-looking statements are reasonable, we cannot assure you that such expectations will prove to be correct. We undertake no obligation to revise or publicly update any forward-looking statement for any reason. All forward-looking statements attributable to Specialty Laboratories, Inc. are expressly qualified in their entirety by the cautionary statements of this Quarterly Report and by the discussion of “Risk Factors” included elsewhere in this Quarterly Report, and in other filings with the Securities and Exchange Commission made from time to time by Specialty Laboratories, Inc., including our periodic filings on Form 10-K, Form 10-Q and Form 8-K. If any of these risks actually occur, our business, financial condition, results of operations and future growth prospects could be materially adversely affected. Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial also may impair our business. Any adverse effect on our business, financial condition or results of operations could result in a decline in the trading price of our common stock and the loss of all or part of your investment.

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Specialty Laboratories, Inc.

Consolidated Balance Sheets

(Dollar amounts in thousands)

	December 31, 2004				March 31, 2005

					(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$		18,283		$	12,240
Accounts receivable, less allowance for doubtful accounts of $3,132 as of December 31, 2004 and $2,963 as of March 31, 2005	26,517				27,736
Receivable from sale of property	3,500				3,500
Refundable income taxes	—				32
Deferred income taxes	1,155				—
Inventory	3,207				3,303
Prepaid expenses and other assets	2,683				2,638
Total current assets	55,345				49,449

Property and equipment, net	32,843				34,550
Long-term investments	21,822				21,620
Deferred income taxes	4,709				—
Goodwill, net	5,655				5,655
Other assets	5,768				5,547
	$	126,142			$		116,821

Liabilities and shareholders’ equity
Current liabilities:
Accounts payable	$	9,292			$		7,487
Income taxes payable	387				—
Facility exit costs accrual	471				—
Accrued liabilities	4,297				6,801
Total current liabilities	14,447				14,288
Other long-term liabilities	2,161				2,723

Shareholders’ equity:
Preferred stock, no par value:
Authorized shares—10,000,000
Issued and outstanding shares—none	—				—
Common stock, no par value:
Authorized shares—100,000,000
Issued and outstanding shares—23,022,644 as of December 31, 2004 and 23,091,979 as of March 31, 2005	105,224				105,902
Retained earnings (accumulated deficit)	4,486				(5,715			)
Accumulated other comprehensive loss	(176			)	(377			)
Total shareholders’ equity	109,534				99,810
	$	126,142			$		116,821

See accompanying notes.

Specialty Laboratories, Inc.

Consolidated Statements of Operations

(Unaudited)

(Dollar amounts in thousands except per share data)

	Three Months Ended March 31,
	2004			2005

Net revenue	$	31,304		$	36,718
Costs and expenses:
Costs of services	22,582			26,382
Selling, general and administrative (exclusive of provision for doubtful accounts and stock-based compensation)	10,174			12,943
Provision for doubtful accounts	1,004			1,126
Stock-based compensation	142			137
Facility exit costs	—			556
Total costs and expenses	33,902			41,144

Operating loss	(2,598		)	(4,426		)

PART I. FINANCIAL INFORMATION

	ITEM 1.	FINANCIAL STATEMENTS

	ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

	ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

	ITEM 4.	CONTROLS AND PROCEDURES

PART II. OTHER INFORMATION

	ITEM 1.	LEGAL PROCEEDINGS

	ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

	ITEM 3.	DEFAULTS UPON SENIOR SECURITIES

	ITEM 4.	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

	ITEM 5.	OTHER INFORMATION

	ITEM 6.	EXHIBITS AND REPORTS ON FORM 8-K