-----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, MlpOk0/riK0M/AuphcJ6m6bj/iOTzpyhFsjHqYARcFitiqTULSKUT07PviOp7nsh gWDvUCcbH1MERAdrgB/pIA== 0000950135-99-005211.txt : 19991115 0000950135-99-005211.hdr.sgml : 19991115 ACCESSION NUMBER: 0000950135-99-005211 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991112 FILER: COMPANY DATA: COMPANY CONFORMED NAME: IDEXX LABORATORIES INC /DE CENTRAL INDEX KEY: 0000874716 STANDARD INDUSTRIAL CLASSIFICATION: IN VITRO & IN VIVO DIAGNOSTIC SUBSTANCES [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: 99750579 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 IDEXX LABORATORIES INC 9/30/99 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 September 30, 1999 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 October 31, 1999, 36,563,270 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 September 30, 1999 and December 31, 1998 3 Consolidated Statements of Operations Three and Nine Months Ended September 30, 1999 and September 30, 1998 4 Consolidated Statements of Cash Flows Nine Months Ended September 30, 1999 and September 30, 1998 5 Notes to Consolidated Financial Statements 6-11 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 11-15 PART II -- OTHER INFORMATION Item 1. Legal Proceedings 15-16 Item 6. Exhibits and Reports on Form 8-K 16-17 SIGNATURES 18 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. 2 3 PART I -- FINANCIAL INFORMATION Item 1. -- FINANCIAL STATEMENTS IDEXX LABORATORIES, INC. AND SUBSIDIARIES Consolidated Balance Sheets (In Thousands, Except Per Share Amounts) (Unaudited)
SEPTEMBER 30, DECEMBER 31, 1999 1998 ------------- ------------ ASSETS CURRENT ASSETS: Cash and cash equivalents $ 74,677 $ 109,063 Short-term investments and other marketable securities 46,234 29,290 Accounts receivable, less reserves of $5,543 and $5,368 in 1999 and 1998, respectively 55,870 47,947 Inventories 48,370 55,428 Deferred income taxes 12,973 13,965 Other current assets 6,119 7,653 --------- --------- Total current assets 244,243 263,346 LONG-TERM INVESTMENTS 35,752 17,297 PROPERTY AND EQUIPMENT, AT COST: Land 1,197 1,197 Buildings and improvements 4,529 4,487 Leasehold improvements 18,559 17,629 Machinery and equipment 34,588 31,917 Office furniture and equipment 27,734 25,423 Construction-in-progress 750 1,840 --------- --------- 87,357 82,493 Less - Accumulated depreciation and amortization 47,225 41,013 --------- --------- 40,132 41,480 OTHER ASSETS, Net 63,004 64,425 --------- --------- $ 383,131 $ 386,548 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 11,219 $ 26,816 Accrued expenses 45,401 32,046 Current portion of long-term debt 4,152 5,190 Deferred revenue 9,449 10,465 --------- --------- Total current liabilities 70,221 74,517 LONG-TERM DEBT, net of current portion 4,208 4,191 COMMITMENTS AND CONTINGENCIES (Note 6) STOCKHOLDERS' EQUITY: Common stock, $0.10 par value Authorized 60,000 shares; issued 39,536 shares in 1999 and 38,831 shares in 1998 3,954 3,883 Additional paid-in capital 283,792 276,296 Retained earnings 54,775 31,041 Accumulated other comprehensive income (loss) (3,656) (3,380) Treasury stock (1,744 shares in 1999) at cost (30,163) -- --------- --------- Total stockholders' equity 308,702 307,840 --------- --------- $ 383,131 $ 386,548 ========= =========
See accompanying notes to consolidated financial statements. 3 4 IDEXX LABORATORIES, INC. AND SUBSIDIARIES Consolidated Statements of Operations (In Thousands, Except Per Share Amounts) (Unaudited)
THREE MONTHS ENDED NINE MONTHS ENDED --------------------------- ---------------------------- SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, 1999 1998 1999 1998 ------------- ------------- ------------- ------------- Revenue $86,422 $78,487 $267,593 $237,166 Cost of revenue 44,935 39,420 136,598 119,959 ------- ------- -------- -------- Gross Profit 41,487 39,067 130,995 117,207 Expenses: Sales and marketing 13,732 15,760 43,322 48,230 General and administrative 9,502 9,979 32,696 33,928 Research and development 6,302 5,465 20,983 15,957 ------- ------- -------- -------- Income from operations 11,951 7,863 33,994 19,092 Interest income, net 1,643 1,967 4,288 5,260 ------- ------- -------- -------- Income before provision for income taxes 13,594 9,830 38,282 24,352 Provision for income taxes 5,166 3,834 14,547 9,497 ------- ------- -------- -------- Net income $ 8,428 $ 5,996 $ 23,735 $ 14,855 ======= ======= ======== ======== Net income per common share: Basic $ 0.22 $ 0.16 $ 0.61 $ 0.39 ======= ======= ======== ======== Net income per common share: Diluted $ 0.21 $ 0.15 $ 0.58 $ 0.37 ======= ======= ======== ========
See accompanying notes to consolidated financial statements. 4 5 IDEXX LABORATORIES, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows (In Thousands) (Unaudited)
NINE MONTHS ENDED ----------------------------------- SEPTEMBER 30, SEPTEMBER 30, 1999 1998 ------------- ------------- Cash Flows from Operating Activities: Net income $ 23,735 $ 14,855 Adjustments to reconcile net income to net cash Provided by operating activities, net of acquisitions: Depreciation and amortization 12,849 11,724 Changes in assets and liabilities: Accounts receivable (7,923) 3,408 Inventories 6,567 16,868 Other current assets (26) 7,494 Accounts payable (15,597) (4,986) Accrued expenses 14,307 (6,245) Deferred revenue (1,015) (1,668) --------- --------- Net cash provided by operating activities 32,897 41,450 --------- --------- Cash Flows from Investing Activities: Purchases of property and equipment (6,093) (5,302) Increase in investments, net (35,399) (4,602) Increase in other assets (1,433) (181) Acquisitions of business, net of cash acquired (1,257) (986) --------- --------- Net cash used in investing activities (44,182) (11,071) --------- --------- Cash Flows from Financing Activities: Payment of notes payable (1,593) (2,580) Purchase of treasury stock (27,256) -- Proceeds from the exercise of stock options 5,990 3,263 --------- --------- Net cash provided by financing activities (22,859) 683 --------- --------- Net effect of Exchange Rate Changes (242) 656 --------- --------- Net increase (decrease) in Cash and Cash Equivalents (34,386) 31,718 Cash and Cash Equivalents, beginning of period 109,063 106,972 --------- --------- Cash and Cash Equivalents, end of period $ 74,677 $ 138,690 ========= ========= Supplemental Disclosure of Cash Flow Information: Interest paid during the period $ 133 $ 245 ========= ========= Income taxes paid during the period $ 5,261 $ 10,562 ========= =========
See accompanying notes to consolidated financial statements. 5 6 IDEXX LABORATORIES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Unaudited) 1. BASIS OF PRESENTATION The unaudited financial statements included herein have been prepared by IDEXX Laboratories, Inc. and subsidiaries (the "Company") pursuant to the rules and regulations of the Securities and Exchange Commission and include, in the opinion of management, all adjustments which the Company considers necessary for a fair presentation of such information. The December 31, 1998 Balance Sheet was derived from the audited Consolidated Balance Sheets contained in the Company's latest stockholders' annual report. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. These statements should be read in conjunction with the Company's audited consolidated financial statements and notes thereto which are contained in the Company's latest stockholders' annual report. The results for the interim periods presented are not necessarily indicative of results to be expected for the full fiscal year. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accompanying consolidated financial statements reflect the application of certain accounting policies described in this and other notes to the consolidated financial statements. a. Principles of Consolidation: The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All material intercompany transactions and balances have been eliminated in consolidation. b. Certain reclassifications have been made in the 1998 consolidated financial statements to conform with the current year's presentation. c. The Company accounts for cash equivalents and marketable securities in accordance with Statement of Financial Accounting Standards No. 115 "Accounting for Certain Investments in Debt and Equity Securities." Accordingly, the Company's cash equivalent and short-term investments are classified as held-to-maturity and are recorded at amortized cost which approximates market value. Cash Equivalents and Short-term Investments and Other Marketable Securities: Cash equivalents are short-term, highly liquid investments with original maturities of less than three months. Short-term investments and other marketable securities are investment securities with original maturities of greater than three months but less than one year or marketable securities that the Company intends to hold less than three months and consist of the following (in thousands): SEPTEMBER 30, DECEMBER 31, 1999 1998 ------------- ------------ Municipal bonds $ 21,147 $ 21,801 U.S. Treasury bills 11,000 6,000 Preferred stocks 11,056 -- Commercial paper -- 458 Certificates of deposits 3,031 1,031 -------- -------- $ 46,234 $ 29,290 ======== ======== Long-term investments are investment securities with original maturities of greater than one year and consist of the following (in thousands): SEPTEMBER 30, DECEMBER 31, 1999 1998 ------------- ------------ Municipal bonds $ 33,752 $ 13,297 Government bonds 2,000 -- Certificates of deposit -- 4,000 -------- -------- $ 35,752 $ 17,297 ======== ======== 6 7 d. 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): SEPTEMBER 30, DECEMBER 31, 1999 1998 ------------- ------------ Raw materials $ 8,736 $ 11,342 Work-in-process 5,350 5,784 Finished goods 34,284 38,302 -------- -------- $ 48,370 $ 55,428 ======== ======== e. The Company reports earnings per share in accordance with Statement of Financial Accounting Standards No. 128 "Earnings Per Share." Basic earnings per common share is computed by dividing net income by the weighted average number of shares of common stock outstanding during the quarter. The computation of diluted earnings per common share is similar to the computation of basic earnings per common share except that the denominator is increased for the assumed exercise of dilutive options using the treasury stock method and for the addition of shares assumed issued in connection with the acquisition of Blue Ridge Pharmaceuticals, Inc. The following is a reconciliation of shares outstanding for basic and diluted earnings per share:
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, -------------- ------------- ------------- ------------- 1999 1998 1999 1998 ---- ---- ---- ---- Shares outstanding for basic earnings per share: Weighted average shares outstanding 39,096 38,616 39,109 38,451 ====== ====== ====== ====== Shares outstanding for diluted earnings per share: Weighted average shares outstanding 39,096 38,616 39,109 38,451 Dilutive effect of options issued to employees 770 1,768 1,410 1,581 Shares assumed issued for the acquisition of Blue Ridge Pharmaceuticals, Inc. 115 -- 115 -- ------ ------ ------ ------ 39,981 40,384 40,634 40,032 ====== ====== ====== ======
3. NON-RECURRING OPERATING CHARGE During the third and fourth quarters of 1997 the Company recorded a non-recurring operating charge of $34.5 million. The non-recurring operating charge included a $13.2 million write-off of in-process research and development associated with the acquisition of two veterinary practice information management software providers and $21.3 million of the write-downs and write-offs of certain assets and accrual of costs related to a significant workforce reduction. As of September 30, 1999, approximately $1.3 million was included in accrued expenses relating to the non-recurring operating charge. The balance remaining at September 30, 1999 primarily represents severance payments due to terminated employees, unpaid charges related to the consolidation and relocation of distribution functions in Europe and lease payments on unutilized facilities. 4. COMPREHENSIVE INCOME The Company reports comprehensive income in accordance with Statement of Financial Accounting Standards No. 130 "Reporting Comprehensive Income." Other comprehensive income for the Company consists of foreign currency translation adjustments resulting from the translation of the financial statements of the Company's foreign subsidiaries. The Company considers the foreign currency cumulative translation adjustment to be permanently invested and therefore has not provided for income tax on those amounts. Accordingly, below is a summary of comprehensive income in accordance with this statement (in thousands):
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, -------------- ------------- ------------- ------------- 1999 1998 1999 1998 ---- ---- ---- ---- Net income $ 8,428 $ 5,996 $23,735 $14,855 Other comprehensive income (loss): Foreign currency translation adjustments 765 844 (276) 400 ------- ------- ------- ------- Comprehensive income $ 9,193 $ 6,840 $23,459 $15,255 ======= ======= ======= =======
7 8 5. NOTES PAYABLE In connection with the acquisition of the business of Consolidated Veterinary Diagnostics, Inc., the Company issued an unsecured note payable for $3.0 million, of which $1.0 million was outstanding at December 31, 1998. The note bore interest at 8% and was due in equal annual installments beginning in July 1997. The final installment was paid in July 1999. In connection with the Central Veterinary Diagnostic Laboratory acquisition, the Company issued an unsecured note payable for Australian Dollars 900,000 (US $587,000) of which Australian Dollars 675,000 (US $440,000) was outstanding at September 30, 1999. The note bears interest at 6% and is due in four equal annual installments beginning in December 1998. In connection with the Blue Ridge Pharmaceuticals, Inc. acquisition (see Note 7b), the Company issued unsecured notes payable for $7,830,000, which were outstanding at September 30, 1999. The notes bear interest at 5.5% and are due in two equal annual installments on October 1, 1999 and 2000. The first installment was paid in October 1999. In connection with the acquisition of a veterinary laboratory business in Phoenix, Arizona (see Note 7c), the Company issued a non-interest bearing note payable for $539,000, of which $90,000 was outstanding at September 30, 1999. The note was due in five monthly installments beginning in April 1999. The final installment was paid in October 1999. 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. A significant portion of the Company's revenue in the three month period ended September 30, 1999 was attributable to products incorporating certain immunoassay technologies and products relating to the diagnosis of canine heartworm infection. If the Company were to be precluded from selling such products or required to pay damages or make additional royalty or other payments with respect to such sales, the Company's business and results of operations could be materially and adversely affected. On February 24, 1995, CDC Technologies, Inc. ("CDC Technologies") filed suit against the Company in the U.S. District Court for the District of Connecticut. In its complaint, CDC Technologies alleged that the Company's conduct in, and its relationships with its distributors in connection with, the distribution of the Company's hematology products (i) violate federal and state antitrust statutes, (ii) violate Connecticut statutes regarding unfair trade practices, and (iii) constitute a civil conspiracy and interfere with CDC Technologies' business relations. The relief sought by CDC Technologies included treble damages for antitrust violations as well as compensatory and punitive damages, and an injunction to prevent the Company from interfering with CDC Technologies' relations with distributors. In March 1998, the U.S. District Court granted the Company's motion for summary judgment in the case, and in July 1999, the U.S. Court of Appeals for the Second Circuit affirmed the District Court's ruling. However, it is possible that CDC may appeal those rulings. The Company is unable to assess the likelihood of an adverse result or estimate the amount of any damages which the Company may be required to pay. Any adverse outcome resulting in the payment of damages would adversely affect the Company's results of operations. On November 12, 1998, Synbiotics Corporation ("Synbiotics") filed suit against the Company in the U.S. District Court for the Southern District of California for infringement of U.S. Patent No. 4,789,631 issued December 6, 1988 (the "`631 Patent"). The `631 Patent, which is owned by Synbiotics, claims certain assays, methods and compositions for the diagnosis of canine heartworm infection. The primary relief sought by Synbiotics was an injunction against the Company which would prevent the Company from selling canine heartworm diagnostic products which infringe the `631 Patent, as well as treble damages for past infringement. This suit was not served on the Company within the time period specified under applicable court rules and was dismissed without prejudice in April 1999, however Synbiotics is not precluded from filing a new suit in the future. While the Company believes that it has meritorious defenses against claims of infringement of the `631 Patent, the Company is unable to assess the likelihood of an adverse result or estimate the amount of any damages the Company may be required to pay. If the 8 9 Company is precluded from selling canine heartworm diagnostic products or required to pay damages or make additional royalty or other payments with respect to such sales, the Company's business and results of operations could be materially and adversely affected. On January 9, 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 purport to represent a class of purchasers of the common stock of the Company from July 19, 1996 through March 24, 1997. The complaint claims 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 claims that the individual defendants are liable as "control persons" under Section 20(a) of that Act. In addition, the complaint claims 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 on August 11, 1999, the plaintiffs appealed that ruling to the U.S. Court of Appeals for the First Circuit. The Company is unable to assess the likelihood of an adverse result or estimate the amount of damages which the Company may be required to pay. Any adverse outcome resulting in the payment of damages would adversely affect the Company's results of operations. On December 18, 1997, SA Scientific, Inc. ("SAS") filed suit against the Company in the State of Texas District Court seeking unspecified damages resulting from the Company's alleged breach of a development and supply agreement between SAS and the Company. The Company has filed an answer to the complaint denying SAS's allegations and asserting counterclaims against SAS for breach of contract and conversion of the Company's property. SAS has filed an amended complaint seeking $1,500,000 in actual damages related to the Company's alleged breach of contract, $5,000,000 in punitive damages and further unspecified damages from the Company's alleged negligent misrepresentation, fraud and conversion of SAS's intellectual property, and attorneys' fees. The Company believes that it has meritorious defenses to SAS's claims and is contesting the matter vigorously. However, the Company is unable to assess the likelihood of an adverse result or estimate the amount of damages the Company might be required to pay. Any adverse outcome resulting in payment of damages would adversely affect the Company's results of operations. 7. ACQUISITIONS 1998 ACQUISITIONS (a) Agri-West Laboratory On March 1, 1998, the Company, through its wholly-owned subsidiary, IDEXX Food Safety Net Services, Inc., acquired certain assets and assumed certain liabilities of Agri-West Laboratory ("Agri-West") for $250,000 from Agri-West International, Inc. ("AWI"). Agri-West, located in Dallas and San Antonio, Texas, performs food contaminant testing for food processors and research institutions. The Company also entered into employment, consulting and non-competition agreements with the owners of AWI for up to five years. The Company has accounted for this acquisition under the purchase method of accounting and has included the results of operations in its consolidated results of operations since the date of acquisition. (b) Blue Ridge Pharmaceuticals, Inc. On October 1, 1998, the Company acquired all of the capital stock of Blue Ridge Pharmaceuticals, Inc. ("Blue Ridge") for approximately $39.1 million in cash, $7.8 million in notes, 115,000 shares of the Company's Common Stock and warrants to acquire 806,000 shares of Common Stock at $31.59 per share which expire on December 31, 2003. In addition, the Company agreed to issue up to 1.24 million shares of its Common Stock based on the achievement by the Company's pharmaceutical business (including Blue Ridge) of net sales and operating profit targets through 2004. All former shareholders received equal value in the form of cash/notes/stock, warrants and contingent shares on a per share basis. The notes, which bear interest at 5.5% annually and are due in two equal annual installments on October 1, 1999 and 2000, are due to certain key employees of Blue Ridge, subject to certain contingencies. The first installment was paid in October 1999. The shares of Common Stock are issuable on October 1, 2001 to a key employee of Blue Ridge, subject to certain contingencies. Blue Ridge is a development-stage animal health pharmaceutical company located in Greensboro, North Carolina. The Company will record the issuance of any of the 1.24 million shares discussed above as additional goodwill when the shares are issued. The Company has accounted for this acquisition under the purchase method of accounting 9 10 and has included the results of operations in its consolidated results since the date of acquisition. 1999 ACQUISITIONS (c) Phoenix Veterinary Laboratory Business On March 31, 1999, the Company, through its wholly-owned subsidiary, IDEXX Veterinary Services, Inc., acquired the veterinary laboratory business of Sonora Quest Laboratories, LLC ("Sonora"), based in Phoenix, Arizona, for $1.3 million in cash and a $539,000 promissory note. In connection with the acquisition, Sonora and its parent companies agreed not to compete in the veterinary reference laboratory business in Arizona and New Mexico for a period of five years. The note was non-interest bearing and was due in five monthly installments beginning in April 1999. The final installment was paid in October 1999. 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. 8. SEGMENT REPORTING The Company reports segment information in accordance with Statement of Financial Accounting Standards No. 131, "Disclosures About Segments of an Enterprise" ("SFAS 131"). SFAS 131 requires disclosures about operating segments in annual financial statements and requires selected information about operating segments in interim financial statements. It also requires related disclosures about products and services and geographic areas. Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision making group, in deciding how to allocate resources and in assessing performance. The Company's chief operating decision maker is the chief executive officer. The Company is organized into business units by market and customer group. The Company's reportable operating segments include the Companion Animal Group ("CAG"), the Food and Environmental Division ("FED") and other. 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, water and food processing facilities. Both the CAG and FED distribute products and services worldwide. Other is primarily comprised of the Company's Blue Ridge Pharmaceuticals, Inc. subsidiary, which develops products for therapeutic applications in companion animals and livestock, 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. The following is the segment information in accordance with this statement (in thousands):
CAG FED OTHER TOTAL --- --- ----- ----- Three Months Ended September 30, 1999 Revenue $ 66,254 $19,652 $ 516 $ 86,422 Net income (loss) 6,528 2,814 (914) 8,428 Nine Months Ended September 30, 1999 Revenue $208,084 $58,013 $ 1,496 $267,593 Net income (loss) 22,377 5,248 (3,890) 23,735 Three Months Ended September 30, 1998 Revenue $ 59,644 $18,843 $ -- $ 78,487 Net income 4,422 1,081 493 5,996 Nine Months Ended September 30, 1998 Revenue $184,366 $52,800 -- $237,166 Net income 12,120 1,369 1,366 14,855
9. STOCK REPURCHASE PROGRAM On August 13, 1999, the Board of Directors authorized the purchase of up to 2 million shares of the Company's Common Stock in the open market or in negotiated transactions. As of September 30, 1999, approximately 1.74 million shares of Common Stock were purchased 10 11 under this program. On October 4, 1999, the Board of Directors increased the authorization to 4 million shares of Common Stock. Item 2. IDEXX LABORATORIES, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS COMPANION ANIMAL GROUP Revenue for the Companion Animal Group ("CAG") for the third quarter of 1999 increased 11% to $66.3 million from $59.6 million for the third quarter of 1998. Revenue for CAG for the nine months ended September 30, 1999 increased 13% to $208.1 million from $184.4 million for the first nine months of 1998. The increase in CAG revenue for the quarter ended September 30, 1999 compared to the same period in 1998 is primarily attributable to increased sales of veterinary consumables, veterinary reference laboratory services, and practice information management products and services. These increases were offset in part by lower sales of canine heartworm test kits, due primarily to increased competition. The increase in CAG revenue for the nine-month period ended September 30, 1999 compared to the same period in 1998 is primarily attributable to increased sales of veterinary consumables, practice information management products and services and veterinary reference laboratory services. These increases were offset in part by lower sales of canine heartworm kits and by lower revenue from veterinary instruments. International revenue for CAG for the third quarter of 1999 increased 8% to $15.2 million, or 23% of total CAG revenue, from $14.1 million, or 24% of total CAG revenue, for the third quarter of 1998. International revenue for CAG for the nine months ended September 30, 1999 increased 4% to $46.2 million, or 22% of total CAG revenue, from $44.6 million, or 24% of total CAG revenue, for the first nine months of 1998. For the quarter ended September 30, 1999, revenue increased 6% in Europe, 14% in the Asia-Pacific region and 8% in Canada and South America, compared to the same period in 1998. In Europe, the increase resulted primarily from increased sales of veterinary consumables, veterinary test kits and veterinary reference laboratory services. In the Asia-Pacific region, the increase resulted primarily from increased sales of veterinary consumables and veterinary reference laboratory services. In Canada, the increase resulted primarily from increased sales of veterinary consumables. For the nine-month period ended September 30, 1999, revenue increased 9% in Europe and 1% in Canada and South America, and decreased 3% in the Asia-Pacific region, compared to the same period in 1998. In Europe, the increase for the nine-month period ended September 30, 1999 as compared to the same period in the prior year was principally attributable to the same factors noted for the three-month period. In the Asia-Pacific region, the decrease resulted primarily from a decrease in sales of veterinary test kits and instruments, partially offset by an increase in veterinary consumables. Gross profit as a percentage of CAG revenue was 46% and 48% for the three- and nine-month periods ended September 30, 1999, respectively, and 49% for the same periods in 1998. These declines resulted from higher sales of lower gross margin practice information management systems and veterinary laboratory services, and lower selling prices on veterinary instruments. FOOD AND ENVIRONMENTAL DIVISION Revenue for the Food and Environmental Division ("FED") for the third quarter of 1999 increased 4% to $19.7 million from $18.8 million for the third quarter of 1998. Revenue for FED for the nine months ended September 30, 1999 increased 10% to $58.0 million from $52.8 million for the first nine months of 1998. The increase in FED revenue for the quarter ended September 30, 1999 compared to the same period in 1998 is primarily attributable to increased sales of water testing products and food residue testing products. The increase in FED revenue for the nine-month period ended September 30, 1999 compared to the same period in 1998 is primarily attributable to increased sales of water testing products, food residue testing products, and food laboratory testing services. 11 12 International revenue for FED for the third quarter of 1999 increased 1% to $7.6 million, or 39% of total FED revenue, from $7.6 million, or 40% of total FED revenue, for the third quarter of 1998. International revenue for FED for the nine months ended September 30, 1999 increased 6% to $23.5 million, or 40% of total FED revenue, from $22.2 million, or 42% of total FED revenue, for the first nine months of 1998. For the quarter ended September 30, 1999, revenue increased 15% in the Asia-Pacific region, 13% in Canada and South America, and decreased 9% in Europe. The increase in revenue in the Asia-Pacific region is primarily due to increased sales of food residue testing products, and poultry and livestock test kits, partially offset by decreased sales of water testing products. The increase in revenue in Canada and South America is primarily due to increased sales of food residue testing products and livestock test kits. In Europe, the decrease in revenue was primarily attributable to decreased sales of livestock test kits. For the nine-month period ended September 30, 1999, revenue increased 18% in the Asia-Pacific region, 16% in Canada and South America, and decreased 2% in Europe. The increase in the Asia-Pacific region is due primarily to increased sales of food residue testing products and poultry and livestock kits. In Canada and South America, the increase in revenue is primarily due to increased sales of food residue testing products, livestock test kits, and food hygiene consumables. The revenue decrease in Europe is primarily due to decreased sales of livestock test kits, partially offset by increased sales of water testing products and food residue testing products. Gross profit as a percentage of FED revenue was 55% and 54%, respectively, for the three- and nine-month periods ended September 30, 1999, and 52% and 51%, respectively, for the same periods in 1998. Increased sales of higher margin water testing products were partially offset by increased revenue from lower margin food laboratory services. OPERATING EXPENSES Sales and marketing expenses were 16% of revenue for the three- and nine-month periods ended September 30, 1999 compared to 20% for the same periods in 1998. The decrease as a percentage of revenue, and the dollar decreases of $2.0 million and $4.9 million, respectively, are principally attributable to decreases in salary and related expenses resulting from workforce reductions, partially offset by the inclusion of sales and marketing expenses for the Company's Blue Ridge Pharmaceuticals, Inc. ("Blue Ridge") subsidiary acquired in the last quarter of 1998. Research and development expenses were 7% and 8% of revenue for the three- and nine-month periods ended September 30, 1999, respectively, compared to 7% for the same periods in 1998. The increase as a percentage of revenue for the nine-month period ended September 30, 1999, and the dollar increases of $0.8 million and $5.0 million, respectively, are principally caused by the addition of development expenses at Blue Ridge and additional resources and related overhead to support product development. General and administrative expenses were 11% and 12% of revenue for the three- and nine-month periods ended September 30, 1999, respectively, compared to 13% and 14%, respectively, for the same periods in 1998. The decreases as a percentage of revenue, and the dollar decreases of $477,000 and $1.2 million, respectively, are primarily attributable to decreases in salary and related expenses resulting from workforce reductions, foreign currency exchange gains and a reduction in the provision for bad debts, partially offset by additional amortization of goodwill associated with the acquisition of Blue Ridge in the last quarter of 1998 and by severance and related costs associated with management changes. Net interest income was $1.6 million and $4.3 million for the three- and nine-month periods ended September 30, 1999, respectively, compared to $2.0 million and $5.3 million for the same periods in 1998. The decreases in net interest income over the prior year are due to interest expense on the notes issued in the acquisition of Blue Ridge in the last quarter of 1998, the use of cash to acquire Blue Ridge, the use of cash to repurchase company shares into treasury and lower domestic interest rates. See Notes 7(b) and 9. The Company's effective tax rate was 38% for the three- and nine-month periods ended September 30, 1999 compared to 39% for the same periods in 1998. The decrease in the effective tax rate was principally attributable to newly available federal and state credits for research and development activities. LIQUIDITY AND CAPITAL RESOURCES As of September 30, 1999, the Company had cash, cash equivalents, and short-term investments of $120.9 million and $174.0 million 12 13 of working capital. In the quarter ended September 30, 1999, the Company repurchased 1.74 million shares of the Company's Common Stock for $30.2 million. See Note 9. 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 two acquisitions in 1998 and one acquisition to date in 1999, 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 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 demand for existing products and services, the mix of products and services sold and the mix of domestic versus international revenue could contribute to this quarterly variability. 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 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. Many of the Company's competitors and potential competitors have substantially greater capital, manufacturing, marketing, and research and development resources than the Company. 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. The Company believes that it has established a leading position in many of the markets for its animal health diagnostic products and services, and the maintenance and any future growth of its position in these markets is dependent upon the successful development and introduction of new products and services. The Company also plans to devote significant resources to the growth of many of its other businesses, including its animal health pharmaceuticals business and VetConnect, an internet portal for the provision of animal healthcare information and services. The Company's operating experience and product and technology base in these businesses are more limited than in its animal health diagnostic product business. There can be no assurance that the Company will successfully complete the development and commercialization of products and services for existing and new businesses. 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 patent applications filed by the Company will result in patents being issued, that any patents of 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 licenses certain technologies used in its products from third parties, and the Company may be required to obtain licenses to additional technologies 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, although the Company is not aware of any pending litigation with respect to such claims. Patent litigation frequently is 13 14 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, 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. 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 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 from one source. Failure of such sources to supply product to the Company may have a material adverse effect on the Company's business. In the nine months ended September 30, 1999, international revenue was $69.7 million, or 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, 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 and U.S. Food and Drug Administration. 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. 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. YEAR 2000 Historically, certain computer programs have been written using two digits, rather than four digits, to define the applicable year. This could lead, in many cases, to a computer's recognizing a date using "00" as 1900 rather than the year 2000. This phenomenon could result in major computer system failures or miscalculations, and is generally referred to as the "Year 2000" problem or issue. The following discussion first summarizes the Company's efforts to identify and resolve Year 2000 issues associated with the Company's information technology ("IT") and non-IT internal systems, the products and services sold by the Company, and the products and services supplied by outside vendors, and then addresses total costs, most reasonably likely worst case scenarios, contingency plans, and the basis for current estimates relating to such efforts. The Company's worldwide accounting system is Year 2000 ready, and the Company has completed implementation of material Year 2000 related modifications to its other IT systems. The Company has assessed its internal non-IT systems and expects to complete needed modifications to these systems prior to 2000. Although the Company does not believe that it will incur material costs or experience material disruptions in its business associated with preparing its internal systems for the Year 2000, there can be no assurances that the Company will not experience serious unanticipated negative consequences and/or material costs caused by undetected errors or defects in the technology used in its internal systems, which are composed of third party software, third party hardware that contains embedded software and the Company's own software products. 14 15 The Company's Year 2000 effort has included testing products currently or recently offered by the Company for Year 2000 issues. The Company believes that all of its current product offerings are Year 2000 ready. The Company had determined that some versions of its VetTest(R) clinical chemistry analyzer would not properly display or transmit data for dates beginning January 1, 2000. The Company has completed an update to the VetTest software that will enable the instrument to properly display and transmit date and time information on and after January 1, 2000. The Company has delivered the software update to registered users of the VetTest instrument. For all other products that were identified as needing updates to address Year 2000 issues, the Company has prepared updates or has removed such products from its product offerings. Some of the Company's customers, including users of older practice information management systems, are using product versions that the Company will not support for Year 2000 issues; the Company has encouraged these customers to migrate to current product versions that are Year 2000 ready. Notwithstanding these efforts, there can be no guarantee that one or more current Company products do not contain Year 2000 issues that may result in material costs to the Company. Because a portion of the Company's business involves the sale of software systems, the Company's risk of being subjected to lawsuits relating to Year 2000 issues with its software products is likely to be greater than that of companies that do not sell software products. Because computer systems may involve different hardware, firmware and software components from different manufacturers, it may be difficult to determine which component in a computer system may cause a Year 2000 issue. As a result, the Company may be subjected to Year 2000 related lawsuits independent of whether its products and services are Year 2000 ready. The outcomes of any such lawsuits and the impact on the Company cannot be determined at this time. The Company has queried its important suppliers, vendors and resellers to assess their Year 2000 readiness. The Company has developed contingency plans for certain suppliers, vendors and resellers that have not provided assurances regarding Year 2000 readiness. To date, the Company is not aware of supplier, vendor or reseller problems that would materially impact results of operations, liquidity, or capital resources. However, the Company has no means of ensuring that suppliers, vendors and resellers will be Year 2000 ready. The inability of those parties to complete their Year 2000 resolution process could materially impact the Company. The Company's total cost relating to Year 2000 related activities has not been and is not expected to be material to the Company's financial position, results of operations, or cash flows. The Company believes necessary modifications have been or will be made on a timely basis. However, there can be no assurance that there will not be delays caused by, or increased costs associated with, unforeseen circumstances or that the Company's suppliers, resellers and customers will adequately prepare for the Year 2000 issue. It is possible that any such delays, increased costs, or supplier, reseller or customer failures could have a material adverse impact on the Company's operations and financial results. The most reasonably likely worst case Year 2000 scenarios for the Company would include: (i) the failure of infrastructure services provided by government agencies and other third parties (e.g., electricity, phone service, water, transport, material delivery, security systems, etc.), (ii) corruption of data contained in the Company's internal information systems, and (iii) hardware failure. Although the Company does not anticipate major interruptions of its business activities, the Company is developing contingency plans in the event certain internal or external systems, or certain of the Company's suppliers, vendors or resellers, are not Year 2000 ready. Despite the Company's efforts, if certain internal or external systems or third parties are not Year 2000 ready, the Year 2000 issue could have a material adverse impact on the Company's operations by, for example, impacting the Company's ability to deliver products or services to its customers. Current estimates of the costs of the project and the information on which the Company believes it will complete the Year 2000 modifications and contingency plans are based on certain assumptions regarding future events, including the continued availability of certain resources, assurances received from third parties, and other factors. However, there can be no guarantee that these estimates will be achieved or that this information is accurate, and therefore the actual results could differ materially from those anticipated. Specific factors might include, but are not limited to, the availability and cost of personnel trained in this area, the degree of cooperation and preparedness of third parties, the ability to locate and correct all relevant computer codes, and other uncertainties. PART II -- OTHER INFORMATION Item 1. -- Legal Proceedings On February 24, 1995, CDC Technologies, Inc. ("CDC Technologies") filed suit against the Company in the U.S. District Court for the District of Connecticut. In its complaint, CDC Technologies alleged that the Company's conduct in, and its relationships with its distributors in connection with, the distribution of the Company's hematology products (i) violate federal and state antitrust statutes, (ii) violate Connecticut statutes regarding unfair trade practices, and (iii) constitute a civil conspiracy and 15 16 interfere with CDC Technologies' business relations. The relief sought by CDC Technologies included treble damages for antitrust violations as well as compensatory and punitive damages, and an injunction to prevent the Company from interfering with CDC Technologies' relations with distributors. In March 1998, the U. S. District Court granted the Company's motion for summary judgment in the case, and in July 1999, the U.S. Court of Appeals for the Second District affirmed the District Court's ruling. However, it is possible that CDC may appeal that ruling. The Company is unable to assess the likelihood of an adverse result or estimate the amount of any damages which the Company may be required to pay. Any adverse outcome resulting in the payment of damages would adversely affect the Company's results of operations. On November 12, 1998, Synbiotics Corporation ("Synbiotics") filed suit against the Company in the U.S. District Court for the Southern District of California for infringement of U.S. Patent No. 4,789,631 issued December 6, 1988 (the "`631 Patent"). The `631 Patent, which is owned by Synbiotics, claims certain assays, methods and compositions for the diagnosis of canine heartworm infection. The primary relief sought by Synbiotics was an injunction against the Company which would prevent the Company from selling canine heartworm diagnostic products which infringe the `631 Patent, as well as treble damages for past infringement. This suit was not served on the Company within the time period specified under applicable court rules and was dismissed without prejudice in April 1999, however Synbiotics is not precluded from filing a new suit in the future. While the Company believes that it has meritorious defenses against claims of infringement of the `631 Patent, the Company is unable to assess the likelihood of an adverse result or estimate the amount of any damages the Company may be required to pay. If the Company is precluded from selling canine heartworm diagnostic products or required to pay damages or make additional royalty or other payments with respect to such sales, the Company's business and results of operations could be materially and adversely affected. On January 9, 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 purport to represent a class of purchasers of the common stock of the Company from July 19, 1996 through March 24, 1997. The complaint claims 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 claims that the individual defendants are liable as "control persons" under Section 20(a) of that Act. In addition, the complaint claims 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, on August 11, 1999, the plaintiffs appealed that ruling to the U.S. Court of Appeals for the First Circuit. The Company is unable to assess the likelihood of an adverse result or estimate the amount of damages which the Company may be required to pay. Any adverse outcome resulting in the payment of damages would adversely affect the Company's results of operations. On December 18, 1997, SA Scientific, Inc. ("SAS") filed suit against the Company in the State of Texas District Court seeking unspecified damages resulting from the Company's alleged breach of a development and supply agreement between SAS and the Company. The Company has filed an answer to the complaint denying SAS's allegations and asserting counterclaims against SAS for breach of contract and conversion of the Company's property. SAS has filed an amended complaint seeking $1,500,000 in actual damages related to the Company's alleged breach of contract, $5,000,000 in punitive damages and further unspecified damages from the Company's alleged negligent misrepresentation, fraud and conversion of SAS's intellectual property, and attorneys' fees. The Company believes that it has meritorious defenses to SAS's claims and is contesting the matter vigorously. However, the Company is unable to assess the likelihood of an adverse result or estimate the amount of damages the Company might be required to pay. Any adverse outcome resulting in payment of damages would adversely affect the Company's results of operations. Item 6. -- Exhibits and Reports on Form 8-K (a) Exhibits 10.1 Agreement dated August 26, 1999 between the Company and David E. Shaw. 27 Financial Data Schedule for the Quarterly Report on Form 10-Q for the nine-month period ended September 30, 1999. (b) Reports on Form 8-K 16 17 The Company filed no reports on Form 8-K during the fiscal quarter for which this report is filed. 17 18 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: November 12, 1999 /s/ Merilee Raines -------------------------------- Merilee Raines, Vice President, Finance and Treasurer (Principal Financial Officer) 18 EX-10.1 2 AGREEMENT DATED AUGUST 26, 1999 1 EXHIBIT 10.1 AGREEMENT This Agreement is entered into by IDEXX Laboratories, Inc. ("IDEXX") and David E. Shaw ("Shaw") regarding Shaw's reappointment as Chief Executive Officer of IDEXX, and the planned recruitment and appointment of a person to succeed Shaw as such Chief Executive Officer. In consideration of Shaw's willingness to serve as Chief Executive Officer pending the identification and appointment of a successor (the "Succession"), and to serve as Executive Chairman for a period of time after the Succession, and for other good and valuable consideration, the parties agree as follows: 1. From the date hereof until the date of the Succession (the "CEO Term"), Shaw agrees to serve, and IDEXX agrees to retain Shaw, as Chief Executive Officer, unless Shaw voluntarily resigns prior to expiration of the CEO Term. During the CEO Term, Shaw will perform responsibilities consistent with his position as Chief Executive Officer, and will assist in the recruitment of a successor. 2. If requested by the Board of Directors in connection with and prior to the Succession, until December 31, 2001, or such later date as may be mutually agreed upon (such period, the "Executive Chairman Term" and together with the CEO Term, the "Term"), Shaw agrees to serve as a part time employee of IDEXX with the title of "Executive Chairman" unless Shaw voluntarily resigns prior to expiration of the Term. During the Executive Chairman Term, Shaw will perform responsibilities consistent with his position as Executive Chairman, as mutually agreed with the Board of Directors. 3. Shaw's annual base salary during the Term shall initially be $400,000, and will be subject to change during the Term by mutual agreement. Eligibility for cash bonuses or stock option grants will be at the discretion of IDEXX's Board of Directors but consistent with senior officer guidelines. During the Term, Shaw will participate at current levels in IDEXX benefit programs including on-site or off-site administrative support and office facilities. 4. If Shaw's employment is terminated during the Term, by IDEXX, or by Shaw as a result of breach by IDEXX of this Agreement, then Shaw shall have all the rights and IDEXX shall have all the obligations provided for in the Employment Agreement referred to in paragraph 5 below upon a termination of the Executive's employment thereunder for Good Reason during the Employment Period. For this purpose a Change of Control will be deemed to have occurred on the date of termination, and the provisions of the "parachute", including immediate vesting of all stock options, will become effective. Additionally, for this purpose, if Shaw shall not be Chief Executive Officer at the time of such termination, "Annual Base Salary" shall mean Shaw's annual base salary as Chief Executive Officer. 5. This Agreement supersedes in its entirety the Agreement dated February 17, 1999 between IDEXX and Shaw. The Employment Agreement dated April 25, 1997 between Shaw and IDEXX will remain in effect and, in the event of any conflict or inconsistency between this Agreement and such Employment Agreement at or after the Effective Date of the Employment Agreement, the Employment Agreement shall control. Agreed to as of August 26, 1999 For IDEXX Laboratories, Inc.: By: /s/ James L. Moody /s/ David E. Shaw -------------------------------- --------------------------------- James L. Moody, Jr., Chairman David E. Shaw Compensation Committee EX-27 3 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE IDEXX LABORATORIES, INC. CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS 0000874716 IDEXX LABORATORIES, INC. 1,000 U.S. DOLLARS 9-MOS DEC-31-1999 JAN-01-1999 SEP-30-1999 1 74,677 46,234 61,413 5,543 48,370 244,243 87,357 47,225 383,131 70,221 4,208 0 0 3,954 304,748 383,131 216,938 267,593 93,468 136,619 96,098 903 422 38,282 14,547 23,735 0 0 0 23,735 .61 .58
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