<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended SEPTEMBER 30, 1996
------------------
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, 1996, 37,639,538 shares of the registrant's Common Stock,
$.10 par value, were outstanding.
Page 1
<PAGE> 2
IDEXX LABORATORIES, INC. AND SUBSIDIARIES
INDEX
Page
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets 3
September 30, 1996 and December 31, 1995
Consolidated Statements of Operations 4
Three and Nine Months Ended
September 30, 1996 and 1995
Consolidated Statements of Cash Flows 5
Nine Months Ended
September 30, 1996 and 1995
Notes to Consolidated Financial Statements 6-9
Item 2. Management's Discussion and Analysis of 10-11
Financial Condition and Results of
Operations
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings 12-13
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURES 14
Page 2
<PAGE> 3
PART I -- FINANCIAL INFORMATION
Item 1. -- Financial Statements
--------------------
IDEXX LABORATORIES, INC. AND SUBSIDIARIES
<TABLE>
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<CAPTION>
ASSETS
September 30, December 31,
1996 1995
------------- -------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $125,473,257 $149,252,497
Short-term investments 44,663,633 34,409,074
Accounts receivable, less reserves of
$3,542,000 and $2,510,000 in 1996 and
1995, respectively 63,171,469 44,091,136
Inventories 41,034,066 28,192,490
Other current assets 11,429,520 6,034,503
------------ ------------
Total current assets 285,771,945 261,979,700
LONG-TERM INVESTMENTS 6,925,000 13,625,890
PROPERTY AND EQUIPMENT, AT COST:
Leasehold improvements 15,160,018 14,878,226
Machinery and equipment 17,974,970 13,406,525
Office furniture and equipment 18,208,718 10,615,208
Construction in progress 2,020,089 1,439,448
Buildings and land 2,994,376 --
------------ ------------
56,358,171 40,339,407
Less -- Accumulated depreciation & amortization 20,741,193 14,843,799
------------ ------------
35,616,978 25,495,608
OTHER ASSETS 28,320,209 11,438,427
------------ ------------
$356,634,132 $312,539,625
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 14,102,157 $ 10,807,092
Accrued expenses 25,000,784 16,656,872
Notes payable 3,000,000 1,687,433
Deferred revenue 5,448,673 4,263,550
------------ ------------
Total current liabilities 47,551,614 33,414,947
COMMITMENTS AND CONTINGENCIES (Note 4)
STOCKHOLDERS' EQUITY:
Common stock, $0.10 par value
Authorized 60,000,000 shares
Issued and outstanding 37,611,144 shares in 1996
and 36,548,596 shares in 1995 3,761,114 3,654,860
Additional paid-in capital 248,385,428 230,805,959
Retained earnings 58,139,382 45,221,905
Cumulative translation adjustment (1,203,406) (558,046)
------------ ------------
Total stockholders' equity 309,082,518 279,124,678
------------ ------------
$356,634,132 $312,539,625
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
Page 3
<PAGE> 4
IDEXX LABORATORIES, INC. AND SUBSIDIARIES
<TABLE>
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<CAPTION>
Three Months Ended Nine Months Ended
------------------ -----------------
September 30, September 30, September 30, September 30,
1996 1995 1996 1995
------------- ------------- ------------- ------------
<S> <C> <C> <C> <C>
Revenue $69,837,449 $48,728,723 $193,112,515 $134,404,479
Cost of revenue 29,361,773 21,146,892 82,448,687 56,884,045
----------- ----------- ------------ ------------
Gross Profit 40,475,676 27,581,831 110,663,828 77,520,434
Expenses:
Sales and marketing 17,530,933 11,923,362 49,261,001 34,265,088
General and administrative 7,102,199 4,220,196 19,042,236 12,374,359
Research and development 3,140,081 2,557,433 9,040,707 7,742,151
----------- ----------- ------------ ------------
Income from operations 12,702,463 8,880,840 33,319,884 23,138,836
Interest income, net 1,790,837 443,691 6,348,216 1,603,297
----------- ----------- ------------ ------------
Net income before provision
for income taxes 14,493,300 9,324,531 39,668,100 24,742,133
Provision for income taxes 5,942,253 3,934,952 16,263,921 10,373,952
----------- ----------- ------------ ------------
Net income $ 8,551,047 $ 5,389,579 $ 23,404,179 $ 14,368,181
=========== =========== ============ ============
Net income per common and
common equivalent share $ 0.22 $ 0.16 $ 0.59 $ 0.42
=========== =========== ============ ============
Weighted average number of
common and common equivalent
shares outstanding 39,510,030 34,486,385 39,437,585 34,081,092
=========== =========== ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
Page 4
<PAGE> 5
IDEXX LABORATORIES, INC. AND SUBSIDIARIES
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<CAPTION>
Nine Months Ended
September 30, September 30,
1996 1995
------------- -------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income $ 23,404,179 $ 14,368,181
Adjustments to reconcile net income to net cash
provided by operating activities -
Depreciation and amortization 7,041,229 4,431,933
Changes in assets and liabilities -
Accounts receivable (15,413,247) (11,366,099)
Inventories (11,878,921) (4,624,156)
Other current assets (4,754,885) (530,587)
Accounts payable 1,472,281 2,079,141
Accrued expenses 3,203,773 4,564,889
Deferred revenue 1,185,123 1,670,865
------------ ------------
Net cash provided by operating activities 4,259,532 10,594,167
------------ ------------
Cash Flows from Investing Activities:
Purchases of property and equipment (8,877,785) (13,521,780)
Decrease (increase) in investments, net (3,553,669) 8,721,656
Increase in other assets (472,984) (83,601)
Acquisition(s) of business(es), net of cash
acquired (Note 5) (19,708,912) (3,500,000)
------------ ------------
Net cash used in investing activities (32,613,350) (8,383,725)
------------ ------------
Cash Flows from Financing Activities:
Proceeds from sale of common stock, net -- 153,036,195
Proceeds from (repayment of) notes payable (1,887,433) 1,687,433
Proceeds from the exercise of stock options 7,107,371 3,668,140
------------ ------------
Net cash provided by financing activities 5,219,938 158,391,768
------------ ------------
Effect of Exchange Rate Changes (645,360) 24,839
------------ ------------
Net Increase (Decrease) in Cash and Cash Equivalents (23,779,240) 160,627,049
Cash and Cash Equivalents, beginning of period 149,252,497 25,178,539
------------ ------------
Cash and Cash Equivalents, end of period $125,473,257 $185,805,588
============ ============
Supplemental Disclosure of Cash Flow Information:
Interest paid during the period $ 219,500 $ 14,600
============ ============
Income taxes paid during the period $ 9,689,700 $ 8,419,289
============ ============
Supplemental Disclosure of Noncash Financing Activity:
Issuance of Common stock in connection
with acquisition of Idetek, Inc. (Note 5) $ 91,650 $ --
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
Page 5
<PAGE> 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, 1995 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 consolidated
financial statements to conform with the current year's
presentation.
c. The Company adopted Statement of Financial Accounting Standards No.
115, "Accounting for Certain Investments in Debt and Equity
Securities" (SFAS No. 115) effective January 1, 1994. 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.
<TABLE>
Cash Equivalents and Short-term Investments: Cash equivalents are
short-term, highly liquid investments with original maturities of
less than three months. Short-term investments are investment
securities with original maturities of greater than three months but
less than one year and consist of the following:
<CAPTION>
September 30,
1996
----
<S> <C>
U.S. Treasury bills $34,663,633
Municipal bonds 10,000,000
-----------
$44,663,633
===========
</TABLE>
<TABLE>
Long-term investments are investment securities with original
maturities of greater than one year and consist of the following:
<CAPTION>
September 30,
1996
----
<S> <C>
U.S. Treasury note $4,000,000
Municipal bonds 2,925,000
----------
$6,925,000
==========
</TABLE>
Page 6
<PAGE> 7
<TABLE>
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:
<CAPTION>
September 30, December 31,
1996 1995
---- ----
<S> <C> <C>
Raw materials $ 8,850,830 $ 5,058,199
Work-in-process 5,633,527 4,393,946
Finished goods 26,549,709 18,740,345
----------- ------------
$41,034,066 $28,192,490
=========== ===========
</TABLE>
3. NET INCOME PER SHARE
Net income per common and common equivalent share is based on the weighted
average number of common and common equivalent shares outstanding during
each period, computed in accordance with the treasury stock method. Fully
diluted net income per common and common equivalent share has not been
presented as it is not significantly different.
4. 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. Except as noted below
with respect to the patent infringement suit brought by The Jewish
Hospital of St. Louis, no litigation has been brought against the Company
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 during the
three-month period ended September 30, 1996 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 4, 1993, the Company acquired Environetics, Inc.
("Environetics"), which brought a patent infringement suit with Stephen
Edberg, Ph.D. against Millipore Corporation ("Millipore") in the U.S.
District Court for the District of Connecticut on September 30, 1992 (the
"Millipore I suit"). The complaint in the Millipore I suit was
subsequently amended to add as additional plaintiffs Access Medical
Systems, Inc., a subsidiary of the Company ("Access"), and Stephen C.
Wardlaw, M.D. The primary relief sought by the plaintiffs is an injunction
against Millipore which would prevent Millipore from selling a competitive
product that the plaintiffs believe infringes U.S. Patent No. 4,925,789
(the " '789 Patent") covering the Company's Colilert product, under which
Access and Environetics have an exclusive license from Drs. Edberg and
Wardlaw. Millipore has filed a counterclaim alleging that the '789 Patent
is invalid or not infringed.
In addition, on July 26, 1995, the Company, Environetics, Access and Drs.
Edberg and Wardlaw brought a second patent infringement suit against
Millipore in the U.S. District Court for the District of Connecticut (the
"Millipore II suit"). The principal relief sought by the plaintiffs in the
Millipore II suit is an injunction against Millipore which would prevent
Millipore from selling a product which the plaintiffs believe infringes
U.S. Patent No. 5,429,933 (the " '933 Patent"), which also covers the
Colilert product. The '933 Patent, which is related to the '789 Patent,
was issued in July 1995 to Dr. Edberg. Access and Environetics have an
exclusive license under the '933 Patent from Drs. Edberg and Wardlaw.
Millipore has filed a counterclaim alleging that the '933 Patent is
invalid or not infringed and is seeking to add a counterclaim alleging
misappropriation of trade secrets.
If the plaintiffs do not prevail in the Millipore I and Millipore II suits
(which have been consolidated for trial), the Company anticipates that the
Colilert product would encounter increased competition, which could
adversely affect sales of the Colilert product.
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 alleges 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 includes treble damages for antitrust violations as
well as compensatory and punitive damages, and an injunction to prevent
the Company
Page 7
<PAGE> 8
from interfering with CDC Technologies' relations with distributors. The
Company has filed an answer denying the allegations in CDC's complaint.
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 May 26, 1995, The Jewish Hospital of St. Louis (the "Hospital") brought
a suit against the Company which is currently pending in the U.S. District
Court for the District of Maine for infringement of U.S. Patent No.
4,839,275 issued June 13, 1989 (the " '275 Patent"). The '275 Patent,
which is owned by the Hospital, claims certain methods and compositions
for the diagnosis of canine heartworm infection. The primary relief sought
by the Hospital is an injunction against the Company which would prevent
the Company from selling canine heartworm diagnostic products which
infringe the '275 Patent, as well as treble damages for past infringement.
While the Company believes that it has meritorious defenses in this
matter, 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. 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 September 18, 1995, Purisys Inc. ("Purisys"), a producer of home
pollution test kits, and certain of its employees filed suit against the
Company in the Supreme Court of the state of New York. In their complaint,
the plaintiffs allege that the Company has breached promises and made
negligent misrepresentations, and has breached fiduciary and other duties.
The plaintiffs are seeking damages in excess of $50,000,000. The Company
purchased a 15% equity interest in Purisys in August 1994 for $616,000,
and the Company subsequently advanced additional amounts to Purisys to
purchase certain international distribution rights. In March 1995, the
Company ceased advancing funds to Purisys, which filed for protection
under Chapter 11 of the Bankruptcy Code in July 1995. In May 1996, the
court granted IDEXX's motion to dismiss the plaintiffs' suit, however the
plaintiffs have sought to appeal the dismissal and to amend their
complaint. While the Company believes it has meritorious defenses, 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.
5. ACQUISITIONS
The Company's consolidated results of operations include the results of
operations of four veterinary reference laboratory businesses and two
manufacturers of detection and diagnostic tests. These businesses were
acquired by the Company for aggregate purchase prices equaling
approximately $19.7 million in cash, the assumption of certain liabilities
and the issuance of the Company's Common Stock and options exercisable for
Common Stock totaling approximately $20 million.
In connection with the acquisition of the veterinary reference laboratory
businesses and one of the manufacturing businesses, the Company entered
into non-compete agreements for a period of up to five years with certain
of the entities, stockholders or former stockholders, and may become
obligated to pay additional amounts to management of these companies based
on achieving certain operating results. The Company has accounted for
these acquisitions under the purchase method of accounting. The results of
operations of each of these businesses has been included in the Company's
consolidated results of operations since each of their respective dates of
acquisition. The Company has not presented pro forma financial information
relating to any of these acquisitions because of immateriality. These
acquisitions are as follows:
- On March 29, 1996, the Company acquired all of the capital
stock of VetLab, Inc., which operates two veterinary reference
laboratories in Texas.
- On April 2, 1996, the Company, through its wholly-owned
subsidiary, IDEXX Laboratories, Limited, acquired
substantially all of the assets and assumed certain of the
liabilities of Grange Laboratories Ltd. ("Grange
Laboratories"). Grange Laboratories' business, which includes
veterinary reference laboratories in the United Kingdom, is
now operated as a division of IDEXX Laboratories, Limited.
- On May 15, 1996, the Company acquired all of the capital stock
of Veterinary Services, Inc., which operates veterinary
reference laboratories in Colorado, Illinois and Oklahoma.
- On July 12, 1996, the Company acquired substantially all of
the assets and assumed certain of the liabilities of
Consolidated Veterinary Diagnostics, Inc. ("CVD"). As a result
of the CVD acquisition, the Company is operating CVD's
veterinary reference laboratories in Northern California,
Oregon and Nevada.
Page 8
<PAGE> 9
- On July 18, 1996, the Company acquired all of the capital
stock of Ubitech Aktiebolag ("Ubitech"), located in Uppsala,
Sweden, which manufactures and distributes diagnostic test
kits for the livestock industry.
In connection with the Company's acquisiton by merger of Idetek, Inc.
("Idetek") on August 29, 1996, the Company issued 436,804 shares of its
Common Stock, of which approximately 10% are held in escrow, in exchange
for all of the outstanding capital stock of Idetek. In addition,
outstanding options to purchase shares of Idetek capital stock became
options to acquire 110,191 shares of the Company's Common Stock at prices
ranging from $3.13 to $78.14. The value of the shares of the Company's
Common Stock issued or reserved for issuance as a result of the merger
totaled approximately $20 million. Idetek, located in Sunnyvale,
California, manufactures and distributes detection tests for the food,
agricultural and environmental industries. The Company has accounted for
this acquisition by merger as a "pooling-of-interests". The results of
operations of Idetek have been included in the Company's consolidated
results of operations since the date of the merger. The Company has not
restated its financial statements because of immateriality.
Page 9
<PAGE> 10
Item 2.
IDEXX LABORATORIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Total revenue for the third quarter of 1996 increased 43% to $69.8 million from
$48.7 million for the third quarter of 1995. Total revenue for the nine months
ended September 30, 1996 increased 44% to $193.1 million from $134.4 million for
the first nine months of 1995.
The increase in total revenue for the quarter ended September 30, 1996 compared
to the same period in 1995 was principally attributable to increased sales of
veterinary laboratory services resulting from recent acquisitions of veterinary
reference laboratories, veterinary clinical chemistry consumables, and test kits
for canine heartworm. The increase in total revenue for the nine-month period
ended September 30, 1996 as compared to the same period in the prior year was
attributable to increases in sales of veterinary clinical chemistry consumables,
veterinary laboratory services, canine test products, and a quantitative thyroid
instrument introduced in the first quarter of 1996. Price increases in the
veterinary clinical products also contributed to the increase in total revenue
during the three- and nine-month periods ending September 30, 1996.
International revenue increased 47% to $23.5 million in the third quarter of
1996 and 47% to $66.8 million for the nine months ended September 30, 1996, as
compared to $16.0 million and $45.5 million, respectively, for the prior year
periods. Increased revenue in Europe, which included revenue of Grange
Laboratories acquired in the second quarter of 1996 and Ubitech acquired in the
current quarter, accounted for 44% and 49% of the increase in international
revenue and increased revenue in Japan accounted for 32% and 31% of the increase
in international revenue for the three- and nine-month periods ended September
30, 1996, respectively, compared to the same periods in 1995. The remaining
increase was primarily attributable to increased revenues in Canada, Australia,
and Asia. Revenue of the Company's European subsidiaries, transacted in local
currencies, increased 34% and 36% for the three- and nine-month periods ended
September 30, 1996, respectively, as compared to the same periods in the prior
year. In U.S. dollars, the revenue increase was 30% to $14.4 million for the
current three-month period and 31% to $44.0 million for current nine-month
period.
Gross profit as a percentage of total revenue was 58% and 57% for the three- and
nine-month periods ended September 30, 1996, respectively, as compared to 57%
and 58% for the same periods in the prior year. The gross profit percentage is
higher for the three-month period ended September 30, 1996 in comparison to the
same period in 1995 because operating and purchasing efficiencies and higher
selling prices of certain veterinary clinical chemistry products exceeded the
unfavorable impact of product mix, which resulted principally from lower margins
generated by the recently acquired veterinary reference laboratories. The gross
profit percentage is lower for the nine-month period ended September 30, 1996 in
comparison to the same period in 1995 because higher selling prices for certain
veterinary clinical chemistry products were offset by product mix, as revenue
growth of lower margin veterinary clinical consumables and veterinary laboratory
services exceeded the revenue growth in higher margin diagnostic kit products.
Sales and marketing expenses were 25% and 26% of total revenue for the three-
and nine-month periods ended September 30, 1996, respectively, compared to 24%
and 25% for the same periods in 1995. The increase as a percentage of total
revenue for the three months ended September 30, 1996 in comparison to the same
period in 1995 was principally attributable to increased expenses for marketing
programs related to the Company's veterinary products. The increases of $5.6
million and $15.0 million for the three- and nine-month periods ended September
30, 1996, respectively, over the same periods in 1995 were principally
attributable to additional personnel in sales functions worldwide.
Research and development expenses were 4% and 5% of total revenue for the three-
and nine-month periods ended September 30, 1996, respectively, compared to 5%
and 6% for the same periods in 1995. The increases of $583,000 and $1.3 million
for the three- and nine-month periods ended September 30, 1996, respectively,
over the same periods in 1995 reflected additional resources and related
overhead to support product development.
General and administrative expenses were 10% of total revenue for the three- and
nine-month periods ended September 30, 1996 compared to 9% for the same periods
in 1995. The increases of $2.9 million and $6.7 million for the three- and
nine-month periods ended September 30, 1996, respectively, over the same periods
in 1995, were principally attributable to additional operating expenses and
acquisition costs associated with recent acquisitions and higher legal expenses.
Page 10
<PAGE> 11
Net interest income was $1.8 million and $6.3 million for the three- and
nine-month periods ended September 30, 1996, respectively, as compared to
$444,000 and $1.6 million for the same periods in 1995. The increase in interest
income is due to higher invested cash balances, due in large part to a public
stock offering in September 1995 that generated approximately $153.0 million in
net proceeds.
The Company's effective tax rate was 41% for the three- and nine-month periods
ended September 30, 1996, as compared to 42% for the same periods in 1995. The
decrease in the effective tax rate is principally attributable to lower state
income taxes.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1996 the Company had cash, cash equivalents, and short-term
investments of $170.1 million and $238.2 million of working capital.
The Company believes that current cash and short-term investments, which include
net proceeds from the offering of the Company's Common Stock in 1995, and funds
expected to be generated from operations, will be sufficient to fund the
Company's operations for the foreseeable future.
FORWARD LOOKING INFORMATION
This report includes certain forward-looking statements about the Company's
business 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 to certain of its litigation matters. Such forward-looking statements
are subject to risk and uncertainties that could cause the Company's actual
results to vary materially from that indicated from such forward-looking
statements. These risks and uncertainties, discussed in more detail in the
Company's Form 10-K for the year ended December 31, 1995, include those
associated with significant growth of the Company's business, internally and by
acquisition; possible significant fluctuations in quarterly operating results;
high levels of competition in existing and new markets, including the
difficulties of entering new markets; the protection and acquisition of
proprietary technologies; the availability of products from sole or limited
sources; the risks associated with conducting business internationally;
achieving regulatory approvals; significant product liability, and factors
affecting the business segments in which the Company operates and the economy
generally.
Page 11
<PAGE> 12
PART II -- OTHER INFORMATION
Item 1. -- Legal Proceedings
-----------------
On February 4, 1993, the Company acquired Environetics, Inc.
("Environetics"), which brought a patent infringement suit with Stephen
Edberg, Ph.D. against Millipore Corporation ("Millipore") in the U.S.
District Court for the District of Connecticut on September 30, 1992 (the
"Millipore I suit"). The complaint in the Millipore I suit was
subsequently amended to add as additional plaintiffs Access Medical
Systems, Inc., a subsidiary of the Company ("Access"), and Stephen C.
Wardlaw, M.D. The primary relief sought by the plaintiffs is an injunction
against Millipore which would prevent Millipore from selling a competitive
product that the plaintiffs believe infringes U.S. Patent No. 4,925,789
(the " '789 Patent") covering the Company's Colilert product, under which
Access and Environetics have an exclusive license from Drs. Edberg and
Wardlaw. Millipore has filed a counterclaim alleging that the '789 Patent
is invalid or not infringed.
In addition, on July 26, 1995, the Company, Environetics, Access and Drs.
Edberg and Wardlaw brought a second patent infringement suit against
Millipore in the U.S. District Court for the District of Connecticut (the
"Millipore II suit"). The principal relief sought by the plaintiffs in the
Millipore II suit is an injunction against Millipore which would prevent
Millipore from selling a product which the plaintiffs believe infringes
U.S. Patent No. 5,429,933 (the " '933 Patent"), which also covers the
Colilert product. The '933 Patent, which is related to the '789 Patent,
was issued in July 1995 to Dr. Edberg. Access and Environetics have an
exclusive license under the '933 Patent from Drs. Edberg and Wardlaw.
Millipore has filed a counterclaim alleging that the '933 Patent is
invalid or not infringed and is seeking to add a counterclaim alleging
misappropriation of trade secrets.
If the plaintiffs do not prevail in the Millipore I and Millipore II suits
(which have been consolidated for trial), the Company anticipates that the
Colilert product would encounter increased competition, which could
adversely affect sales of the Colilert product.
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 alleges 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 includes 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. The Company has filed an answer denying the allegations in
CDC's complaint. 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 May 26, 1995, The Jewish Hospital of St. Louis (the "Hospital") brought
a suit against the Company which is currently pending in the U.S. District
Court for the District of Maine for infringement of U.S. Patent No.
4,839,275 issued June 13, 1989 (the " '275 Patent"). The '275 Patent,
which is owned by the Hospital, claims certain methods and compositions
for the diagnosis of canine heartworm infection. The primary relief sought
by the Hospital is an injunction against the Company which would prevent
the Company from selling canine heartworm diagnostic products which
infringe the '275 Patent, as well as treble damages for past infringement.
While the Company believes that it has meritorious defenses in this
matter, 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. 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.
Page 12
<PAGE> 13
On September 18, 1995, Purisys Inc. ("Purisys"), a producer of home
pollution test kits, and certain of its employees filed suit against the
Company in the Supreme Court of the state of New York. In their complaint,
the plaintiffs allege that the Company has breached promises and made
negligent misrepresentations, and has breached fiduciary and other duties.
The plaintiffs are seeking damages in excess of $50,000,000. The Company
purchased a 15% equity interest in Purisys in August 1994 for $616,000,
and the Company subsequently advanced additional amounts to Purisys to
purchase certain international distribution rights. In March 1995, the
Company ceased advancing funds to Purisys, which filed for protection
under Chapter 11 of the Bankruptcy Code in July 1995. In May 1996, the
court granted IDEXX's motion to dismiss the plaintiffs' suit, however the
plaintiffs have sought to appeal the dismissal and to amend their
complaint. While the Company believes it has meritorious defenses, 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.
Item 6.-- Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits Page
----
27. Financial Data Schedule for Quarterly Report on
Form 10-Q for third quarter 1996 15
(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.
Page 13
<PAGE> 14
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, 1996
/s/ Merilee Raines
-------------------------------------
Merilee Raines, Vice President of Finance
(Principal Financial Officer and Principal
Accounting Officer)
Page 14
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE IDEXX
LABORATORIES, INC. UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS FOR
THE SECOND QUARTER ENDING JUNE 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<CIK> 0000874716
<NAME> IDEXX LABORATORIES, INC.
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 1
<CASH> 139,408,462
<SECURITIES> 48,022,684
<RECEIVABLES> 62,719,881
<ALLOWANCES> 3,179,000
<INVENTORY> 40,195,223
<CURRENT-ASSETS> 295,815,460
<PP&E> 47,772,659
<DEPRECIATION> 17,797,580
<TOTAL-ASSETS> 348,829,150
<CURRENT-LIABILITIES> 50,010,682
<BONDS> 0
<COMMON> 3,695,342
0
0
<OTHER-SE> 295,123,126
<TOTAL-LIABILITY-AND-EQUITY> 348,829,150
<SALES> 123,275,066
<TOTAL-REVENUES> 123,275,066
<CGS> 53,086,914
<TOTAL-COSTS> 53,086,914
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 126,700
<INCOME-PRETAX> 25,174,800
<INCOME-TAX> 10,321,668
<INCOME-CONTINUING> 14,853,132
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14,853,132
<EPS-PRIMARY> .38
<EPS-DILUTED> .38
</TABLE>
