<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 June 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 July 31, 1999, 39,531,228 shares of the registrant's Common Stock, $.10
par value, were outstanding.
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IDEXX LABORATORIES, INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
PAGE
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<S> <C>
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets
June 30, 1999 and December 31, 1998 3
Consolidated Statements of Operations
Three and Six Months Ended
June 30, 1999 and June 30, 1998 4
Consolidated Statements of Cash Flows
Six Months Ended
June 30, 1999 and June 30, 1998 5
Notes to Consolidated Financial Statements 6-10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11-15
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 4. Submission of Matters to a
Vote of Security-Holders 17
Item 6. Exhibits and Reports on Form 8-K 17
SIGNATURES 18
</TABLE>
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
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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>
ASSETS JUNE 30, DECEMBER 31,
1999 1998
-------- ------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $107,076 $ 109,063
Short-term investments 39,711 29,290
Accounts receivable, less reserves of $5,732
and $5,368 in 1999 and 1998, respectively 57,920 47,947
Inventories 47,462 55,428
Deferred income taxes 13,350 13,965
Other current assets 5,452 7,653
-------- ---------
Total current assets 270,971 263,346
LONG-TERM INVESTMENTS 29,692 17,297
PROPERTY AND EQUIPMENT, AT COST:
Land 1,194 1,197
Buildings and improvements 4,524 4,487
Leasehold improvements 18,421 17,629
Machinery and equipment 34,079 31,917
Office furniture and equipment 28,388 25,423
Construction-in-progress 700 1,840
-------- ---------
87,306 82,493
Less - Accumulated depreciation and amortization 45,965 41,013
-------- ---------
41,341 41,480
OTHER ASSETS, Net 67,245 68,409
-------- ---------
$409,249 $ 390,532
======== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 13,689 $ 26,816
Accrued expenses 42,217 32,046
Current portion of long-term debt 5,332 5,190
Deferred revenue 14,296 14,449
-------- ---------
Total current liabilities 75,534 78,501
LONG-TERM DEBT, net of current portion 4,211 4,191
COMMITMENTS AND CONTINGENCIES (Note 6)
STOCKHOLDERS' EQUITY:
Common stock, $0.10 par value
Authorized 60,000 shares
Issued and outstanding 39,526 shares in 1999
and 38,831 shares in 1998 3,953 3,883
Additional paid-in capital 283,625 276,296
Retained earnings 46,347 31,041
Accumulated other comprehensive income (loss) (4,421) (3,380)
-------- ---------
Total stockholders' equity 329,504 307,840
-------- ---------
$409,249 $ 390,532
======== =========
</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 SIX MONTHS ENDED
------------------ ----------------
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenue $91,524 $80,886 $181,172 $158,679
Cost of revenue 46,910 40,786 91,684 80,540
------- ------- -------- --------
Gross Profit 44,614 40,100 89,488 78,139
Expenses:
Sales and marketing 14,411 16,362 29,564 32,469
General and administrative 11,084 11,873 23,201 23,948
Research and development 7,509 5,224 14,680 10,491
------- ------- -------- --------
Income from operations 11,610 6,641 22,043 11,231
Interest income, net 1,334 1,716 2,644 3,292
------- ------- -------- --------
Income before provision for
income taxes 12,944 8,357 24,687 14,523
Provision for income taxes 4,919 3,259 9,381 5,664
------- ------- -------- --------
Net income $ 8,025 $ 5,098 $ 15,306 $ 8,859
======= ======= ======== ========
Net income per common share: Basic $ 0.20 $ 0.13 $ 0.39 $ 0.23
======= ======= ======== ========
Net income per common share: Diluted $ 0.20 $ 0.13 $ 0.37 $ 0.22
======= ======= ======== ========
</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>
SIX MONTHS ENDED
----------------
JUNE 30, JUNE 30,
1999 1998
-------- --------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income $ 15,306 $ 8,859
Adjustments to reconcile net income to net cash
Provided by (used in) operating activities, net of acquisitions:
Depreciation and amortization 8,456 7,908
Changes in assets and liabilities:
Accounts receivable (9,973) (1,904)
Inventories 7,529 9,026
Other current assets 608 4,744
Accounts payable (13,127) 3,214
Accrued expenses 13,675 (2,686)
Deferred revenue (154) (1,268)
-------- --------
Net cash provided by operating activities 22,320 27,893
-------- --------
Cash Flows from Investing Activities:
Purchases of property and equipment (4,398) (2,971)
Increase in investments, net (22,816) (1,571)
Increase in other assets (241) (88)
Acquisitions of business, net of cash acquired (1,257) (986)
-------- --------
Net cash used in investing activities (28,712) (5,616)
-------- --------
Cash Flows from Financing Activities:
Payment of notes payable (413) (1,569)
Proceeds from the exercise of stock options 5,822 2,685
-------- --------
Net cash provided by financing activities 5,409 1,116
-------- --------
Net effect of Exchange Rate Changes (1,004) (728)
-------- --------
Net increase (decrease) in Cash and Cash Equivalents (1,987) 22,665
Cash and Cash Equivalents, beginning of period 109,063 106,972
-------- --------
Cash and Cash Equivalents, end of period $107,076 $129,637
======== ========
Supplemental Disclosure of Cash Flow Information:
Interest paid during the period $ 39 $ 140
======== ========
Income taxes paid during the period $ 3,171 $ 5,635
======== ========
</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: 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 (in thousands):
JUNE 30, DECEMBER 31,
1999 1998
-------- ------------
Municipal bonds $ 29,177 $21,801
U.S. Treasury bills 6,000 6,000
Preferred stocks 2,000 --
Commercial paper -- 458
Certificates of deposit 2,534 1,031
-------- -------
$ 39,711 $29,290
======== =======
Long-term investments are investment securities with original maturities of
greater than one year and consist of the following (in thousands):
JUNE 30, DECEMBER 31,
1999 1998
-------- ---------
Municipal bonds $ 24,192 $13,297
Government bonds 5,000 --
Certificates of deposit 500 4,000
-------- -------
$ 29,692 $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):
JUNE 30, DECEMBER 31,
1999 1998
-------- ------------
Raw materials $ 8,587 $11,342
Work-in-process 5,476 5,784
Finished goods 33,399 38,302
-------- -------
$ 47,462 $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 SIX MONTHS ENDED
JUNE 30, 1999 JUNE 30, 1998 JUNE 30, 1999 JUNE 30, 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Shares outstanding for basic earnings per share:
Weighted average shares outstanding 39,321 38,480 39,115 38,367
====== ====== ====== ======
Shares outstanding for diluted earnings per share:
Weighted average shares outstanding 39,321 38,480 39,115 38,367
Dilutive effect of options issued to employees 1,548 1,803 1,711 1,460
Shares assumed issued for the acquisition of
Blue Ridge Pharmaceuticals, Inc. 115 -- 115 --
------ ------ ------ ------
40,984 40,283 40,941 39,827
====== ====== ====== ======
</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 June 30, 1999, approximately $2.0 million was included in accrued
expenses relating to the non-recurring operating charge. The balance
remaining at June 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):
7
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<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
------------------------------------------------------------
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net income $8,025 $5,098 $15,306 $8,859
Other comprehensive income (loss):
Foreign currency translation adjustments (369) (256) (1,041) (728)
------ ------ ------- ------
Comprehensive income $7,656 $4,842 $14,265 $8,131
====== ====== ======= ======
</TABLE>
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 $2.0 million and $1.0 million was outstanding at
June 30, 1998 and 1999, respectively. The note bears 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
$443,000) was outstanding at June 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 June 30, 1999. The notes bear interest at 5.5% and are
due in two equal annual installments on October 1, 1999 and 2000.
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 $269,000 was outstanding at June 30,
1999. The note is due in five monthly installments beginning in April 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 June 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 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. 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
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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 is 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. The Company and other
defendants deny the allegations, and in July 1999, the court granted the
Company's motion to dismiss the case for failure to state a claim, however
the plaintiffs may appeal that ruling. 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
9
<PAGE> 10
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 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 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 is non-interest bearing and is due in five
monthly installments beginning in April 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 June 30, 1999
Revenue $ 70,406 $ 20,328 $ 790 $ 91,524
Net income (loss) 7,467 2,157 (1,599) 8,025
Six Months Ended June 30, 1999
Revenue $141,831 $ 38,361 $ 980 $181,172
Net income (loss) 15,849 2,432 (2,975) 15,306
Three Months Ended June 30, 1998
Revenue $ 63,004 $ 17,882 $ -- $ 80,886
Net income (loss) 4,360 387 351 5,098
</TABLE>
10
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<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Six Months Ended June 30, 1998
Revenue 124,721 33,958 -- 158,679
Net income (loss) 7,698 287 874 8,859
</TABLE>
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 second quarter of 1999
increased 12% to $70.4 million from $63.0 million for the second quarter of
1998. Revenue for CAG for the six months ended June 30, 1999 increased 14% to
$141.8 million from $124.7 million for the first six months of 1998.
The increase in CAG revenue for the quarter ended June 30, 1999 compared to the
same period in 1998 is primarily attributable to increased sales of practice
information management products and services, veterinary reference laboratory
services, veterinary consumables and veterinary instruments. 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 six-month period
ended June 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 second quarter of 1999 increased 2% to
$16.8 million, or 24% of total CAG revenue, from $16.4 million, or 26% of total
CAG revenue, for the second quarter of 1998. International revenue for CAG for
the six months ended June 30, 1999 increased 3% to $31.5 million, or 22% of
total CAG revenue, from $30.5 million, or 24% of total CAG revenue, for the
first six months of 1998.
For the quarter ended June 30, 1999, revenue increased 8% in Europe, and
decreased 5% in the Asia-Pacific region and 3% in Canada and South America,
compared to the same period in 1998. In Europe, the increase resulted primarily
from increased sales of veterinary consumables and veterinary laboratory
services. In the Asia-Pacific region, the decrease resulted primarily from a
decrease in sales of veterinary test kits, which was partially offset by an
increase in sales of veterinary consumables. For the six-month period ended June
30, 1999, revenue increased 11% in Europe, and decreased 9% in the Asia-Pacific
region and 2% in Canada and South America, compared to the same period in 1998.
The changes in revenue for the six-month period ended June 30, 1999 as compared
to the same period in the prior year were principally attributable to the same
factors noted for the three-month period.
Gross profit as a percentage of CAG revenue was 47% and 48% for the three- and
six-month periods ended June 30, 1999, respectively, and 49% for the same
periods in 1998. This decline resulted from higher sales of lower gross margin
practice information management systems, veterinary laboratory services and
veterinary instruments.
FOOD AND ENVIRONMENTAL DIVISION
Revenue for the Food and Environmental Division ("FED") for the second quarter
of 1999 increased 14% to $20.3 million from $17.9 million for the second quarter
of 1998. Revenue for FED for the six months ended June 30, 1999 increased 13% to
$38.4 million from $34.0 million for the first six months of 1998.
The increases in FED revenue for the three- and six-month periods ended June 30,
1999 compared to the same periods in 1998 are primarily attributable to
increased sales of water testing products, food residue testing products, food
laboratory testing services, and poultry and livestock test kits, partially
offset by decreased sales of dehydrated culture media.
11
<PAGE> 12
International revenue for FED for the second quarter of 1999 increased 11% to
$8.3 million, or 41% of total FED revenue, from $7.4 million, or 41% of total
FED revenue, for the second quarter of 1998. International revenue for FED for
the six months ended June 30, 1999 increased 8% to $15.8 million, or 41% of
total FED revenue, from $14.6 million, or 43% of total FED revenue, for the
first six months of 1998.
For the quarter ended June 30, 1999, revenue increased 30% in the Asia-Pacific
region, 29% in Canada and South America, and decreased 1% in Europe. The
increase in revenue in the Asia-Pacific region is primarily due to increased
sales of water testing products, poultry and livestock test kits and food
residue testing products. The increase in revenue in Canada and South America is
primarily due to increased sales of food residue testing products, poultry and
livestock test kits, and hygiene instrument consumables. In Europe, the decrease
in revenue was primarily attributable to decreased sales of livestock test kits,
offset by increased sales of water testing and food residue testing products.
For the six-month period ended June 30, 1999, revenue increased 2% in Europe,
20% in the Asia-Pacific region, and 17% in Canada and South America. The
increase in Europe is due primarily to increased sales of food residue testing
products, water testing products and poultry test kits, partially offset by
decreased sales of livestock test kits and by lower sales of dehydrated culture
media. In the Asia-Pacific region, the increase in revenue is primarily due to
increased sales of livestock test kits, water testing products, and food residue
testing products. The revenue increase in Canada and South America is primarily
due to increased sales of food residue testing products, hygiene instrument
consumables and livestock test kits.
Gross profit as a percentage of FED revenue was 53% for three- and six-month
periods ended June 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 an increased revenue from lower margin food laboratory services.
OPERATING EXPENSES
Sales and marketing expenses were 16% of revenue for the three- and six-month
periods ended June 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 $2.9 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 Blue Ridge
Pharmaceuticals acquired in the last quarter of 1998.
Research and development expenses were 8% of revenue for the three- and
six-month periods ended June 30, 1999 compared to 6% and 7%, respectively, for
the same periods in 1998. The increase as a percentage of revenue, and the
dollar increases of $2.3 million and $4.2 million, respectively, are principally
caused by the addition of development expenses at Blue Ridge Pharmaceuticals and
additional resources and related overhead to support product development.
General and administrative expenses were 12% and 13% of revenue for the three-
and six-month periods ended June 30, 1999, respectively, compared to 15% for the
same periods in 1998. The decrease as a percentage of revenue, and the dollar
decreases of $789,000 and $747,000, respectively, are primarily attributable to
a reduction in legal expenses resulting from the settlement of certain lawsuits,
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 Pharmaceuticals in the last quarter of 1998.
Net interest income was $1.3 million and $2.6 million for the three- and
six-month periods ended June 30, 1999, respectively, compared to $1.7 million
and $3.3 million for the same periods in 1998. The decrease in net interest
income over the prior year is due to interest expense on the notes issued in the
acquisition of Blue Ridge Pharmaceuticals in the last quarter of 1998 and lower
domestic interest rates.
The Company's effective tax rate was 38% for the three- and six-month periods
ended June 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 June 30, 1999, the Company had cash, cash equivalents, and short-term
investments of $146.8 million and $195.4 million of working capital.
The Company believes that current cash and short-term investments and funds
expected to be generated from operations will be
12
<PAGE> 13
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 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
13
<PAGE> 14
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 six months ended June 30, 1999, international revenue was $47.2 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. 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 throughout
1999 the Company expects to complete implementation of any needed Year 2000
related modifications to its other IT systems. The Company has assessed its
internal non-IT systems and expects to complete testing and any 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.
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 with the exception of
its VetTest(R) clinical chemistry analyzer. The Company has determined that some
versions of the VetTest instrument, including the current model, will not
properly display or transmit the date and time a sample is tested for dates
beginning January 1, 2000, unless the date and time is reset
14
<PAGE> 15
each time the instrument is turned on. The Company believes that the accuracy of
test results provided by the VetTest instrument will not be affected. The
Company has prepared an update to the VetTest software, and prior to January 1,
2000 plans to send the update to VetTest users to enable the instrument to
properly display and transmit date and time information from and after January
1, 2000, with little if any inconvenience to 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 is encouraging 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. To date, the Company is not aware of any problems
that would materially impact results of operations, liquidity, or capital
resources. However, the Company has no means of ensuring that these 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 that necessary modifications
will be made on a timely basis. However, there can be no assurance that there
will not be a delay in, or increased costs associated with, the implementation
of such modifications, 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 reasonable 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. The Company is currently developing a contingency plan in the event
certain internal or external systems, or certain of the Company's suppliers,
vendors or resellers, are not Year 2000 ready. However, if the Company does not
become Year 2000 ready in a timely manner, 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 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.
15
<PAGE> 16
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 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. 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 is 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. The Company and other
defendants deny the allegations and in July 1999, the court granted the
Company's motion to dismiss the case for failure to state a claim, however
the plaintiffs may appeal that ruling. 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.
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<PAGE> 17
Item 4. -- Submission of Matters to a Vote of Security-Holders
At the Company's Annual Meeting of Stockholders held on May 19, 1999, the
following proposals were adopted by the votes specified below:
<TABLE>
<CAPTION>
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BROKER
PROPOSAL FOR AGAINST ABSTAIN NON-VOTES
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<S> <C> <C> <C> <C>
1. Election of three Class II Directors:
John R. Hesse 35,228,963 412,675 0 0
Kenneth Paigen, Ph.D. 35,212,606 429,032 0 0
Jeffrey J. Langan 33,233,544 408,094 0 0
---------------------------------------------------------------------------------------------------------------------------------
2. Approval of an amendment to the Company's
1998 Stock Incentive Plan increasing from
1,800,000 to 2,500,000 the number of shares
of the Company's Common Stock authorized
for issuance under the plan. 22,500,897 13,031,016 109,725 0
---------------------------------------------------------------------------------------------------------------------------------
3. Approval of the Company's 1999 Director
Stock Plan covering 80,000 shares of
Common Stock authorized for issuance
under the plan. 30,019,278 5,497,841 124,519 0
---------------------------------------------------------------------------------------------------------------------------------
4. Ratification of Arthur Anderson LLP
as auditors. 35,601,524 20,254 19,860 0
---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The following Class III Directors of the Company were not up for
re-election in 1999 and have three-year terms that expire in 2001: E.
Robert Kinney, James L. Moody, Jr. and Erwin F. Workman, Jr., Ph.D. The
following Class I Directors of the Company were not up for re-election in
1999 and have three-year terms that expire in 2000: David E. Shaw, William
F. Pounds and Mary L. Good, Ph.D. Mr. Langan resigned from the Board of
Directors as of July 21, 1999.
Item 6. -- Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 1999 Director Stock Plan of the Company.
27 Financial Data Schedule for the Quarterly Report on Form 10-Q for the
six-month period ended June 30, 1999.
(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.
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<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: August 13, 1999
/s/ Ralph K. Carlton
--------------------------------
Ralph K. Carlton,
Senior Vice President, Finance
and Administration and Chief
Financial Officer
(Principal Financial Officer)
18
<PAGE> 1
EXHIBIT 10.1
IDEXX LABORATORIES, INC.
1999 DIRECTOR STOCK PLAN
(AS OF FEBRUARY 17, 1999)
1. PURPOSE
The purpose of this 1999 Director Stock Plan (the "Plan") of IDEXX
Laboratories, Inc. (the "Company") is to encourage ownership in the Company by
outside directors of the Company whose continued services are considered
essential to the Company's future progress and to provide them with a further
incentive to remain as directors of the Company.
2. ADMINISTRATION
The Board of Directors shall supervise and administer the Plan. Grants
of stock awards under the Plan and the amount and nature of the awards to be
granted shall be automatic in accordance with Section 5. However, all questions
of interpretation of the Plan or of any awards issued under it shall be
determined by the Board of Directors and such determination shall be final and
binding upon all persons having an interest in the Plan.
3. PARTICIPATION IN THE PLAN
Directors of the Company who are not employees of the Company or any
subsidiary of the Company shall be eligible to participate in the Plan.
4. STOCK SUBJECT TO THE PLAN
The maximum number of shares which may be issued under the Plan shall
be 80,000 shares of the Company's Common Stock, par value $.10 per share
("Common Stock"), subject to adjustment as provided in Section 8 of the Plan.
Shares of Common Stock issued under the Plan may consist in whole or in part of
authorized but unissued shares or treasury shares.
5. DELIVERY AND TRANSFERABILITY OF AWARDS
(a) GRANT DATES AND AMOUNT. Following approval of the Plan by the
stockholders of the Company, upon the date of each annual meeting of
stockholders, including the date of the annual meeting of stockholders at which
the Plan is approved and adopted, the Company shall award to each eligible
director continuing in office after, or elected at, such meeting 2,000 shares of
Common Stock. In addition, in the case of any eligible director who is elected
other than at an annual meeting, the Company shall award to such director upon
his or her election the number of shares of Common Stock determined by the
following formula:
2,000 x (365 less the number of days elapsed since last annual meeting)
-------------------------------------------------------------
365
1
<PAGE> 2
(b) CONSIDERATION. To the extent required by Delaware law, the Board
of Directors may require a recipient of shares of Common Stock under the Plan to
pay an amount equal to the par value per share for each share of Common Stock
received under the Plan.
(c) REGISTRATION OF SHARES. Common Stock to be delivered to an
eligible director under the Plan will be registered in the name of the director.
(d) ASSIGNMENTS. The rights and benefits under the Plan may not be
assigned.
(e) CONDITIONS ON DELIVERY OF STOCK. The Company will not be obligated
to deliver any shares of Common Stock pursuant to the Plan until (i) in the
opinion of the Company's counsel, all other legal matters in connection with the
issuance and delivery of such shares have been satisfied, including any
applicable securities laws and any applicable stock exchange or stock market
rules and regulations, and (ii) the recipient of such shares has executed and
delivered to the Company such representations or agreements as the Company may
consider appropriate to satisfy the requirements of any applicable laws, rules
or regulations.
6. TIME FOR GRANTING AWARDS
All awards for shares subject to the Plan shall be granted, if at all,
not later than the fifth annual meeting of stockholders after the meeting of
stockholders at which the Plan is approved by the Company's stockholders.
7. NO RIGHT TO CONTINUE AS A DIRECTOR.
Neither the Plan, nor the granting of an award nor any other action
taken pursuant to the Plan, shall constitute or be evidence of any agreement or
understanding, express or implied, that a director will hold office with the
Company for any period of time.
8. CHANGES IN COMMON STOCK.
If the outstanding shares of Common Stock are increased, decreased or
exchanged for a different number or kind of shares or other securities, or if
additional shares or new or different shares or other securities are distributed
with respect to such shares of Common Stock or other securities, through merger,
consolidation, sale of all or substantially all of the assets of the Company,
reorganization, recapitalization, reclassification, stock dividend, stock split,
reverse stock split or other distribution with respect to such shares of Common
Stock, or other securities, an appropriate and proportionate adjustment will be
made in the maximum number and kind of shares reserved for issuance under the
Plan and in the number and kind of shares awardable under the Plan pursuant to
Section 5(a) after the date of such event.
2
<PAGE> 3
9. AMENDMENT OF THE PLAN
The Board of Directors may suspend or discontinue the Plan or review
or amend it in any respect whatsoever; provided, however, that without approval
of the stockholders of the Company no revision or amendment shall change the
number of shares subject to the Plan (except as provided in Section 8), change
the designation of the class of directors eligible to receive awards, or
otherwise materially increase the benefits accruing to directors under the Plan.
10. NOTICE
Any written notice to the Company required by any of the provisions of
the Plan shall be addressed to the Treasurer of the Company and shall become
effective when it is received.
11. GOVERNING LAW
The Plan and all determinations made and actions taken pursuant hereto
shall be governed by the laws of the State of Delaware.
Approved by the Board of Directors on February 17, 1999.
Approved by the stockholders on May 19, 1999.
3
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE IDEXX
LABORATORIES, INC. CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE SIX
MONTHS ENDED JUNE 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000874716
<NAME> IDEXX LABORATORIES, INC.
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3,953
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