<PAGE> 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.
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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
<PAGE> 3
PART I -- FINANCIAL INFORMATION
Item 1. -- FINANCIAL STATEMENTS
IDEXX LABORATORIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(In Thousands, Except Per Share Amounts)
(Unaudited)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- ------------
<S> <C> <C>
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
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
3
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IDEXX LABORATORIES, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(In Thousands, Except Per Share Amounts)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
--------------------------- ----------------------------
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1999 1998 1999 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
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
======= ======= ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
4
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IDEXX LABORATORIES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
-----------------------------------
SEPTEMBER 30, SEPTEMBER 30,
1999 1998
------------- -------------
<S> <C> <C>
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
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
5
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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
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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:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
-------------- ------------- ------------- -------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
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
====== ====== ====== ======
</TABLE>
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):
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
-------------- ------------- ------------- -------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
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
======= ======= ======= =======
</TABLE>
7
<PAGE> 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
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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
<PAGE> 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):
<TABLE>
<CAPTION>
CAG FED OTHER TOTAL
--- --- ----- -----
<S> <C> <C> <C> <C>
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
</TABLE>
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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 17
The Company filed no reports on Form 8-K during the fiscal quarter for which
this report is filed.
17
<PAGE> 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
<PAGE> 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
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE IDEXX
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SUCH FINANCIAL STATEMENTS
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