-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, B6hBp/LxOAaZ/25qWtNXRfOU7XvWUCDuFkkQMXBeq6h8VaJQO5c5+ZVdWTDbiMk5 IZjppDHEWvA05Ft2t8nMlw== /in/edgar/work/20000814/0000874716-00-000011/0000874716-00-000011.txt : 20000921 0000874716-00-000011.hdr.sgml : 20000921 ACCESSION NUMBER: 0000874716-00-000011 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20000814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: IDEXX LABORATORIES INC /DE CENTRAL INDEX KEY: 0000874716 STANDARD INDUSTRIAL CLASSIFICATION: [2835 ] IRS NUMBER: 010393723 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-19271 FILM NUMBER: 697473 BUSINESS ADDRESS: STREET 1: ONE IDEXX DR CITY: WESTBROOK STATE: ME ZIP: 04092 BUSINESS PHONE: 2078560300 MAIL ADDRESS: STREET 1: ONE IDEXX DR CITY: WESTBROOK STATE: ME ZIP: 04092 FORMER COMPANY: FORMER CONFORMED NAME: IDEXX CORP / DE DATE OF NAME CHANGE: 19600201 10-Q 1 0001.txt IDEXX LABORATORIES, INC. 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2000 or [ ] 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: 0-19271 IDEXX LABORATORIES, INC. (Exact name of registrant as specified in its charter) DELAWARE 01-0393723 (State of incorporation) (I.R.S. Employer Identification No.) ONE IDEXX DRIVE, WESTBROOK, MAINE 04092 (Address of principal executive offices) (Zip Code) (207) 856-0300 (Registrant's telephone number, including area code) 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 [X] No [ ] Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. As of July 31, 2000, 34,636,275 shares of the registrant's Common Stock, $.10 par value, were outstanding. 2 IDEXX LABORATORIES, INC. AND SUBSIDIARIES INDEX
PAGE PART I -- FINANCIAL INFORMATION Item 1. Financial Statements: Consolidated Balance Sheets June 30, 2000 and December 31, 1999 3 Consolidated Statements of Operations Three and Six Months Ended June 30, 2000 and June 30, 1999 4 Consolidated Statements of Cash Flows Six Months Ended June 30, 2000 and June 30, 1999 5 Notes to Consolidated Financial Statements 6-9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10-14 PART II -- OTHER INFORMATION Item 1. Legal Proceedings 15 Item 4. Submission of Matters to a Vote of Security Holders 15 Item 6. Exhibits and Reports on Form 8-K 16 SIGNATURES 17
FORWARD LOOKING INFORMATION This Quarterly Report on Form 10-Q includes certain forward-looking statements about the business of IDEXX Laboratories, Inc. and its subsidiaries (the "Company") including, without limitation, the belief that the Company's current cash and short-term investments will be sufficient to fund its on-going operations for the foreseeable future, and that the Company has meritorious defenses in certain of its litigation matters. Such forward-looking statements are subject to risks and uncertainties that could cause the Company's actual results to vary materially from those indicated in such forward-looking statements. These risks and uncertainties are discussed in more detail in the section captioned "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Item 2 of Part I of this report. 3 PART I -- FINANCIAL INFORMATION Item 1. -- FINANCIAL STATEMENTS IDEXX LABORATORIES, INC. AND SUBSIDIARIES Consolidated Balance Sheets (In Thousands, Except Per Share Amounts) (Unaudited)
ASSETS JUNE 30, DECEMBER 31, 2000 1999 -------- ------------ CURRENT ASSETS: Cash and cash equivalents $ 73,654 $ 58,576 Short-term investments 50,763 46,835 Accounts receivable, less reserves of $4,542 and $4,828 in 2000 and 1999, respectively 63,294 58,353 Inventories 56,747 47,488 Deferred income taxes 14,594 14,679 Other current assets 6,696 6,484 -------- -------- Total current assets 265,748 232,415 LONG-TERM INVESTMENTS 13,980 25,517 PROPERTY AND EQUIPMENT, AT COST: Land 1,191 1,196 Buildings and improvements 4,554 4,528 Leasehold improvements 18,634 18,522 Machinery and equipment 35,195 34,630 Office furniture and equipment 31,256 28,630 Construction-in-progress 2,662 1,152 -------- -------- 93,492 88,658 Less - Accumulated depreciation and amortization 53,988 49,108 -------- -------- 39,504 39,550 OTHER ASSETS, Net 56,857 60,500 -------- -------- $376,089 $357,982 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $18,908 $21,819 Accrued expenses 55,043 38,011 Notes Payable 3,376 3,543 Deferred revenue 9,712 10,268 -------- -------- Total current liabilities 87,039 73,641 STOCKHOLDERS' EQUITY: Common stock, $0.10 par value Authorized 60,000 shares Issued and outstanding 40,007 shares in 2000 and 39,584 shares in 1999 4,001 3,958 Additional paid-in capital 291,792 284,459 Retained earnings 81,181 63,619 Accumulated other comprehensive income (loss) (4,351) (3,473) Treasury Stock (4,939 shares in 2000 and 3,899 shares in 1999), at cost (83,573) (64,222) -------- -------- Total stockholders' equity 289,050 284,341 -------- -------- $376,089 $357,982 ======== ========
See accompanying notes to consolidated financial statements. 4 IDEXX LABORATORIES, INC. AND SUBSIDIARIES Consolidated Statements of Operations (In Thousands, Except Per Share Amounts) (Unaudited)
THREE MONTHS ENDED SIX MONTHS ENDED -------------------- ------------------ JUNE 30, JUNE 30, JUNE 30, JUNE 30, 2000 1999 2000 1999 ---------- --------- --------- --------- Revenue $93,552 $91,524 $184,430 $181,172 Cost of revenue 46,852 46,910 93,127 91,684 -------- ------- -------- -------- Gross Profit 46,700 44,614 91,303 89,488 Expenses: Sales and marketing 15,369 14,411 31,093 29,564 General and administrative 10,259 11,084 20,837 23,201 Research and development 7,193 7,509 13,987 14,680 -------- -------- -------- -------- Income from operations 13,879 11,610 25,386 22,043 Interest income, net 1,366 1,334 2,713 2,644 -------- -------- -------- -------- Income before provision for income taxes 15,245 12,944 28,099 24,687 Provision for income taxes 5,717 4,919 10,537 9,381 -------- -------- -------- -------- Net income $9,528 $8,025 $17,562 $15,306 ======== ======== ======== ======== Net income per common share: Basic $0.27 $0.20 $0.50 $0.39 ======== ======== ======== ======== Net income per common share: Diluted $0.26 $0.20 $0.48 $0.37 ======== ======== ======== ========
See accompanying notes to consolidated financial statements. 5 IDEXX LABORATORIES, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows (In Thousands) (Unaudited)
SIX MONTHS ENDED ---------------------- JUNE 30, JUNE 30, 2000 1999 -------------- ------------- Cash Flows from Operating Activities: Net income $17,562 $15,306 Adjustments to reconcile net income to net cash Provided by operating activities, net of acquisitions: Depreciation and amortization 9,375 8,456 Provision for (benefit of) deferred income taxes 240 (1,996) Changes in assets and liabilities: Accounts receivable (5,849) (9,973) Inventories (14,983) 7,529 Other current assets (133) 2,604 Accounts payable (739) (13,127) Accrued expenses 4,390 13,675 Deferred revenue (556) (154) -------- --------- Net cash provided by operating activities 9,307 22,320 -------- --------- Cash Flows from Investing Activities: Purchases of property and equipment (6,632) (4,398) Decrease (increase) in investments, net 7,609 (22,816) Increase in other assets (1,033) (241) Acquisition of businesses, net of cash acquired (178) (1,257) Disposition of businesses 10,400 -- -------- -------- Net cash provided by (used in) investing activities 10,166 (28,712) -------- --------- Cash Flows from Financing Activities: Payment of notes payable (129) (413) Proceeds from the exercise of stock options 6,203 5,822 Purchase of treasury stock (9,561) -- --------- -------- Net cash provided by (used in) financing activities (3,487) 5,409 --------- -------- Net effect of Exchange Rate Changes (908) (1,004) --------- --------- Net increase (decrease) in Cash and Cash Equivalents 15,078 (1,987) Cash and Cash Equivalents, beginning of period 58,576 109,063 -------- -------- Cash and Cash Equivalents, end of period $73,654 $107,076 ======== ======== Supplemental Disclosure of Cash Flow Information: Interest paid during the period $-- $39 ======== ======== Income taxes paid during the period $2,979 $3,171 ======== ========
See accompanying notes to consolidated financial statements. 6 IDEXX LABORATORIES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Unaudited) 1. Basis of Presentation The accompanying unaudited, consolidated financial statements of IDEXX Laboratories, Inc. ("IDEXX" or the "Company") have been prepared in accordance with generally accepted accounting principles for interim financial information and with the requirements of Form 10-Q. The accompanying interim consolidated financial statements reflect, in the opinion of the Company's management, all adjustments necessary for a fair presentation of the financial position and results of operations. The results of operations for the six months ended June 30, 2000 are not necessarily indicative of the results to be expected for the full year. These financial statements should be read in conjunction with the Company's 1999 Annual Report to the Shareholders, as filed on Form 10-K with the Securities and Exchange Commission. 2. New Accounting Pronouncements In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133 "Accounting for Derivative Instrument and Hedging Activities" ("Statement No. 133"), which establishes accounting and reporting standards for hedging activities. Statement No. 133 establishes special accounting for the following three types of hedges: fair value hedges, cash flow hedges, and hedges of foreign currency exposures. This statement is effective for fiscal years beginning after June 15, 2000. The Company does not believe that implementation of this statement will have a material impact on the financial statements. 3. Inventories Inventories include material, labor and overhead, and are stated at the lower of cost (first-in, first-out) or market. The components of inventories are as follows (in thousands): JUNE 30, DECEMBER 31, 2000 1999 -------- ------------ Raw materials $11,526 $6,385 Work-in-process 3,317 4,190 Finished goods 41,904 36,913 -------- -------- $56,747 $47,488 ======== ======== 4. Comprehensive income
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, JUNE 30, JUNE 30, 2000 1999 2000 1999 -------- -------- -------- -------- Net income $9,528 $8,025 $17,562 $15,306 Other comprehensive income(loss): Foreign currency translation adjustments (246) (369) (878) (1,041) -------- -------- -------- -------- Comprehensive income $9,282 $7,656 $16,684 $14,265 ======== ======== ======== ========
7 5. Earnings per share The following is a reconciliation of shares outstanding for basic and diluted earnings per share (in thousands): THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, JUNE 30, JUNE 30, 2000 1999 2000 1999 -------- -------- -------- -------- Basic: Weighted average shares outstanding 35,408 39,321 35,349 39,115 ======== ======== ======== ======== Diluted: Weighted average shares outstanding 35,408 39,321 35,349 39,115 Dilutive effect of stock options issued to employees 1,549 1,548 1,398 1,711 Shares assumed issued for the acquisition of Blue Ridge Pharmaceuticals,Inc. 115 115 115 115 -------- -------- -------- -------- 37,072 40,984 36,862 40,941 ======== ======== ======== ======== 6. Commitments and contingencies From time to time the Company has received notices alleging that the Company's products infringe third-party proprietary rights. In particular, the Company has received notices claiming that certain of the Company's immunoassay products infringe third-party patents, although the Company is not aware of any pending litigation with respect to such claims. Patent litigation frequently is complex and expensive, and the outcome of patent litigation can be difficult to predict. There can be no assurance that the Company will prevail in any infringement proceedings that have been or may be commenced against the Company. In January 1998, a complaint was filed in the U.S. District Court for the District of Maine captioned ROBERT A. ROSE, et.al. v. DAVID E. SHAW, ERWIN F. WORKMAN, JR. and IDEXX LABORATORIES, INC. The plaintiffs purported to represent a class of purchasers of the common stock of the Company from July 19, 1996 through March 24, 1997. The complaint claimed that the defendants violated Section 10(b) of the Securities Exchange Act of 1934 and Securities and Exchange Commission Rule 10b-5 promulgated pursuant thereto, by virtue of false or misleading statements made during the class period. The complaint also claimed that the individual defendants were liable as "control persons" under Section 20(a) of that Act. In addition, the complaint claimed that the individual defendants sold some of their own common stock of the Company, during the class period, at times when the market price for the stock allegedly was inflated. In July 1999, the U.S. District Court granted the Company's motion to dismiss the case for failure to state a claim. However in August 1999, the plaintiffs appealed that ruling to the U.S. Court of Appeals for the First Circuit. In February 2000, the Company entered into a Memorandum of Understanding (the "MOU") with the plaintiffs pursuant to which the parties agreed to settle the suit. Pursuant to the MOU, the Company and the plaintiffs filed a Stipulation of Settlement (the "Stipulation") with the U.S. District Court. The Stipulation was approved by the District Court on June 20, 2000 and the complaint was dismissed with prejudice. The settlement (in excess of the portion reimbursed through insurance) will not affect results of operations in 2000. In December 1997, SA Scientific, Inc. ("SAS") filed suit against the Company in the State of Texas District Court. SAS alleged breach of a development and supply agreement between SAS and the Company, negligent misrepresentation, fraud and conversion of SAS's intellectual property, and sought $8,000,000 in actual damages, $24,000,000 in punitive damages, further unspecified damages and attorneys' fees. The Company filed an answer to the complaint denying SAS's allegations and asserted counterclaims against SAS for breach of contract, fraud and conversion of the Company's property. On May 23, 2000, SAS and the Company entered into an agreement (the "Settlement Agreement") settling the lawsuit and on June 12, 2000, the Court dismissed the suit with prejudice. Under the Settlement Agreement the Company made a payment to SAS that was not material to the Company's financial position or results of operations. 8 7. Acquisitions and Divestitures Acquisitions Sierra Laboratories On March 9, 2000 the Company, through its wholly-owned subsidiary, IDEXX Veterinary Services, Inc., acquired the veterinary laboratory business of Sierra Veterinary Laboratory LLC ("Sierra"), based in Los Angeles, California, for $178,000 in cash. In addition, the Company agreed to make future payments in each of the next four years based on the results of operations, which will be treated as additional purchase price. The Company has accounted for this acquisition under the purchase method of accounting and has included the results of operations in its consolidated results since the acquisition date. Divestitures Through a series of transactions completed in late 1999 and the first quarter of 2000, the Company disposed of substantially all of its businesses related to food microbiology testing. As a result of these transactions, the Company recorded an immaterial loss in 1999 and an immaterial gain in 2000. Pro forma information has not been presented because of immateriality. IDEXX Food Safety Net Services, Inc. On December 21, 1999, the Company sold substantially all the assets in the business of IDEXX Food Safety Net Services, Inc. to Food Safety Net Services, Ltd. for $350,000 cash, a $195,000 note payable and the assumption of certain liabilities. The note bears interest at 6% and is due in twelve quarterly installments. In addition, the Company entered into a non- compete agreement for five years. Food Products and Acumedia Manufacturers, Inc. During February 2000, the Company sold certain assets and the rights to its Lightning(R), Simplate(R), and Bind(R) product lines and its subsidiary, Acumedia Manufacturers, Inc.("Acumedia"), for aggregate consideration of $10,400,000 in cash, a $450,000 note payable, and the assumption of certain liabilities. The Company also will receive up to an additional $1,000,000 based on revenue realized from the Acumedia business between the sale date and February 17, 2001. The note bears interest at 7% and is due on February 17, 2001. In addition, the company entered into non-compete agreements for up to five years. 8. Segment Reporting The Company conducts business principally in three major operating segments. The Company's operating segments include the Companion Animal Group ("CAG"), the Food and Environmental Division ("FED") and other. The separate financial information of each segment is presented consistent with the way results are regularly evaluated by the chief operating decision maker in deciding how to allocate resources and in assessing performance. The CAG develops, designs, and distributes products and performs services for veterinarians. The CAG also manufactures certain biology based test kits for veterinarians. FED develops, designs, manufactures and distributes products and performs services to detect disease and contaminants in food animals, food and water. Both the CAG and FED distribute products and services worldwide. Other is primarily comprised of corporate research and development and interest income. The accounting policies of the operating segments are the same as those described in the summary of significant accounting policies except that most interest income and expense are not allocated to individual operating segments. 9 The following is the segment information in accordance with this statement (in thousands):
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, JUNE 30, JUNE 30, 2000 1999 2000 1999 ---------- ---------- ---------- ---------- Revenue: CAG $76,344 $71,007 $150,284 $142,970 FED 17,208 20,517 34,146 38,202 Other -- -- -- -- -------- -------- -------- -------- Total revenue $93,552 $91,524 $184,430 $181,172 ======== ======== ======== ======== Net income: CAG $5,385 $4,859 $10,398 $11,193 FED 3,199 2,142 5,402 2,258 Other 944 1,024 1,762 1,855 -------- -------- -------- -------- Total net income $9,528 $8,025 $17,562 $15,306 ======== ======== ======== ========
9. Stock Repurchase Program On July 21, 2000, the Company's Board of Directors approved an increase in the number of shares of its Common Stock that the Company was authorized to repurchase from 6.0 million shares to 10.0 million shares. The Company may make such purchases in the open market or in negotiated transactions. During the six months ended June 30, 2000, the Company repurchased approximately 1.0 million shares for $19.4 million. Between August 19, 1999 and June 30, 2000, approximately 4.9 million shares had been repurchased under this program for an aggregate of $83.6 million. 10. Subsequent Events Veterinary Professional Services On July 1, 2000, the Company, through its wholly-owned subsidiary, IDEXX Laboratories Pty. Ltd., acquired Veterinary Pathology Services Pty. Ltd., a veterinary laboratory business with locations in Adelaide, Brisbane and Sydney, Australia for approximately Australian Dollars 6.1 million (US $3.7 million) in cash. The Company will account for this acquisition under the purchase method of accounting. Genera Technologies Limited On August 11, 2000, the Company acquired Genera Technologies Limited, a U.K. based provider of products that test for Cryptosporidium in water, for approximatley $15.5 million in cash and notes. The Company also agreed to make additional payments based upon performance of the business after the acquisition. The Company will account for this acquisition under the purchase method of accounting. 10 Item 2. IDEXX LABORATORIES, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS The Company operates primarily through two business units: the Companion Animal Group ("CAG") and the Food and Environmental Division ("FED"). CAG comprises the Company's veterinary diagnostic products and services, its animal health pharmaceuticals business, and its veterinary informatics and internet business. FED comprises the Company's products and services for food animal, food and water testing. Through a series of transactions completed in late 1999 and the first quarter of 2000, the Company disposed of substantially all of its businesses related to food microbiology testing. FED now comprises the Company's water and dairy testing business and its production diagnostic animal services business. COMPANION ANIMAL GROUP QUARTER ENDED JUNE 30, 2000 COMPARED TO QUARTER ENDED JUNE 30, 1999 Revenue for CAG increased $5.3 million, or 8% to $76.3 million during the second quarter of 2000 from $71.0 million in the same periodof the prior year. The increase is primarily attributable to an increase in sales of consumables used in the Company's veterinary instruments, veterinary reference laboratory services and canine test kits. The increase in consumables was attributable primarily to an increase in instrument placements, including through the Company's rental program, and to a lesser degree to increased customer utilization per instrument. The increase in veterinary reference laboratory services was partially attributable to incremental revenues from laboratories acquired after June 1999, including the laboratory business of Tufts University School of Veterinary Medicine acquired on December 1, 1999. These increases were partially offset by a decrease in sales of veterinary practice information management systems. International revenue increased $.4 million, or 2% compared to the same quarter of 1999. This increase is attributable primarily to increased sales of veterinary consumables and veterinary reference laboratory services partially offset by lower unit prices oninstruments and unfavorable foreign exchange rates. International sales declined to 21% of total CAG sales compared to 25% in the second quarter of 1999. CAG's gross margin increased from 47% to 48% due to increased sales of higher margin veterinary consumables, which were partially offset by increased sales of lower margin veterinary reference laboratory services and unabsorbed fixed costs associated with decreased sales of practice information management systems. Operating expenses during the second quarter increased $1.8 million, or 7% over the same period in 1999. The increase is attributable primarily to an increase in sales and marketing expenses associated with the pharmaceutical product line, increased marketing programs related to veterinary consumables and research and development expenses related to the Company's Internet portal/application service provider for animal health professionals. SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO SIX MONTHS ENDED JUNE 30, 1999 Revenue for CAG increased $7.3 million, or 5% to $150.3 million during the first six months of 2000 from $143.0 million in the same period of the prior year. The increase is attributable primarily to an increase in sales of veterinary reference laboratory services, veterinary consumables and feline diagnostic kits. The increase in veterinary reference laboratory services is attributable partially to incremental revenues generated from acquisitions discussed above. These increases were partially offset by a decrease in sales of veterinary practice information management systems. International revenue increased $1.9 million, or 6% compared to the same period of 1999. The increase is attributable to increased sales of veterinary consumables, veterinary reference laboratory services and canine test kits. CAG's gross margin decreased from 48% to 47%. The reduction in the gross margin percentage is due primarily to increased sales of lower gross margin veterinary reference laboratory services, higher cost of veterinary instrument service and unabsorbed fixed costs associated with decreased sales of veterinary practice information management systems, partially offset by increased sales of higher margin veterinary consumables. 11 Operating expenses during the six months ended June 30, 2000 increased $3.5 million, or 7% over the same period in 1999. The increase is attributable primarily to an increase in sales and marketing expenses associated with the pharmaceutical product line, increased marketing programs related to veterinary consumables and research and development expenses related to the Company's Internet portal/application service provider for animal health professionals. FOOD AND ENVIRONMENTAL DIVISION QUARTER ENDED JUNE 30, 2000 COMPARED TO QUARTER ENDED JUNE 30, 1999 Revenue for FED decreased $3.3 million, or 16% to $17.2 million during the second quarter of 2000 from $20.5 million for the same period in the prior year. The decrease is primarily attributable to the divestiture of the food microbiology testing product lines discussed above, partially offset by an increase in sales of water testing products. International revenue decreased $1.4 million, or 16% compared to the same quarter of 1999. The decrease is attributable primarily to the divestiture of the food microbiology testing product lines discussed above, partially offset by increased sales of dairy residue testing products and water testing products in the European market. FED gross margin increased to 59% from 53% due to the divestiture of lower gross margin food microbiology testing product lines and increased sales of higher gross margin water testing products. Operating expenses during the second quarter decreased $2.1 million, or 28% over the same period in 1999 primarily due to the elimination of operating expenses associated with the divested food microbiology testing products business. SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO SIX MONTHS ENDED JUNE 30, 1999 Revenue for FED decreased $4.1 million, or 11% to $34.1 million during the second quarter of 2000 from the same period in the prior year. The decrease is attributable primarily to the divestiture of the food microbiology testing product lines, which was partially offset by an increase in sales of water testing products. International revenue decreased $1.6 million, or 10% from the same period in 1999. The decrease is attributable primarily to the divestiture of the food microbiology testing product lines and lower sales of livestock products, partially offset by increases in dairy residue testing products and water testing products. FED's gross margin increased to 59% from 53% due to the divestiture of the lower gross margin food microbiology testing product lines and increased sales of higher gross margin water testing products. Operating expenses during the first six months of 2000 decreased $5.1 million, or 31% from the same period in the prior year, due primarily to the elimination of operating expenses associated with the food microbiology testing products business and to an immaterial gain on the sale. INTEREST INCOME, NET Net interest income was $1.4 million for the quarter ended June 30, 2000 compared with $1.3 million for the same period in the prior year. The increase in interest income was principally the result of higher effective interest rates, partially offset by lower invested cash balances due to the use of cash for the Company's share repurchase program. Net interest income was $2.7 million for the six months ended June 30, 2000 compared with $2.6 million for the same period in the prior year. The increase in interest income was principally the result of higher effective interest rates, partially offset by lower invested cash balances due to the use of cash for the Company's share repurchase program. PROVISION FOR INCOME TAXES The Company's effective tax rate was 37.5% for the three- and six-month periods ended June 30, 2000 compared with 38% for the same periods in 1999. The reduction in the effective tax rate is the result of continued realization of tax benefit resulting from business operations in jurisdictions with lower effective income tax rates. 12 LIQUIDITY AND CAPITAL RESOURCES As of June 30, 2000, the Company had cash, cash equivalents, and short-term investments of $124.4 million and $178.7 million of working capital. During the quarter ended June 30, 2000 the Company repurchased 515,000 shares of the Company's common stock for $11.4 million, of which transactions representing 445,000 shares have not settled as of June 30, 2000 and the $9.8 million purchase price is reflected as a current liability. For the six months ended June 30, 2000 the Company repurchased approximately 1.0 million shares for $19.4 million. The Company believes that current cash and short-term investments and funds expected to be generated from operations will be sufficient to fund the Company's operations for the foreseeable future. FUTURE OPERATING RESULTS The future operating results of the Company are subject to a number of factors, including without limitation the following: The Company's business has grown significantly over the past several years as a result of both internal growth and acquisitions of products and businesses. The Company has consummated a number of acquisitions since 1992, including five acquisitions in 1997, two acquisitions in 1998, two acquisitions in 1999 and one acquisition during the first six months of 2000, and plans to make additional acquisitions. Identifying and pursuing acquisition opportunities, integrating acquired products and businesses, and managing growth require a significant amount of management time and skill. There can be no assurance that the Company will be effective in identifying and effecting attractive acquisitions, assimilating acquisitions or managing future growth. The Company's future success will depend in part on its ability to continue to develop new products and services both for its existing markets and for any new markets the Company may enter in the future. In recent years sales of the Company's chemistry and hematology analyzers have declined as the Company has achieved increasing market penetration. Future growth in sales of the Company's analyzers and associated consumables will depend in part on the Company's ability to introduce new systems with new features and capabilities. The Company is currently devoting significant resources to the development of such systems. The Company also plans to devote significant resources to the growth of many of its other businesses, including its animal health pharmaceuticals business and the Company's Internet portal/application service provider for animal health professionals. There can be no assurance that the Company will successfully complete the development and commercialization of products and services for existing and new businesses or that such products and services, if commercialized, will meet revenue and profit expectations. The markets in which the Company competes are subject to rapid and substantial technological change. The Company encounters, and expects to continue to encounter, intense competition in the sale of its current and future products and services. In particular, the Company has encountered increasing competition in the market for canine heartworm diagnostics. Many of the Company's competitors and potential competitors, including large pharmaceutical companies, have substantially greater capital, manufacturing, marketing, and research and development resources than the Company. The Company has experienced and may experience in the future significant fluctuations in its quarterly operating results. Factors such as the introduction and market acceptance of new products and services, the mix of products and services sold and the mix of domestic versus international revenue could contribute to this quarterly variability. In addition, because many of the Company's products are sold through distributors, fluctuations may occur due to distributor purchasing patterns, which may be beyond the Company's control. The Company operates with relatively little backlog and has few long-term customer contracts and substantially all of its product and service revenue in each quarter results from orders received in that quarter, which makes the Company's financial performance more susceptible to an unexpected downturn in business and more unpredictable. In addition, the Company's expense levels are based in part on expectations of future revenue levels, and a shortfall in expected revenue could therefore result in a disproportionate decrease in the Company's net income. The Company's success is heavily dependent upon its proprietary technologies. The Company relies on a combination of patent, trade secret, trademark and copyright law to protect its proprietary rights. There can be no assurance that 13 patent applications filed by the Company will result in patents being issued, that any patents owned or licensed by the Company will afford protection against competitors with similar technologies, or that the Company's non-disclosure agreements will provide meaningful protection for the Company's trade secrets and other proprietary information. Moreover, in the absence of patent protection, the Company's business may be adversely affected by competitors who independently develop substantially equivalent technologies. In addition, the Company may be required to obtain licenses to additional technologies from third parties in order to continue to sell certain products. There can be no assurance that any technology licenses which the Company desires or is required to obtain will be available on commercially reasonable terms. From time to time the Company receives notices alleging that the Company's products infringe third-party proprietary rights. In particular, the Company has received notices claiming that certain of the Company's immunoassay products infringe third-party patents. Patent litigation frequently is complex and expensive and the outcome of patent litigation can be difficult to predict. There can be no assurance that the Company will prevail in any infringement proceedings that may be commenced against the Company, and an adverse outcome may preclude the Company from selling certain products or require the Company to pay damages or make additional royalty or other payments with respect to such sales. In addition, from time to time other types of lawsuits are brought against the Company, wherein an adverse outcome could adversely affect the Company's results of operations. The development, manufacturing, distribution and marketing of certain of the Company's products and provision of its services, both in the United States and abroad, are subject to regulation by various domestic and foreign governmental agencies, including the U.S. Department of Agriculture, U.S. Food and Drug Administration ("FDA") and U.S. Environmental Protection Agency. Commercialization of animal health pharmaceuticals requires submission of substantial clinical, manufacturing and other data to the FDA and regulatory approval can take several years. Delays in obtaining, or the failure to obtain, any necessary regulatory approvals could have a material adverse effect on the Company's future product and service sales and operations. Any acquisitions of new products, services and technologies may subject the Company to additional areas of government regulations. Certain components used in the Company's products are currently available from only one source and others are available from only a limited number of sources. The Company's inability to develop alternative sources if and as required in the future, or to obtain sufficient sole or limited source components as required, could result in cost increases or reductions or delays in product shipments. Certain technologies licensed by the Company and incorporated into its products are also available only from a single source, and the Company's business may be adversely affected by the expiration or termination of any such licenses or any challenges to the technology rights underlying such licenses. In addition, the Company currently purchases or is contractually required to purchase certain of the products that it sells, including its chemistry and hematology analyzers and associated consumables, from single sources. Failure of such sources to supply product to the Company would have a material adverse effect on the Company's business. For the six months ended June 30, 2000, international revenue was $47.4 million and accounted for 26% of total revenue, and the Company expects that its international business will continue to account for a significant portion of its total revenue. Foreign regulatory bodies often establish product standards different from those in the United States, and designing products in compliance with such foreign standards may be difficult or expensive. Other risks associated with foreign operations include possible disruptions in transportation of the Company's products, the differing product and service needs of foreign customers, difficulties in building and managing foreign operations, fluctuations in the value of foreign currencies, import/export duties and quotas, and unexpected regulatory, economic or political changes in foreign markets. The development, manufacture, distribution and marketing of the Company's products and provision of its services involve an inherent risk of product liability claims and associated adverse publicity. Although the Company currently maintains liability insurance, there can be no assurance that the coverage limits of the Company's insurance policies will be adequate. Such insurance is expensive, difficult to obtain and may not be available in the future on acceptable terms or at all. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company's market risk consists primarily of foreign currency exchange risk. The Company operates subsidiaries in 13 foreign countries and transacts business in local currencies. The Company hedges its cash flows on intercompany sales to minimize foreign currency exposure. 14 The primary purpose of the Company's foreign currency hedging activities is to protect against the volatility associated with foreign currency transactions. Corporate policy prescribes the range of allowable hedging activity. The Company primarily utilizes forward exchange contracts and options with a duration of less than 12 months. Gains and losses related to qualifying hedges of foreign currency from commitments or anticipated transactions are deferred in prepaid expenses and are included in the basis of the underlying transaction. Based on the Company's overall currency rate exposure at June 30, 2000, including derivative and other foreign currency sensitive instruments, the effect of a 5% change in exchange rates on balances denominated in foreign currencies that are not the functional currencies would not be material to the results of operations. However, the effects of a 5% change in exchange rates, if not offset by hedge contracts or related price adjustments, would have a material impact on the results of operations. 15 PART II -- OTHER INFORMATION Item 1. -- LEGAL PROCEEDINGS In January 1998, a complaint was filed in the U.S. District Court for the District of Maine captioned ROBERT A. ROSE, et.al. v. DAVID E. SHAW, ERWIN F. WORKMAN, JR. and IDEXX LABORATORIES, INC. The plaintiffs purported to represent a class of purchasers of the common stock of the Company from July 19, 1996 through March 24, 1997. The complaint claimed that the defendants violated Section 10(b) of the Securities Exchange Act of 1934 and Securities and Exchange Commission Rule 10b-5 promulgated pursuant thereto, by virtue of false or misleading statements made during the class period. The complaint also claimed that the individual defendants were liable as "control persons" under Section 20(a) of that Act. In addition, the complaint claimed that the individual defendants sold some of their own common stock of the Company, during the class period, at times when the market price for the stock allegedly was inflated. In July 1999, the U.S. District Court granted the Company's motion to dismiss the case for failure to state a claim. However in August 1999, the plaintiffs appealed that ruling to the U.S. Court of Appeals for the First Circuit. In February 2000, the Company entered into a Memorandum of Understanding (the "MOU") with the plaintiffs pursuant to which the parties agreed to settle the suit. Pursuant to the MOU, the Company and the plaintiffs filed a Stipulation of Settlement (the "Stipulation") with the U.S. District Court. The Stipulation was approved by the District Court on June 20, 2000 and the complaint was dismissed with prejudice. The settlement (in excess of the portion reimbursed through insurance) will not affect results of operations in 2000. In December 1997, SA Scientific, Inc. ("SAS") filed suit against the Company in the State of Texas District Court. SAS alleged breach of a development and supply agreement between SAS and the Company, negligent misrepresentation, fraud and conversion of SAS's intellectual property, and sought $8,000,000 in actual damages, $24,000,000 in punitive damages, further unspecified damages and attorneys' fees. The Company filed an answer to the complaint denying SAS's allegations and asserted counterclaims against SAS for breach of contract, fraud and conversion of the Company's property. On May 23, 2000, SAS and the Company entered into an agreement (the "Settlement Agreement") settling the lawsuit and on June 12, 2000 the Court dismissed the suit with prejudice. Under the Settlement Agreement the Company made a payment to SAS that was not material to the Company's financial position or results of operations. Item 4. --Submission of Matters to a Vote of Security Holders At the Company's Annual Meeting of Stockholders held on May 17, 2000, the following proposals were adopted by the votes specified below:
Broker Proposal For Against Abstain Non-Votes 1. Election of three Class I Directors: David E. Shaw 30,414,711 1,495,020 0 0 William F. Pounds 31,613,239 296,492 0 0 Mary L. Good 31,618,534 291,197 0 0 2. Approval of the Company's 2000 Director Option Plan covering 200,000 shares of the Company's Common Stock authorized for issuance under the Plan. 26,008,499 5,817,736 83,496 0 3. Approval of an amendment to the Company's 1998 Stock Incentive Plan increasing from 2,500,000 to 3,500,000 the number of shares of the Company's Common Stock authorized for issuance under the Plan. 25,288,359 6,539,486 81,886 0 4. Ratification of Arthur Andersen LLP as the Company's independent auditors for the current year. 31,859,123 33,902 16,706 0
16 The following Class III Directors of the Company were not up for re-election in 2000 and have three-year terms that expire in 2001: James L. Moody, Jr., Gabriel Schmergel and Erwin F. Workman, Jr., Ph.D. The following Class II Directors of the Company were not up for re-election in 2000 and have three-year terms that expire in 2002: Thomas Craig, John R. Hesse and Kenneth Paigen, Ph.D. William End was elected as a Class I Director in July 2000 and will stand for re-election in 2003. Item 6. -- Exhibits and Reports on Form 8-K (a) Exhibits 10.1 2000 Director Option Plan 10.2 1998 Stock Incentive Plan, as amended 27 Financial Data Schedule for the Quarterly Report on Form 10-Q for the six-month period ended June 30, 2000. (b) Reports on Form 8-K The Company filed no reports on Form 8-K during the fiscal quarter for which this report is filed. 17 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. IDEXX LABORATORIES, INC. Date: August 14, 2000 /s/ Merilee Raines --------------------- Merilee Raines Vice President, Finance and Treasurer (Principal Financial Officer) EX-27 2 0002.txt FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE IDEXX LABORATORIES, INC. CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000874716 IDEXX LABORATORIES, INC. 1,000 U.S. DOLLARS 6-MOS DEC-31-2000 JAN-01-2000 JUN-30-2000 1 73,654 50,763 67,836 4,542 56,747 265,748 93,492 53,988 376,089 87,039 0 0 0 4,001 285,049 376,089 139,734 184,430 57,655 93,127 65,363 554 50 28,099 10,537 17,562 0 0 0 17,562 .50 .48
EX-10.1 3 0003.txt 2000 DIRECTOR OPTION PLAN EXHIBIT 10.1 ------------ IDEXX LABORATORIES, INC. 2000 DIRECTOR OPTION PLAN 1. PURPOSE The purpose of this 2000 Director Option Plan (the "Plan") of IDEXX Laboratories, Inc. (the "Company") is to encourage ownership in the Company by outside directors of the Company whose continued services are considered essential to the Company's future progress and to provide them with a further incentive to remain as directors of the Company. 2. ADMINISTRATION The Board of Directors shall supervise and administer the Plan. Grants of stock options under the Plan and the amount and nature of the awards to be granted shall be automatic in accordance with Section 5. However, all questions of interpretation of the Plan or of any options issued under it shall be determined by the Board of Directors and such determination shall be final and binding upon all persons having an interest in the Plan. 3. PARTICIPATION IN THE PLAN Directors of the Company who are not employees of the Company or any subsidiary of the Company shall be eligible to participate in the Plan. 4. STOCK SUBJECT TO THE PLAN (a) The maximum number of shares which may be issued under the Plan shall be 200,000 shares of the Company's Common Stock, par value $.10 per share ("Common Stock"), subject to adjustment as provided in Section 8 of the Plan. (b) If any outstanding option under the Plan for any reason expires or is terminated without having been exercised in full, the shares allocable to the unexercised portion of such option shall again become available for grant pursuant to the Plan. (c) All options granted under the Plan shall be non-statutory options not entitled to special tax treatment under Section 422 of the Internal Revenue Code of 1986, as amended to date and as it may be amended from time to time (the "Code"). 2 5. TERMS, CONDITIONS AND FORM OF OPTIONS Each option granted under the Plan shall be evidenced by a written agreement in such form as the Board of Directors shall from time to time approve, which agreements shall comply with and be subject to the following terms and conditions: (a) OPTION GRANT DATES AND SHARES SUBJECT TO OPTION. Upon the date of the annual meeting of the stockholders of the Company at which the Plan is approved and adopted and at each subsequent annual meeting thereafter, the Company shall grant to each eligible director continuing in office after, or elected at, such meeting an option exercisable for 6,500 shares of Common Stock. In addition, in the case of any eligible director who is elected other than at an annual meeting, the Company shall grant to such director upon his election an option exercisable for a number of shares (up to 6,500) which shall be pro rated based on the anticipated period of service of such director prior to the next annual meeting. (b) OPTION EXERCISE PRICE. The option exercise price per share for each option granted under the Plan shall equal (i) the closing price per share of the Company's Common Stock on the Nasdaq National Market (or, if the Company is traded on a nationally recognized securities exchange on the date of grant, the reported closing sales price per share of the Company's Common Stock by such exchange) on the date of grant (or if no such price is reported on such date such price as reported on the nearest preceding day) or (ii) if the Common Stock is not traded on Nasdaq or any exchange, the fair market value per share on the date of grant as determined by the Board of Directors. (c) LIMITED TRANSFERABILITY. Each option granted under the Plan by its terms shall not be transferable by the optionee otherwise than (i) by will, or by the laws of descent and distribution, or (ii) with the approval of the Board of Directors, by gift to (A) one or more members of the optionee's family or trusts for their benefit, or (B) to one or more charitable organizations. Except as the Board of Directors may otherwise determine, no option or interest therein may be transferred, assigned, pledged or hypothecated by the optionee during his lifetime, whether by operation of law or otherwise, or be made subject to execution, attachment or similar process. (d) EXERCISE PERIOD. Each option may be exercised on or after the first anniversary of the date of grant of such option or, if earlier, on the date of the next annual meeting, provided that, subject to the provisions of Section 5(e), no option may be exercised more than 90 days after the optionee ceases to serve as a director of the Company and, in such case, such option may only be exercised to the extent it was exercisable at the time of such cessation of service. No option shall be exercisable after the expiration of ten years from the date of grant. (e) EXERCISE PERIOD UPON DISABILITY OR DEATH. Notwithstanding the provisions of Section 5(d), any option granted under the Plan may be exercised, to the extent then exercisable, by an optionee (or permitted transferee of an optionee) if such optionee becomes disabled (within the meaning of Section 22(e)(3) of the Code or any successor provision thereto) while acting as a director of the Company, or may be exercised, to the extent then exercisable, upon the death of such optionee while a director of the Company by the person to whom it is transferred by will, by the laws of descent and distribution, by gift pursuant to Section 5(c), or by written notice filed pursuant to Section 5(g), in each case within the period of one year after the date the optionee ceases to be a director by reason of such disability or death; provided that, no option shall be exercisable after the expiration of ten years from the date of grant. 3 (f) EXERCISE PROCEDURE. Options may be exercised only by written notice to the Company at its principal office accompanied by (i) payment in cash or by certified or by bank check of the full consideration for the shares as to which they are exercised, (ii) delivery of outstanding shares of the Company's Common Stock (which have been outstanding for at least six months) having a fair market value on the last business day preceding the date of exercise equal to the option exercise price, or (iii) an irrevocable undertaking by a creditworthy broker (who is a member of the New York Stock Exchange) to deliver promptly to the Company sufficient funds to pay the exercise price or delivery of irrevocable instructions to a broker (who is a member of the New York Stock Exchange) to deliver promptly to the Company cash or a check sufficient to pay the exercise price. (g) EXERCISE BY REPRESENTATIVE FOLLOWING DEATH OF DIRECTOR. A director, by written notice to the Company, may designate one or more persons (and from time to time change such designation) including his legal representative, who, by reason of the director's death, shall acquire the right to exercise all or a portion of the option. If the person or persons so designated wish to exercise any portion of the option, they must do so within the term of the option as provided herein. Any exercise by a representative shall be subject to the provisions of the Plan. 6. TIME FOR GRANTING OPTIONS All options for shares subject to the Plan shall be granted, if at all, not later than the fifth annual meeting of stockholders after the approval of the Plan by the Company's stockholders. Options outstanding on such date shall continue to have force and effect in accordance with the provisions of the instruments evidencing such options. 7. LIMITATION OF RIGHTS (a) NO RIGHT TO CONTINUE AS A DIRECTOR. Neither the Plan, nor the granting of an option nor any other action taken pursuant to the Plan, shall constitute or be evidence of any agreement or understanding, express or implied, that the Company will retain a director for any period of time. (b) NO STOCKHOLDERS' RIGHTS FOR OPTIONS. An optionee shall have no rights as a stockholder with respect to the shares covered by his options until the date of the issuance to him of a stock certificate therefor, and no adjustment will be made for dividends or other rights (except as provided in Section 8) for which the record date is prior to the date such certificate is issued. 4 (c) COMPLIANCE WITH SECURITIES LAWS. Each option shall be subject to the requirement that if, at any time, counsel to the Company shall determine that the listing, registration or qualification of the shares subject to such option upon Nasdaq or any securities exchange or under any state or federal law, or the consent or approval of any governmental or regulatory body, or the disclosure of non-public information or the satisfaction of any other condition is necessary as a condition of, or in connection with, the issuance or purchase of shares thereunder, such option may not be exercised, in whole or in part, unless such listing, registration, qualification, consent or approval, or satisfaction of such condition shall have been effected or obtained on conditions acceptable to the Board of Directors. Nothing herein shall be deemed to require the Company to apply for or to obtain such listing, registration or qualification, or to satisfy such condition. 8. CHANGES IN COMMON STOCK. (a) If the outstanding shares of Common Stock are increased, decreased or exchanged for a different number or kind of shares or other securities, or if additional shares or new or different shares or other securities are distributed with respect to such shares of Common Stock or other securities, through merger, consolidation, sale of all or substantially all of the assets of the Company, reorganization, recapitalization, reclassification, stock dividend, stock split, reverse stock split or other distribution with respect to such shares of Common Stock, or other securities, an appropriate and proportionate adjustment will be made in (i) the maximum number and kind of shares reserved for issuance under the Plan, (ii) the number and kind of shares or other securities subject to then outstanding options under the Plan and (iii) the price for each share subject to any then outstanding options under the Plan, without changing the aggregate purchase price as to which such options remain exercisable. No fractional shares will be issued under the Plan on account of any such adjustments. (b) In the event that the Company is merged or consolidated into or with another corporation (in which consolidation or merger the stockholders of the Company receive distribution of cash or securities of another issuer as a result thereof), or in the event that all or substantially all of the assets of the Company are acquired by any other person or entity, or in the event of a reorganization or liquidation of the Company, the Board of Directors of the Company or the board of directors of any corporation assuming the obligations of the Company, shall, as to outstanding options, either (i) provide that such options shall be assumed, or equivalent options shall be substituted, by the acquiring or successor corporation (or an affiliate thereof), or (ii) upon written notice to the optionees, provide that all unexercised options will terminate immediately prior to the consummation of such merger, consolidation, acquisition, reorganization or liquidation unless exercised by the optionee within a specified number of days following the date of such notice. 9. AMENDMENT OF THE PLAN AND OPTIONS The Board of Directors may suspend or discontinue the Plan or review or amend it in any respect whatsoever; provided, however, that without approval of the stockholders of the Company, the Board may not (i) amend the Plan to change the number of shares subject to the Plan (except as provided in Section 8), (ii) change the designation of the class of directors eligible to receive options, (iii) increase the number of shares covered by option grants or otherwise materially increase the benefits accruing to participants under the Plan or (iv) amend the terms of any outstanding options to reduce the exercise price (except as provided in Section 8). 5 10. NOTICE Any written notice to the Company required by any of the provisions of the Plan shall be addressed to the Treasurer of the Company and shall become effective when it is received. 11. GOVERNING LAW The Plan and all determinations made and actions taken pursuant hereto shall be governed by the laws of the State of Delaware. Approved by the Board of Directors February 16, 2000. Approved by the Shareholders on May 17, 2000. EX-10.2 4 0004.txt 1998 STOCK INCENTIVE PLAN EXHIBIT 10.2 ------------ IDEXX LABORATORIES, INC. 1998 STOCK INCENTIVE PLAN (AS OF FEBRUARY 16, 2000) 1. PURPOSE The purpose of this 1998 Stock Incentive Plan (the "Plan") of IDEXX Laboratories, Inc., a Delaware corporation (the "Company"), is to advance the interests of the Company's stockholders by enhancing the Company's ability to attract, retain and motivate persons who make (or are expected to make) important contributions to the Company by providing such persons with equity ownership opportunities and performance-based incentives and thereby better aligning the interests of such persons with those of the Company's stockholders. Except where the context otherwise requires, the term "Company" shall include any present or future subsidiary corporations of IDEXX Laboratories, Inc. as defined in Section 424(f) of the Internal Revenue Code of 1986, as amended, and any regulations promulgated thereunder (the "Code"). 2. ELIGIBILITY All of the Company's employees, officers, directors, consultants and advisors (and any individuals who have accepted an offer for employment) are eligible to be granted options or restricted stock awards (each, an "Award") under the Plan. Each person who has been granted an Award under the Plan shall be deemed a "Participant". 3. ADMINISTRATION, DELEGATION (a) ADMINISTRATION BY BOARD OF DIRECTORS. The Plan will be administered by the Board of Directors of the Company (the "Board"). The Board shall have authority to grant Awards and to adopt, amend and repeal such administrative rules, guidelines and practices relating to the Plan as it shall deem advisable. The Board may correct any defect, supply any omission or reconcile any inconsistency in the Plan or any Award in the manner and to the extent it shall deem expedient to carry the Plan into effect and it shall be the sole and final judge of such expediency. All decisions by the Board shall be made in the Board's sole discretion and shall be final and binding on all persons having or claiming any interest in the Plan or in any Award. No director or person acting pursuant to the authority delegated by the Board shall be liable for any action or determination relating to or under the Plan made in good faith. (b) APPOINTMENT OF COMMITTEES. To the extent permitted by applicable law, the Board may delegate any or all of its powers under the Plan to one or more committees or subcommittees of the Board (a "Committee"). All references in the Plan to the "Board" shall mean the Board or a Committee of the Board to the extent that the Board's powers or authority under the Plan have been delegated to such Committee. 2 4. STOCK AVAILABLE FOR AWARDS (a) NUMBER OF SHARES. Subject to adjustment under Section 7, Awards may be made under the Plan for up to 3,500,000 shares of common stock, $.10 par value per share, of the Company (the "Common Stock"). If any Award expires or is terminated, surrendered or canceled without having been fully exercised or is forfeited in whole or in part or results in any Common Stock not being issued, the unused Common Stock covered by such Award shall again be available for the grant of Awards under the Plan, subject, however, in the case of Incentive Stock Options (as hereinafter defined), to any limitation required under the Code. Shares issued under the Plan may consist in whole or in part of authorized but unissued shares or treasury shares. (b) PER-PARTICIPANT LIMIT. Subject to adjustment under Section 7, the maximum number of shares of Common Stock with respect to which an Award may be granted to any Participant under the Plan shall be 500,000 per calendar year. The per-Participant limit described in this Section 4(b) shall be construed and applied consistently with Section 162(m) of the Code. 5. STOCK OPTIONS (a) GENERAL. The Board may grant options to purchase Common Stock (each, an "Option") and determine the number of shares of Common Stock to be covered by each Option, the exercise price of each Option and the conditions and limitations applicable to the exercise of each Option, including conditions relating to applicable federal or state securities laws, as it considers necessary or advisable. An Option which is not intended to be an Incentive Stock Option (as hereinafter defined) shall be designated a "Nonstatutory Stock Option". (b) INCENTIVE STOCK OPTIONS. An Option that the Board intends to be an "incentive stock option" as defined in Section 422 of the Code (an "Incentive Stock Option") shall only be granted to employees of the Company and shall be subject to and shall be construed consistently with the requirements of Section 422 of the Code. The Company shall have no liability to a Participant, or any other party, if an Option (or any part thereof) which is intended to be an Incentive Stock Option is not an Incentive Stock Option. (c) EXERCISE PRICE. The Board shall establish the exercise price, which shall in no event be less than 100% of the fair market value of the Common Stock as determined (or in a manner approved) by the Board in good faith ("Fair Market Value") at the time of grant, at the time each Option is granted and specify it in the applicable option agreement. 3 (d) DURATION OF OPTIONS. Each Option shall be exercisable at such times and subject to such terms and conditions as the Board may specify in the applicable option agreement. No option will be granted for a term in excess of 10 years. (e) EXERCISE OF OPTION. Options may be exercised by delivery to the Company of a written notice of exercise signed by the proper person or by any other form of notice (including electronic notice) approved by the Board, together with payment in full as specified in Section 5(f) for the number of shares for which the Option is exercised. (f) PAYMENT UPON EXERCISE. Common Stock purchased upon the exercise of an Option granted under the Plan shall be paid for as follows: (1) in cash or by check, payable to the order of the Company; (2) except as the Board may, in its sole discretion, otherwise provide in an option agreement, (i) delivery of an irrevocable and unconditional undertaking by a creditworthy broker to deliver promptly to the Company sufficient funds to pay the exercise price, (ii) delivery by the Participant to the Company of a copy of irrevocable and unconditional instructions to a creditworthy broker to deliver promptly to the Company cash or a check sufficient to pay the exercise price or (iii) delivery of shares of Common Stock owned by the Participant valued at their Fair Market Value, which Common Stock was owned by the Participant at least six months prior to such delivery; (3) to the extent permitted by the Board, in its sole discretion (i) by delivery of a promissory note of the Participant to the Company on terms determined by the Board, or (ii) by payment of such other lawful consideration as the Board may determine; or (4) any combination of the above permitted forms of payment. 6. RESTRICTED STOCK (a) GRANTS. The Board may grant Awards entitling recipients to acquire shares of Common Stock, subject to the right of the Company to repurchase all or part of such shares at their issue price or other stated or formula price (or to require forfeiture of such shares if issued at no cost) from the recipient in the event that conditions specified by the Board in the applicable Award are not satisfied prior to the end of the applicable restriction period or periods established by the Board for such Award (each, "Restricted Stock Award"). (b) TERMS AND CONDITIONS. The Board shall determine the terms and conditions of any such Restricted Stock Award, including the conditions for repurchase (or forfeiture) and the issue price, if any. Any stock certificates issued in respect of a Restricted Stock Award shall be registered in the name of the Participant and, unless otherwise determined by the Board, deposited by the Participant, together with a stock power endorsed in blank, with the Company (or its designee). At the expiration of the applicable restriction periods, the Company (or such designee) shall deliver the certificates no longer subject to such restrictions to the Participant or if the Participant has died, to the beneficiary designated, in a manner determined by the Board, by a Participant to receive amounts due or exercise rights of the Participant in the event of the Participant's death (the "Designated Beneficiary"). In the absence of an effective designation by a Participant, Designated Beneficiary shall mean the Participant's estate. 4 (c) LIMITATION ON NUMBER OF SHARES. Notwithstanding any provision of the Plan, no more than 10% of the total number of shares issuable under the Plan may be issued in the form of Restricted Stock Awards which are granted with an issue price less than the Fair Market Value on the date of grant. 7. ADJUSTMENTS FOR CHANGES IN COMMON STOCK AND CERTAIN OTHER EVENTS (a) CHANGES IN CAPITALIZATION. In the event of any stock split, reverse stock split, stock dividend, recapitalization, combination of shares, reclassification of shares, spin-off or other similar change in capitalization or event, or any distribution to holders of Common Stock other than a normal cash dividend, (i) the number and class of securities available under this Plan, (ii) the per-Participant limits set forth in Section 4(b), (iii) the number and class of securities and exercise price per share subject to each outstanding Option, and (iv) the repurchase price per share subject to each outstanding Restricted Stock Award shall be appropriately adjusted by the Company (or substituted Awards may be made, if applicable) to the extent the Board shall determine, in good faith, that such an adjustment (or substitution) is necessary and appropriate. If this Section 7(a) applies and Section 7(c) also applies to any event, Section 7(c) shall be applicable to such event, and this Section 7(a) shall not be applicable. (b) LIQUIDATION OR DISSOLUTION. In the event of a proposed liquidation or dissolution of the Company, the Board shall upon written notice to the Participants provide that (i) all then unexercised Options will (x) become exercisable in full as of a specified time at least 10 business days prior to the effective date of such liquidation or dissolution and (y) terminate effective upon such liquidation or dissolution, except to the extent exercised before such effective date, and (ii) all Restricted Stock Awards will become free of all restrictions as of a specified time prior to the effective date of such liquidation or dissolution. (c) ACQUISITION EVENTS. (1) DEFINITION. An "Acquisition Event" shall mean: (a) any merger or consolidation of the Company with or into another entity as a result of which the Common Stock is converted into or exchanged for the right to receive cash, securities or other property or (b) any exchange of shares of the Company for cash, securities or other property pursuant to a statutory share exchange transaction. 5 (2) CONSEQUENCES OF AN ACQUISITION EVENT ON OPTIONS. Upon the occurrence of an Acquisition Event, or the execution by the Company of any agreement with respect to an Acquisition Event, the Board shall provide that all outstanding Options shall be assumed, or equivalent options shall be substituted, by the acquiring or succeeding corporation (or an affiliate thereof), provided that any options substituted for Incentive Stock Options shall satisfy, in the determination of the Board, the requirements of Section 424(a) of the Code. Notwithstanding the foregoing, if the acquiring or succeeding corporation (or an affiliate thereof) does not agree to assume, or substitute for, such Options, then the Board shall upon written notice to the Participants, provide that all then unexercised Options will become exercisable in full as of a specified time (the "Acceleration Time") prior to the Acquisition Event and will terminate immediately prior to the consummation of such Acquisition Event, except to the extent exercised by the Participants before the consummation of such Acquisition Event; provided, however, that, in the event of an Acquisition Event under the terms of which holders of Common Stock will receive upon consummation thereof a cash payment for each share of Common Stock surrendered pursuant to such Acquisition Event (the "Acquisition Price"), then the Board may instead provide that all outstanding Options shall terminate upon consummation of such Acquisition Event and that each Participant shall receive, in exchange therefor, a cash payment equal to the amount (if any) by which (A) the Acquisition Price multiplied by the number of shares of Common Stock subject to such outstanding Options (whether or not then exercisable), exceeds (B) the aggregate exercise price of such Options. (3) CONSEQUENCES OF AN ACQUISITION EVENT ON RESTRICTED STOCK AWARDS. Upon the occurrence of an Acquisition Event, the repurchase and other rights of the Company under each outstanding Restricted Stock Award shall inure to the benefit of the Company's successor and shall apply to the cash, securities or other property which the Common Stock was converted into or exchanged for pursuant to such Acquisition Event in the same manner and to the same extent as they applied to the Common Stock subject to such Restricted Stock Award. 8. GENERAL PROVISIONS APPLICABLE TO AWARDS (a) TRANSFERABILITY OF AWARDS. Except as the Board may otherwise determine or provide in an Award, Awards shall not be sold, assigned, transferred, pledged or otherwise encumbered by the person to whom they are granted, either voluntarily or by operation of law, except by will or the laws of descent and distribution, and, during the life of the Participant, shall be exercisable only by the Participant. References to a Participant, to the extent relevant in the context, shall include references to authorized transferees. (b) DOCUMENTATION. Each Award shall be evidenced by a written instrument in such form as the Board shall determine. Each Award may contain terms and conditions in addition to those set forth in the Plan. 6 (c) BOARD DISCRETION. Except as otherwise provided by the Plan, each Award may be made alone or in addition or in relation to any other Award. The terms of each Award need not be identical, and the Board need not treat Participants uniformly. (d) TERMINATION OF STATUS. The Board shall determine the effect on an Award of the disability, death, retirement, authorized leave of absence or other change in the employment or other status of a Participant and the extent to which, and the period during which, the Participant, the Participant's legal representative, conservator, guardian or Designated Beneficiary may exercise rights under the Award. (e) WITHHOLDING. Each Participant shall pay to the Company, or make provision satisfactory to the Board for payment of, any taxes required by law to be withheld in connection with Awards to such Participant no later than the date of the event creating the tax liability. Except as the Board may otherwise provide in an Award, Participants may satisfy such tax obligations in whole or in part by delivery of shares of Common Stock, including shares retained from the Award creating the tax obligation, valued at their Fair Market Value. The Company may, to the extent permitted by law, deduct any such tax obligations from any payment of any kind otherwise due to a Participant. (f) AMENDMENT OF AWARD. The Board may amend, modify or terminate any outstanding Award, including but not limited to, substituting therefor another Award of the same or a different type, changing the date of exercise or realization, and converting an Incentive Stock Option to a Nonstatutory Stock Option, provided that the Participant's consent to such action shall be required unless the Board determines that the action, taking into account any related action, would not materially and adversely affect the Participant. In addition, neither the Board nor the Company may amend the terms of any issued and outstanding Awards to reduce the exercise price, other than pursuant to Section 7 of the Plan, without the prior approval of the Company's stockholders. (g) CONDITIONS ON DELIVERY OF STOCK. The Company will not be obligated to deliver any shares of Common Stock pursuant to the Plan or to remove restrictions from shares previously delivered under the Plan until (i) all conditions of the Award have been met or removed to the satisfaction of the Company, (ii) in the opinion of the Company's counsel, all other legal matters in connection with the issuance and delivery of such shares have been satisfied, including any applicable securities laws and any applicable stock exchange or stock market rules and regulations, and (iii) the Participant has executed and delivered to the Company such representations or agreements as the Company may consider appropriate to satisfy the requirements of any applicable laws, rules or regulations. (h) ACCELERATION. The Board may at any time provide that any Options shall become immediately exercisable in full or in part or that any Restricted Stock Awards shall be free of restrictions in full or in part. 7 9. MISCELLANEOUS (a) NO RIGHT TO EMPLOYMENT OR OTHER STATUS. No person shall have any claim or right to be granted an Award, and the grant of an Award shall not be construed as giving a Participant the right to continued employment or any other relationship with the Company. The Company expressly reserves the right at any time to dismiss or otherwise terminate its relationship with a Participant free from any liability or claim under the Plan, except as expressly provided in the applicable Award. (b) NO RIGHTS AS STOCKHOLDER. Subject to the provisions of the applicable Award, no Participant or Designated Beneficiary shall have any rights as a stockholder with respect to any shares of Common Stock to be distributed with respect to an Award until becoming the record holder of such shares. Notwithstanding the foregoing, in the event the Company effects a split of the Common Stock by means of a stock dividend and the exercise price of and the number of shares subject to such Option are adjusted as of the date of the distribution of the dividend (rather than as of the record date for such dividend), then an optionee who exercises an Option between the record date for such stock dividend and the distribution date for such stock dividend shall be entitled to receive, on the distribution date, the stock dividend with respect to the shares of Common Stock acquired upon such Option exercise, notwithstanding the fact that such shares were not outstanding as of the close of business on the record date for such stock dividend. (c) EFFECTIVE DATE AND TERM OF PLAN. The Plan shall become effective on the date on which it is approved by the Company's stockholders. No Awards shall be granted under the Plan after the completion of ten years from the date the Plan was approved by the Board, but Awards previously granted may extend beyond that date. (d) AMENDMENT OF PLAN. The Board may amend, suspend or terminate the Plan or any portion thereof at any time, provided that, to the extent required by Section 162(m), no Award granted to a Participant designated as subject to Section 162(m) by the Board after the date of such amendment shall become exercisable, realizable or vested, as applicable to such Award (to the extent that such amendment to the Plan was required to grant such Award to a particular Participant), unless and until such amendment shall have been approved by the Company's stockholders as required by Section 162(m) (including the vote required under Section 162(m)). In addition, the second sentence of Section 8(f) of the Plan may not be amended by the Board without the prior approval of the Company's stockholders. (e) GOVERNING LAW. The provisions of the Plan and all Awards made hereunder shall be governed by and interpreted in accordance with the laws of the State of Delaware, without regard to any applicable conflicts of law. 8 Approved by the Board of Directors February 12, 1998. Adopted by stockholders on May 15, 1998. Amended by the Board of Directors on February 16, 1999. Amendment approved by stockholders on May 19, 1999. Amended by the Board of Directors on February 16, 2000. Amendment approved by stockholders on May 17, 2000. -----END PRIVACY-ENHANCED MESSAGE-----