1
EXHIBIT 13

SELECTED FINANCIAL DATA

The following table sets forth selected consolidated financial data of the
Company for each of the five years ended December 31, 1999. The selected
consolidated financial data presented below have been derived from the Company's
consolidated financial statements, which have been audited by Arthur Andersen
LLP, independent public accountants. These financial data should be read in
conjunction with the consolidated financial statements, related notes and other
financial information appearing elsewhere in this Form 10-K.

YEARS ENDED DECEMBER 31,
-----------------------------------------------------------------------
1995 1996 1997 1998 1999
------------- ------------- ------------- ------------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)

STATEMENT OF OPERATIONS DATA:
Revenue.............................. $188,602 $267,677 $262,970 $319,889 $356,214
Cost of revenue...................... 80,860 115,770 141,030 161,698 182,117
-------- -------- -------- -------- --------
Gross profit......................... 107,742 151,907 121,940 158,191 174,097
Expenses:
Sales and marketing............... 47,490 64,450 66,383 62,844 56,912
General and administrative........ 17,092 28,271 42,930 43,558 43,055
Research and development.......... 10,192 12,195 17,057 22,687 27,313
Non-recurring operating charge.... -- -- 21,300 -- --
Write-off of in-process research
and development.................. -- -- 13,200 37,162 --
-------- -------- -------- -------- --------

Income (loss) from operations........ 32,968 46,991 (38,930) (8,060) 46,817
Interest income, net................. 4,068 8,332 6,670 6,877 5,728
-------- -------- -------- -------- --------
Net income (loss) before provision for
(benefit of) income taxes.......... 37,036 55,323 (32,260) (1,183) 52,545
Provision for (benefit of) income
taxes............................. 15,542 22,682 (11,140) 14,032 19,967
-------- -------- -------- -------- --------
Net income (loss).................... $ 21,494 $ 32,641 $(21,120) $(15,215) $ 32,578
======== ======== ======== ======== ========
Net income (loss) per share:
Basic............................. $ 0.65 $ 0.88 $ (0.56) $ (0.40) $ 0.85
Diluted........................... 0.61 0.83 (0.56) (0.40) 0.82
Weighted average shares outstanding:
Basic............................. 32,946 37,082 37,974 38,513 38,412
Diluted........................... 35,362 39,519 37,974 38,513 39,743

AS OF DECEMBER 31,
--------------------------------------------------------------------
1995 1996 1997 1998 1999
------------- ------------- ------------- ------------- ---------
(IN THOUSANDS)

BALANCE SHEET DATA:
Working capital.......... $ 228,565 $ 250,590 $ 205,326 $ 188,829 $ 156,891
Total assets............. 312,540 373,852 373,064 386,548 360,158
Total debt............... 1,687 3,000 4,087 9,381 3,543
Stockholders' equity..... 279,125 322,725 302,733 307,840 284,341

1
2

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

* RESULTS OF OPERATIONS

The Company operates primarily through two business units: the Companion
Animal Group ("CAG") and Food and Environmental Division ("FED"). CAG comprises
the Company's veterinary diagnostic products and services, its animal health
pharmaceuticals business, and its veterinary informatics and internet business.
FED comprises the Company's services and products for food and environmental
testing. Through a series of transactions completed in late 1999 and the first
quarter of 2000, the Company disposed of substantially all of its businesses
related to food microbiology testing. FED now comprises the Company's water and
dairy testing business and its production animal services business.

1999 Compared to 1998

COMPANION ANIMAL GROUP

Revenue for CAG for 1999 increased 12% to $278.0 million from $247.8 million
in 1998. The increase in revenue in 1999 compared to 1998 is primarily
attributable to increased sales of consumables used in the Company's veterinary
instruments, veterinary reference laboratory services, practice information
management hardware, software and services and feline test kits. These increases
were partially offset by decreased sales of canine test kits and sales of
veterinary instruments. International revenue for CAG increased 4% to $62.4
million, or 22% of total CAG revenue, in 1999, compared to $59.8 million, or 24%
of total CAG revenue, in 1998.

Gross profit as a percentage of CAG revenue was 48% for 1999 compared to 49%
for 1998. Higher sales of lower margin veterinary laboratory services and
practice information management software products and services were partially
offset by increased sales of higher margin veterinary consumables.

FOOD AND ENVIRONMENTAL DIVISION

Revenue for FED for 1999 increased 8% to $78.2 million from $72.1 million in
1998. The increase in revenue in 1999 compared to 1998 is primarily attributable
to increased sales of water testing products, dairy residue test kits, and food
laboratory testing services, partially offset by decreased sales of dehydrated
culture media. International revenue for FED increased 6% to $32.1 million, or
41% of total FED revenue, in 1999, compared to $30.2 million, or 42% of total
FED revenue, in 1998.

Gross profit as a percentage of FED revenue was 53% for 1999 compared to 52%
for 1998. Increased sales of higher margin water, dairy residue and livestock
test kits were partially offset by a decline in the average unit prices of
poultry kits, which was in response to increased competition.

OPERATING EXPENSES

Sales and marketing expenses were 16% and 20% of revenue in 1999 and 1998,
respectively. The decrease as a percentage of revenue and the dollar decrease of
$5.9 million were 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, Inc. ("Blue
Ridge") acquired in the last quarter of 1998.

Research and development expenses were 8% and 7% of revenue in 1999 and
1998, respectively. The increase as a percentage of revenue and the dollar
increase of $4.6 million are primarily attributable to the inclusion of a full
year of expense for Blue Ridge and development of the VetConnect Internet
business.

General and administrative expenses were 12% and 14% of revenue in 1999 and
1998, respectively. The decrease as a percentage of revenue and the dollar
decrease of $503,000 are primarily attributable to decreases in management bonus
expense, provision for bad debts and currency losses. These decreases were
partially offset by increased amortization expense as a result of a full year of
expense for Blue Ridge in 1999, costs associated with the divestiture of the
food laboratory business, and officer severance expenses.

2
3
Net interest income was $5.7 million in 1999 compared to $6.9 million 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 in the last quarter
of 1998, decreased cash balances resulting from the acquisition of Blue Ridge in
1998, the repurchase of shares of the Company's common stock in 1999 and lower
domestic interest rates in the first three quarters of 1999.

The Company's effective tax rate was 38% in 1999 compared to 39% before the
write-off of in-process research and development in 1998. The decrease in the
effective tax rate was principally attributable to the renewal of federal and
state credits for research and development activities.

1998 Compared to 1997

COMPANION ANIMAL GROUP

Revenue for CAG for 1998 increased 24% to $247.8 million from $200.4 million
in 1997. The increase in revenue in 1998 compared to 1997 is primarily
attributable to increased sales of feline and canine test kits, consumables used
in the Company's veterinary instruments, practice information management
hardware, software and services resulting from the acquisition of practice
information management software companies in the first and third quarters of
1997, and veterinary reference laboratory services. These increases were offset
in part by decreased unit sales of veterinary instruments. International revenue
for CAG increased 4% to $59.8 million, or 24% of total CAG revenue, in 1998,
compared to $57.6 million, or 29% of total CAG revenue, in 1997.

Gross profit as a percentage of CAG revenue was 49% for 1998 compared to 46%
for 1997. Higher sales of higher margin veterinary test kits and consumables
were partially offset by increased sales of lower margin veterinary laboratory
services and practice information management software products and services.

FOOD AND ENVIRONMENTAL DIVISION

Revenue for FED for 1998 increased 16% to $72.1 million from $62.3 million
in 1997. The increase in revenue in 1998 compared to 1997 is primarily
attributable to increased sales of food and environmental testing products,
poultry and livestock test kits, and food laboratory testing services
principally resulting from the acquisition of Agri-West Food Laboratory in March
1998. International revenue for FED increased 16% to $30.2 million, or 42% of
total FED revenue, in 1998, compared to $26.0 million, or 42% of total FED
revenue, in 1997.

Gross profit as a percentage of FED revenue was 52% for 1998 compared to 53%
for 1997. Increased sales of higher margin water, poultry and livestock kits
were offset by unfavorable product mix in the food products.

OPERATING EXPENSES

Sales and marketing expenses were 20% and 25% of revenue in 1998 and 1997,
respectively. The decrease as a percentage of revenue and the dollar decrease of
$3.5 million were principally attributable to an overall reduction in marketing
and sales staff and related expenses resulting from workforce reductions
worldwide, partially offset by the inclusion of a full year of expense for the
veterinary practice information management software and food laboratory service
businesses.

Research and development expenses were 7% and 6% of revenue in 1998 and
1997, respectively. The increase as a percentage of revenue and the dollar
increase of $5.6 million reflected additional resources and related overhead to
support product development and the addition of pharmaceutical development
expenses associated with the acquisition of Blue Ridge in October 1998.

General and administrative expenses were 14% and 16% of revenue in 1998 and
1997, respectively. In dollars, general and administrative expenses increased
$628,000 from 1997 to 1998. The increase was principally attributable to an
increase in management incentive bonuses from 1997 when no bonuses were paid;
additional expenses associated with the expansion of the veterinary laboratory
business; and additional general and administrative expenses associated with
acquired businesses, principally the acquisition of Blue Ridge in October 1998.
These increases were offset in part by a decrease in the provision for bad
debts and by a decrease in currency losses.

3
4

On October 1, 1998, the Company acquired Blue Ridge Pharmaceuticals, Inc., a
development-stage animal health pharmaceutical company with 11 products in
development. At the acquisition date Blue Ridge had no commercially viable
products and no historical revenue stream. The Company allocated the aggregate
purchase price of $59.2 million plus $300,000 of acquisition costs based on the
fair market value of tangible and intangible assets acquired, in accordance with
Accounting Principles Board Opinion No. 16 ("APB 16"). The acquisition was
accounted for as a purchase in accordance with APB 16 and the results of
operations have been included with the Company's results since the date of
acquisition. To value the intangible assets acquired the Company obtained an
independent appraisal. That appraisal was performed using proven valuation
techniques and supplemental guidance provided by the Securities and Exchange
Commission. The aggregate purchase price was allocated as follows (in
thousands):

Current assets, including cash of $1,882 $1,243
Long-term assets 118
Deferred tax assets 3,444
Current liabilities (3,400)
Intangibles 200
In-process research and development 37,162
Goodwill 20,094
--------
$ 59,500
========

Intangibles include $37.2 million for purchased in-process research and
development for projects that do not have future alternative uses. This
allocation represents the estimated fair value based on risk-adjusted cash
flows, adjusted using percentage of completion methodology (see below), related
to the in-process research and development projects. The development of these
projects had not yet reached technological feasibility and the in-process
research and development had no alternative uses. Accordingly, these costs were
expensed as of the acquisition date in accordance with FASB Interpretation No.
4, Applicability of FASB Statement No. 2 to Business Combinations Accounted for
by the Purchase Method.

Eight of the eleven projects were pharmaceuticals for companion animals,
including horses, and three of the eleven projects were pharmaceuticals for food
animals. These projects use a combination of proprietary compounds and novel
delivery systems. To be sold commercially the products must be approved by the
Center for Veterinary Medicine ("CVM"), which is the agency within the Food and
Drug Administration ("FDA") that is responsible for managing approval of new
animal drugs. There are five types of data that must be provided to the FDA and
the CVM prior to approval. These include 1) efficacy, 2) safety to the animals
to be treated, 3) safety to the humans who will consume the animal or its
products (if applicable), 4) safety to the environment and 5) good manufacturing
practices (quality control of production to assure a consistent product). The
Company utilizes clinical studies to support its applications for approval. The
companion animal projects ranged from 19% to 78% complete, while the food animal
projects ranged from 78% to 93% complete.

These projects are unique and complex and frequently require modification to
the product and the manufacturing process before satisfactory clinical results
can be obtained. The delay in obtaining satisfactory data can result from any of
the five items discussed above and frequently satisfactory results cannot be
obtained.

The in process research and development charge attributable to the companion
animal projects totaled approximately $33.1 million, and these projects were
estimated to require expenditures of $500,000 in 1999, $700,000 in 2000, and
$100,000 in 2001. The intangible asset attributable to the food animal projects
totaled approximately $4.1 million, and these projects were estimated to require
expenditures of $250,000 in 1999 and $50,000 in 2000. Management believes that
it is positioned to complete each of the major research and development
programs. These estimates are subject to change, given the uncertainties of the
development process and no assurance can be given that deviations from these
estimates will not occur. Additionally, these projects will require maintenance
expenditures when and if they have reached a state of technological and
commercial feasibility and there is no assurance that each project will meet
either technological or commercial success.

The value assigned to purchased in-process research and development was
determined by estimating the costs to develop the purchased in-process research
and development into commercially viable products, estimating the percentage of
completion at the acquisition date, estimating the resulting net risk-adjusted
cash flows from the projects considering the percentage of completion and
discounting the net cash flows to their present value. The percentage of
completion for each project was estimated using costs incurred to date compared
to estimated costs at completion. The revenue projections used to value the
in-process research and development are based on estimates of relevant market
sizes and growth factors and nature and expected timing of new products. The

4
5

rate utilized to discount the net cash flows to their present value is based on
the weighted average cost of capital adjusted to consider the risk associated
with these technologies. The Company used a 20% discount factor to value this
in-process research and development.

The forecasts used by the Company in valuing in-process research and
development were based upon assumptions the Company believed to be reasonable
but which are inherently uncertain and unpredictable. The Company's assumptions
may be incomplete or inaccurate and unanticipated events and circumstances are
likely to occur. For these reasons, actual results may vary significantly from
the projected results.

Net interest income was $6.9 million in 1998 compared to $6.7 million in
1997. The increase in interest income is due to higher cash and investment
balances during 1998 compared to 1997, partially offset by interest expense on
the notes issued in the acquisition of Blue Ridge in the last quarter of 1998.

The Company's effective tax rate was 39% before the write-off of in-process
research and development in 1998 compared to 40% before the write-off of
in-process research and development in 1997. The decrease in the effective tax
rate was primarily attributable to income generated in states with lower state
income tax rates and the utilization of previously unavailable federal research
and development credits.

* LIQUIDITY AND CAPITAL RESOURCES

At December 31, 1999, the Company had $105.4 million of cash, cash
equivalents, and short-term investments and $156.9 million of working capital.
During 1999, the Company repurchased 3.9 million shares of the Company's common
stock for $64.2 million. See Note 18.

The Company's total capital budget for 2000 is approximately $22.8 million.
Under the terms of certain supply agreements with suppliers of the Company's
hematology instruments and consumables, slides for its VetTest instruments and
certain raw materials, the Company has aggregate commitments to purchase
approximately $35.6 million of products in 2000.

The Company believes that current cash and short-term investments, which
include net proceeds from the offering of the Company's common stock in 1995,
and funds generated from operations, will be sufficient to fund the Company's
operations for the foreseeable future.

* FUTURE OPERATING RESULTS

The future operating results of the Company are subject to a number of
factors, including without limitation the following:

The Company's business has grown significantly over the past several years
as a result of both internal growth and acquisitions of products and businesses.
The Company has consummated a number of acquisitions since 1992, including five
acquisitions in 1997, two acquisitions in 1998 and two acquisitions 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's future success will depend in part on its ability to continue
to develop new products and services both for its existing markets and for any
new markets the Company may enter in the future. In recent years sales of the
Company's chemistry and hematology analyzers have declined as the Company has
achieved increasing market penetration. Future growth in sales of the Company's
analyzers and associated consumables will depend in part on the Company's
ability to introduce new systems with new features and capabilities. The Company
is currently devoting significant resources to the development of such systems.
The Company also plans to devote significant resources to the growth of many of
its other businesses, including its animal health pharmaceuticals business and
VetConnect, an Internet portal/application services provider for the provision
of animal health-care information and services to veterinarians. There can be no
assurance that the Company will successfully complete the development and
commercialization of products and services for existing and new businesses or
that such products and services, if commercialized, will meet revenue and profit
expectations.

5
6

The markets in which the Company competes are subject to rapid and
substantial technological change. The Company encounters, and expects to
continue to encounter, intense competition in the sale of its current and future
products and services. In particular, the Company has encountered increasing
competition in the market for canine heartworm diagnostics. Many of the
Company's competitors and potential competitors, including large pharmaceutical
companies, have substantially greater capital, manufacturing, marketing, and
research and development resources than the Company.

The Company has experienced and may experience in the future significant
fluctuations in its quarterly operating results. Factors such as the
introduction and market acceptance of new products and services, the mix of
products and services sold and the mix of domestic versus international revenue
could contribute to this quarterly variability. The Company operates with
relatively little backlog and has few long-term customer contracts and
substantially all of its product and service revenue in each quarter results
from orders received in that quarter, which makes the Company's financial
performance more susceptible to an unexpected downturn in business and more
unpredictable. In addition, the Company's expense levels are based in part on
expectations of future revenue levels, and a shortfall in expected revenue could
therefore result in a disproportionate decrease in the Company's net income.

The Company's success is heavily dependent upon its proprietary
technologies. The Company relies on a combination of patent, trade secret,
trademark and copyright law to protect its proprietary rights. There can be no
assurance that patent applications filed by the Company will result in patents
being issued, that any patents owned or licensed by the Company will afford
protection against competitors with similar technologies, or that the Company's
non-disclosure agreements will provide meaningful protection for the Company's
trade secrets and other proprietary information. Moreover, in the absence of
patent protection, the Company's business may be adversely affected by
competitors who independently develop substantially equivalent technologies. In
addition, the Company may be required to obtain licenses to additional
technologies from third parties in order to continue to sell certain products.
There can be no assurance that any technology licenses which the Company desires
or is required to obtain will be available on commercially reasonable terms.

From time to time the Company receives notices alleging that the Company's
products infringe third-party proprietary rights. In particular, the Company has
received notices claiming that certain of the Company's immunoassay products
infringe third-party patents. Patent litigation frequently is complex and
expensive and the outcome of patent litigation can be difficult to predict.
There can be no assurance that the Company will prevail in any infringement
proceedings that may be commenced against the Company, and an adverse outcome
may preclude the Company from selling certain products or require the Company to
pay damages or make additional royalty or other payments with respect to such
sales. In addition, from time to time other types of lawsuits are brought
against the Company, wherein an adverse outcome could adversely affect the
Company's results of operations.

The development, manufacturing, distribution and marketing of certain of the
Company's products and provision of its services, both in the United States and
abroad, are subject to regulation by various domestic and foreign governmental
agencies, including the U.S. Department of Agriculture and U.S. Food and Drug
Administration ("FDA") and U.S. Environmental Protection Agency.
Commercialization of animal health pharmaceuticals requires submission of
substantial clinical, manufacturing and other data to the FDA and regulatory
approval can take several years. Delays in obtaining, or the failure to obtain,
any necessary regulatory approvals could have a material adverse effect on the
Company's future product and service sales and operations. Any acquisitions of
new products, services and technologies may subject the Company to additional
areas of government regulations.

Certain components used in the Company's products are currently available
from only one source and others are available from only a limited number of
sources. The Company's inability to develop alternative sources if and as
required in the future, or to obtain sufficient sole or limited source
components as required, could result in cost increases or reductions or delays
in product shipments. Certain technologies licensed by the Company and
incorporated into its products are also available only from a single source, and
the Company's business may be adversely affected by the expiration or
termination of any such licenses or any challenges to the technology rights
underlying such licenses. In addition, the Company currently purchases or is
contractually required to purchase certain of the products that it sells,
including its chemistry and hematology analyzers and associated consumables,
from single sources. Failure of such sources to supply product to the Company
would have a material adverse effect on the Company's business.

In 1999, international revenue was $94.5 million and accounted for 27% 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.

6
7

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

The Year 2000 problem refers to computing failures resulting from the use by
computer programs of two digits, rather than four digits, to define a year. This
could lead, for example, to a computer recognizing a date using "00" as 1900
rather than 2000. Prior to January 1, 2000, the Company carried out a program to
identify and resolve potential Year 2000 problems. The Company's program was
focused on its information technology (IT) and non-IT internal systems, the
products and services sold by the Company, and the products and services sold by
outside vendors. The total cost to the Company to identify and address potential
Year 2000 problems was not material to the Company's financial position, results
of operations or cash flows. To date the Company has not experienced any
significant issues relating to the Year 2000. Although it is not possible to
predict whether Year 2000 problems may arise in the future, particularly with
respect to distributors, suppliers and other third parties outside of the
Company's control, the Company does not believe that Year 2000 issues will have
a material adverse impact on the Company's operations or financial results. The
Company will continue to monitor its internal systems and its software-related
products for Year 2000 issues.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company's market risk consists primarily of foreign currency exchange
risk. The Company operates subsidiaries in 13 foreign countries and transacts
business in local currencies. The Company hedges its cash flows on intercompany
sales to minimize foreign currency exposure.

The primary purpose of the Company's foreign currency hedging activities is
to protect against the volatility associated with foreign currency transactions.
Corporate policy prescribes the range of allowable hedging activity. The Company
primarily utilizes forward exchange contracts and options with a duration of
less than 12 months. Gains and losses related to qualifying hedges of foreign
currency from commitments or anticipated transactions are deferred in prepaid
expenses and are included in the basis of the underlying transaction.

Based on the Company's overall currency rate exposure at December 31, 1999,
including derivative and other foreign currency sensitive instruments, a 5%
change in exchanges rate balances denominated in foreign currencies which is not
the functional currency would not have a material impact on the results of
operation. However, the effects of a 5% change in exchange rates, if not offset
by hedge contracts or related price adjustments would have a material impact on
the results of operations.

7
8

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND CONSOLIDATED FINANCIAL STATEMENT SCHEDULE

PAGE

* Report of Independent Public Accountants............................... 9
* Consolidated Balance Sheets as of December 31, 1998 and 1999........... 10
* Consolidated Statements of Operations for the Years Ended December 31,
1997, 1998 and 1999.................................................. 11
* Consolidated Statements of Stockholders' Equity for the Years Ended
December 31, 1997, 1998 and 1999..................................... 12
* Consolidated Statements of Cash Flows for the Years Ended December 31,
1997, 1998 and 1999.................................................. 13
* Notes to Consolidated Financial Statements............................. 14
* Schedule II
Valuation and Qualifying Accounts.................................... 34

8
9

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To IDEXX Laboratories, Inc.:

We have audited the accompanying consolidated balance sheets of IDEXX
Laboratories, Inc. (a Delaware corporation) and subsidiaries as of December 31,
1998 and 1999, and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1999. These consolidated financial statements and the
schedule referred to below are the responsibility of the Company's management.
Our responsibility is to express an opinion on these consolidated financial
statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of IDEXX
Laboratories, Inc. and subsidiaries as of December 31, 1998 and 1999, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1999, in conformity with generally accepted
accounting principles.

Our audits were made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The schedule listed in the
index to consolidated financial statements is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not part of
the basic consolidated financial statements. The schedule has been subjected to
the auditing procedures applied in the audits of the basic consolidated
financial statements and, in our opinion, fairly states, in all material
respects, the financial data required to be set forth therein in relation to the
basic consolidated financial statements taken as a whole.

ARTHUR ANDERSEN LLP

Boston, Massachusetts
January 28, 2000 (except with respect
to the matters discussed in Notes 5 and
16, as to which the date is February 28, 2000)

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10

IDEXX LABORATORIES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)

DECEMBER 31,
------------------------
1998 1999
------------ ----------
ASSETS

Current Assets:
Cash and cash equivalents.............................. $109,063 $ 58,576
Short-term investments................................. 29,290 46,835
Accounts receivable, less reserves of $5,368 and
$4,828 in 1998 and 1999, respectively.................. 47,947 58,353
Inventories............................................ 55,428 47,488
Deferred income taxes.................................. 13,965 14,679
Other current assets................................... 7,653 6,484
-------- --------
Total current assets................................. 263,346 232,415
-------- --------
Long-Term Investments..................................... 17,297 25,517
-------- --------
Property and Equipment, at cost:
Land................................................... 1,197 1,196
Buildings.............................................. 4,487 4,528
Leasehold improvements................................. 17,629 18,522
Machinery and equipment................................ 31,917 34,630
Construction in progress............................... 1,840 1,152
Office furniture and equipment......................... 25,423 28,630
-------- --------
82,493 88,658
Less -- Accumulated depreciation and amortization...... 41,013 49,108
-------- --------
41,480 39,550
-------- --------
Other Assets, net......................................... 64,425 62,676
-------- --------
$386,548 $360,158
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable....................................... $ 26,816 $ 19,647
Accrued expenses....................................... 32,046 40,183
Current portion of long-term debt...................... 5,190 3,250
Deferred revenue....................................... 10,465 12,444
-------- --------
Total current liabilities............................ 74,517 75,524
-------- --------
Long-term debt, net of current portion.................... 4,191 293
-------- --------
Commitments and Contingencies (Note 5)
Stockholders' Equity:
Preferred stock, $1.00 par value -- Authorized --
500 shares None issued and outstanding................ -- --
Series A junior participating preferred stock,
$1.00 par value Designated -- 100 shares of preferred
stock None issued and outstanding...................... -- --
Common stock, $0.10 par value -- Authorized --
60,000 shares
Issued 38,831 shares in 1998 and 39,584
shares in 1999........................................ 3,883 3,958
Additional paid-in capital............................. 276,296 284,459
Retained earnings...................................... 31,041 63,619
Accumulated other comprehensive income (loss).......... (3,380) (3,473)
Treasury stock (3,899 shares in 1999), at cost......... -- (64,222)
-------- --------
Total stockholders' equity........................... 307,840 284,341
-------- --------
$386,548 $360,158
======== ========

The accompanying notes are an integral part of these consolidated financial
statements.

10
11

IDEXX LABORATORIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)

YEARS ENDED DECEMBER 31,
---------------------------------------
1997 1998 1999
------------ ------------ ----------

Revenue.................................... $ 262,970 $ 319,889 $ 356,214
Cost of revenue............................ 141,030 161,698 182,117
--------- --------- ---------
Gross profit............................ 121,940 158,191 174,097
--------- --------- ---------
Expenses:
Sales and marketing..................... 66,383 62,844 56,912
General and administrative.............. 42,930 43,558 43,055
Research and development................ 17,057 22,687 27,313
Non-recurring operating charge.......... 21,300 -- --
Write-off of in-process research and
development............................. 13,200 37,162 --
--------- --------- ---------
Income (loss) from operations......... (38,930) (8,060) 46,817
Interest income, net.................... 6,670 6,877 5,728
--------- --------- ---------
Net income (loss) before provision for
(benefit of) income taxes............ (32,260) (1,183) 52,545
Provision for (benefit of) income taxes.... (11,140) 14,032 19,967
--------- --------- ---------
Net income (loss)..................... $ (21,120) $ (15,215) $ 32,578
========= ========= =========
Earnings (loss) per share: Basic........... $ (0.56) $ (0.40) $ 0.85
========= ========= =========
Earnings (loss) per share: Diluted......... $ (0.56) $ (0.40) $ 0.82
========= ========= =========

The accompanying notes are an integral part of these consolidated financial
statements.

11
12

IDEXX LABORATORIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT PER SHARE DATA)

COMMON STOCK
--------------------- ACCUMULATED
ADDITIONAL OTHER TOTAL
NUMBER $0.10 PAID-IN RETAINED COMPREHENSIVE TREASURY STOCKHOLDERS'
OF SHARES PAR VALUE CAPITAL EARNINGS INCOME (LOSS) STOCK EQUITY
--------- --------- ---------- -------- ------------- -------- ------------

BALANCE, December 31, 1996 .... 37,774 $3,777 $ 253,118 $ 67,376 $(1,546) $ -- $ 322,725

Issuance of common stock in
settlement of VetTest
acquisition................. 6 1 87 -- -- -- 88
Exercise of stock options,
including the tax benefit .. 389 39 4,070 -- -- -- 4,109
Comprehensive income (loss):
Net loss ................... -- -- -- (21,120) -- -- --
Translation adjustment ..... -- -- -- -- (3,069) -- --
Total comprehensive loss ... -- -- -- -- -- -- (24,189)
------ ------ --------- -------- ------- -------- ---------
BALANCE, December 31, 1997 .... 38,169 3,817 257,275 46,256 (4,615) -- 302,733

Issuance of common stock in
settlement of Idetek, Inc.
escrow 22 2 (2) -- -- -- --
Issuance of common stock and
Warrants for acquisition of
Blue Ridge Pharmaceuticals,
Inc ....................... -- -- 12,323 -- -- -- 12,323
Exercise of stock options,
Including the tax benefit .. 640 64 6,700 -- -- -- 6,764
Comprehensive income (loss):
Net loss ................... -- -- -- (15,215) -- -- --
Translation adjustment ..... -- -- -- -- 1,235 -- --
Total comprehensive loss ... -- -- -- -- -- -- (13,980)
------ ------ --------- -------- ------- -------- ---------
BALANCE, December 31, 1998 .... 38,831 3,883 276,296 31,041 (3,380) -- 307,840

Issuance of common stock to
board of directors ......... 13 1 342 -- -- -- 343
Purchase of treasury stock .... -- -- -- -- -- (64,222) (64,222)
Exercise of stock options,
Including the tax benefit .. 740 74 7,821 -- -- -- 7,895
Comprehensive income (loss):
Net income ................. -- -- -- 32,578 -- -- --
Translation adjustment ..... -- -- -- -- (93) -- --
Total comprehensive income . -- -- -- -- -- -- 32,485
------ ------ --------- -------- ------- -------- ---------
BALANCE, December 31, 1999 .... 39,584 $3,958 $ 284,459 $ 63,619 $(3,473) $(64,222) $ 284,341
====== ====== ========= ======== ======= ======== =========

The accompanying notes are an integral part of these consolidated financial
statements.

12
13

IDEXX LABORATORIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

YEARS ENDED DECEMBER 31,
----------------------------------------
1997 1998 1999
---------- ---------- ---------

Cash Flows From Operating Activities:
Net income (loss) ................................ $ (21,120) $ (15,215) $ 32,578
Adjustments to reconcile net income (loss) to net
cash provided by operating activities
Depreciation and amortization ................ 14,425 15,887 17,209
Provision for (benefit of) deferred income tax (14,710) 419 2,019
Non-cash portion of non-recurring operating
charge ...................................... 1,600 -- --
Non-cash write-off of in-process research and
Development ................................. 13,200 37,162 --
Changes in assets and liabilities, net of
Acquisition(s)
Accounts receivable ......................... 23,712 (528) (10,406)
Inventories ................................. (11,218) 4,949 5,182
Other current assets ........................ (8,400) 2,781 1,169
Accounts payable ............................ (7,200) 14,344 (7,169)
Accrued expenses ............................ 23,693 (12,569) 10,058
Deferred revenue ............................ (483) (1,160) 1,979
--------- --------- ---------
Net cash provided by operating activities .. 13,499 46,070 52,619
--------- --------- ---------
Cash Flows From Investing Activities:
Decrease (increase) in investments, net ......... 6,515 48 (25,765)
Purchases of property and equipment ............. (12,507) (8,992) (8,292)
Increase in other assets ........................ (3,699) (369) (1,229)
Proceeds from sale of business .................. -- -- 350
Acquisition(s) of business(es), net of
cash acquired .................................. (23,047) (39,091) (4,088)
--------- --------- ---------
Net cash used in investing activities ........ (32,738) (48,404) (39,024)
--------- --------- ---------
Cash Flows From Financing Activities:
Repayment of notes payable ...................... (1,509) (2,529) (6,411)
Purchase of treasury stock ...................... -- -- (64,222)
Proceeds from the exercise of stock options ..... 3,048 5,756 6,611
--------- --------- ---------
Net cash provided (used) by financing .........
activities ................................... 1,539 3,227 (64,022)
--------- --------- ---------
Net effect of Exchange Rate Changes ............... (3,069) 1,198 (60)
--------- --------- ---------
Net Increase (Decrease) in Cash and Cash
Equivalents .................................. (20,769) 2,091 (50,487)
Cash and Cash Equivalents, Beginning of Year ...... 127,741 106,972 109,063
--------- --------- ---------
Cash and Cash Equivalents, End of Year ............ $ 106,972 $ 109,063 $ 58,576
========= ========= =========
Supplemental Disclosure of Cash Flow Information:
Interest paid during the year .................... $ 405 $ 369 $ 405
========= ========= =========
Income taxes paid during the year ............... $ 8,706 $ 17,385 $ 12,827
========= ========= =========
Supplemental Disclosure of Noncash Financing
Activity:
Issuance of common stock in settlement of VetTest
Acquisition .................................... $ 88 $ -- $ --
========= ========= =========
Issuance of notes, common stock and warrants for
Acquisition of Blue Ridge Pharmaceuticals, Inc. $ -- $ 20,153 $ --
========= ========= =========
Receipt of note for sale of assets of IDEXX Food
Safety Net, Inc. .............................. $ -- $ -- $ 195
========= ========= =========

The accompanying notes are an integral part of these consolidated financial
statements.

13
14

IDEXX LABORATORIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1) OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES

IDEXX Laboratories, Inc. and subsidiaries (the "Company") develop,
manufacture and distribute products and provide services for the veterinary,
food and environmental markets. In the veterinary market, the Company develops,
manufactures and distributes biology-based detection systems, develops and
distributes veterinary pharmaceuticals and chemistry-based detection systems,
provides laboratory testing and specialized consulting services and develops and
distributes veterinary practice information management software systems and
provides related services. In the food and environmental market, the Company
develops, manufactures and distributes biology-based detection systems and
provides laboratory testing and specialty consulting services. The Company's
products and services are sold worldwide.

The accompanying consolidated financial statements reflect the application
of certain significant accounting policies, as discussed below and elsewhere in
the notes to the consolidated financial statements. The preparation of these
consolidated financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.

(a) 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) Inventories

Inventories include material, labor and overhead, and are stated at the
lower of cost (first-in, first-out) or market. The components of inventories are
as follows (in thousands):

DECEMBER 31,
--------------------
1998 1999
------- -------
Raw materials..... $ 4,871 $ 6,385
Work-in-process... 3,704 4,190
Finished goods.... 46,853 36,913
------- -------
$55,428 $47,488
======= =======

The Company provides for depreciation and amortization using the
declining-balance and straight-line methods by charges to operations in amounts
that allocate the cost of property and equipment over their estimated useful
lives as follows:

ESTIMATED
ASSET CLASSIFICATION USEFUL LIFE
--------------------------- --------------

Leasehold improvements........... Life of lease
Machinery and equipment.......... 3-5 Years
Office furniture and equipment... 5-7 Years
Buildings........................ 40 Years

14
15

(d) Other Assets

Other assets are as follows (in thousands):
DECEMBER 31,
-------------------
DESCRIPTION USEFUL LIFE 1998 1999
----------------------- -------------- ------- -------

Patents and trademarks. 10 Years $ 9,372 $ 9,318
Goodwill............... 5-40 Years 50,826 55,187
Non-compete agreements. 3-5 Years 4,330 4,480
Other intangibles...... 5-10 Years 11,146 11,622
------- -------
75,674 80,607
Accumulated amortization 21,858 29,138
------- -------
Intangible assets, net. 53,816 51,469
Other assets........... 10,609 11,207
------- -------
$64,425 $62,676
======= =======

Substantially all of the patents and trademarks were acquired in connection
with the acquisition of a product line of VetTest S.A. ("VetTest") in 1992.
Other intangibles include subscriber lists, existing technology intangible
assets, and prepaid royalties. Other assets include the long-term deferred tax
asset, cost of products sold to customers with right of return privileges (see
Note 1(g)) and long-term deposits. Amortization of intangible assets was $5.0
million, $6.0 million and $7.5 million for the years ended December 31, 1997,
1998 and 1999, respectively. The Company continually assesses the realizability
of these assets in accordance with Statement of Financial Accounting Standards
("SFAS") No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets To Be Disposed Of. As of the respective balance sheet dates
the Company determined that no impairment has occurred.

(e) Stock-Based Compensation Plans

The Company accounts for stock-based compensation plans under the
provisions of SFAS No. 123, Accounting for Stock-Based Compensation (SFAS No.
123). Under SFAS No. 123, the Company elected the disclosure only method and
will continue to account for stock-based compensation plans under Accounting
Principles Board ("APB") Opinion No. 25, Accounting for Stock Issued to
Employees (See Note 9).

(f) Income Taxes

The Company accounts for income taxes under SFAS No. 109, Accounting for
Income Taxes. This statement requires that the Company recognize a current tax
liability or asset for current taxes payable or refundable and a deferred tax
liability or asset for the estimated future tax effects of temporary differences
and carryforwards to the extent they are realizable (See Note 2).

(g) Revenue Recognition

The Company recognizes product revenue at the time of shipment for
substantially all products. The Company recognizes revenue from non-cancelable
software licenses upon product shipment as collection is probable and no
significant vendor obligations remain at the time of shipment. Service revenue
is recognized at the time the service is performed. Maintenance revenue is
billed in advance and recognized over the life of the contracts, usually one
year or less. Certain instrument systems are sold to a third-party finance
company who leases these systems to its customers with a right-of-return
privilege. The third-party finance company can return the instrument system to
the Company for a partial refund based on the time from initial sale to product
return. The Company recognizes revenue under these contracts over the term of
the underlying lease contract.

(h) Research and Development and Software Development Costs

In accordance with SFAS No. 86, Accounting for the Costs of Computer
Software to be Sold, Leased or Otherwise Marketed, the Company has evaluated the
establishment of technological feasibility of its various products during the
development phase. Due to the dynamic changes in the market, the Company has
concluded that it cannot determine technological feasibility until the
development phase of the project is nearly complete. The Company charges all
research and development expenses to operations in the period incurred as the
costs from the point of technological feasibility to first product release are
immaterial.

15
16

(i) Foreign Currency Translation and Foreign Exchange Contracts

Assets and liabilities of the Company's foreign subsidiaries are translated
using the exchange rate in effect at the balance sheet date. Revenue and expense
accounts are translated using a weighted average of exchange rates in effect
during the period. Cumulative translation gains and losses are shown in the
accompanying consolidated balance sheets as a separate component of accumulated
other comprehensive income (loss). Exchange gains and losses arising from
transactions denominated in foreign currencies are included in current
operations. Included in general and administrative expenses are foreign currency
transaction losses of $511,000 and $127,000 and a gain of $597,000 for the years
ended December 31, 1997, 1998 and 1999, respectively.

The Company enters into foreign currency exchange contracts of its
anticipated intercompany and third party inventory purchases for the next twelve
months in order to minimize the impact of foreign currency fluctuations on these
transactions. The Company's accounting policies for these contracts are based on
the Company's designation of such instruments as hedging transactions which are
supported by firm third-party purchases. The Company also utilizes some natural
hedges to mitigate its transaction and commitment exposures. The contracts the
Company enters into are firm foreign currency commitments, and therefore market
gains and losses are deferred until the contract matures, which is the period
when the related obligation is settled. The Company enters into these exchange
contracts with large multinational financial institutions. As of December 31,
1998, the deferred gains on these contracts totaled $20,000. There were no
unrecorded gains or losses on these contracts as of December 31, 1999. The
foreign currency contracts, which extend through December 31, 1999 and 2000,
respectively, consisted of the following (in thousands):

CURRENCY SOLD US DOLLAR EQUIVALENT
------------- ------------------------------
1998 1999
--------------- -------------
Australian dollar.... $2,394 $ --
Japanese Yen......... 2,469 504
------ ------
$4,863 $ 504
====== ======

(j) Disclosure of Fair Value of Financial Instruments and Concentration of
Credit Risk

Financial instruments consist mainly of cash and cash equivalents, accounts
receivable, accounts payable and notes payable. The Company does not believe
significant credit risk exists at December 31, 1999. The carrying amounts of the
Company's financial instruments approximate fair market value.

(k) Earnings (Loss) per Share

Basic earnings per share is computed by dividing net income (loss) by the
weighted average number of shares of Common Stock outstanding during the year.
The computation of diluted earnings per share is similar to the computation of
basic earnings per share, except that the denominator is increased for the
assumed exercise of dilutive options using the treasury stock method unless the
effect is antidilutive. The following is a reconciliation of shares outstanding
for basic and diluted earnings (loss) per share (in thousands):

1997 1998 1999
------ ------ -----

SHARES OUTSTANDING FOR BASIC EARNINGS (LOSS) PER SHARE:
Weighted average shares outstanding................................ 37,974 38,513 38,412
====== ====== ======
SHARES OUTSTANDING FOR DILUTED EARNINGS (LOSS) PER SHARE:
Weighted average shares outstanding................................ 37,974 38,513 38,412
Shares assumed issued for the acquisition of Blue Ridge
Pharmaceuticals, Inc............................................ -- -- 115
Dilutive effect of options issued to employees..................... -- -- 1,216
------ ------ ------
37,974 38,513 39,743
====== ====== ======

The Company incurred losses for the years ending December 31, 1997 and 1998
and has, as a result, excluded the dilutive effect of options issued to
employees and assumed shares issued from the calculation of shares outstanding
for diluted earnings per share. If the Company had reported net income, shares
outstanding would have increased by 1,444,000 and 1,720,000 shares,
respectively. 729,000, 313,000 and 1,294,000 options for 1997, 1998 and 1999,
respectively, have been excluded from the calculation of shares outstanding for
diluted earnings (loss) per share because they were anti-dilutive.

(l) Reclassifications

Reclassifications have been made in the consolidated financial statements to
conform to the current year's presentation.

16
17

(m) Comprehensive Income

In 1998, the Company adopted the provisions of SFAS No. 130, Reporting
Comprehensive Income (SFAS No. 130), which requires companies to report all
changes in equity during a period, except those resulting from investment by
owners and distribution to owners, in a financial statement for the period in
which they are recognized. The Company has chosen to disclose comprehensive
income, which encompasses net income and foreign currency translation
adjustments, in the Consolidated Statement of Stockholders' Equity. The Company
considers the foreign currency cumulative translation adjustment to be
permanently invested and therefore has not provided income taxes on those
amounts. Prior years have been restated to conform to SFAS No. 130 requirements.

(n) New Accounting Standards

In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities (SFAS No. 133). SFAS No. 133 establishes
accounting and reporting standards for derivative instruments and for hedging
activities and requires that an entity recognize all derivatives as either
assets or liabilities on the balance sheet and measure those instruments at fair
value. The accounting for changes in the fair value of a derivative depends on
the intended use of the derivative and the resulting designation. SFAS No. 137,
Accounting for Derivative Instruments and Hedging Activities - Deferral of the
Effective Date of FASB Statement No. 133 - an amendment of FASB Statement No.
133 was issued in June 1999 and deferred the effective date of SFAS No. 133 to
fiscal years beginning after June 15, 2000 and is applicable on both an interim
and annual basis. Companies are not required to apply this statement
retroactively to prior periods. The Company does not believe this statement will
have a material impact on the consolidated balance sheet or statement of
operations.

(2) INCOME TAXES

Earnings (losses) before income taxes for each year were as follows (in
thousands):

1997 1998 1999
-------- --------- -------
Domestic..... $ (29,731) $ (16,071) $ 37,253
International.... (2,529) 14,888 15,292
--------- --------- --------
$ (32,260) $ (1,183) $ 52,545
========= ========= ========

The provisions for (benefit of) income taxes for the years ended
December 31, 1997, 1998 and 1999 are comprised of the following (in thousands):

DECEMBER 31,
-------------------------------------
1997 1998 1999
-------- -------- -------
Current
Federal ...... $ 817 $ 5,758 $10,630
State ........ 954 2,682 3,066
International 1,799 5,173 4,252
-------- -------- -------
3,570 13,613 17,948
-------- -------- -------
Deferred
Federal ...... (12,314) 524 1,955
State ........ (2,396) (105) 64
-------- -------- -------
(14,710) 419 2,019
-------- -------- -------
$(11,140) $ 14,032 $19,967
======== ======== =======

The provision for (benefit of) income taxes differs from the amount computed
by applying the statutory federal income tax rate as follows:

DECEMBER 31,
----------------------------
1997 1998 1999
------ -------- -------
U.S. federal statutory rate... 35.0% 35.0% 35.0%
State income tax, net of federal
tax benefit............... 4.1 (217.7) 5.0
International income taxes.. -- 125.0 (2.1)
Amortization of non-deductible
Assets.................... (1.6) (183.1) 2.2

Write-off of in-process
research and development.. (5.1) (1,098.6) --
Non-taxable interest income. 4.1 117.9 (2.9)
Other, net.................. (2.0) 35.4 0.8
------ -------- ------
Effective tax rate.......... 34.5% (1,186.1)% 38.0%
====== ======== ======

17
18

The components of the domestic net deferred tax asset (liability) included
in the accompanying consolidated balance sheets are as follows (in thousands):

1998 1999
--------------------- ---------------------
CURRENT LONG-TERM CURRENT LONG-TERM
------- --------- ------- ---------
ASSETS:
Accruals ................. $ 4,323 $ -- $ 4,531 $ --
Receivable reserves ...... 3,173 -- 2,451 --
Deferred revenue ......... 4,189 -- 3,267 --
Inventory basis
differences ............. 2,301 -- 3,017 --
Intangible basis
differences ............. -- 6,389 -- 6,732
Tax credit carryforwards.. -- 235 433 --
Net operating loss
carryforwards ............ -- 4,434 1,098 1,482
------- ------- ------- ------
Total assets ............ 13,986 11,058 14,797 8,214
------- ------- ------- ------
LIABILITIES:
Property basis differences -- 928 -- 1,106
Intangible basis
Differences ............. -- 470 -- 173
Other .................... 21 -- 118 --
------- ------- ------- ------
Total liabilities ....... 21 1,398 118 1,279
------- ------- ------- ------
Net domestic asset ....... $13,965 $ 9,660 $14,679 $6,935
======= ======= ======= ======

The components of the foreign net deferred tax asset (in thousands):

1998 1999
-------------------- ---------------------
CURRENT LONG-TERM CURRENT LONG-TERM
------- --------- ------- ---------
ASSETS:
Net operating loss
carryforwards ......... $ -- $ 3,679 $ -- $ 3,197
Other .................. 135 -- -- --
----- ------- ------- -------
Total assets .......... 135 3,679 -- 3,197
LIABILITIES:
Total liabilities ..... -- -- -- --
VALUATION ALLOWANCE ....... (135) (3,679) -- (3,197)
----- ------- ------- -------
Net asset (liability).. $ -- $ -- $ -- $ --
===== ======= ======= =======

At December 31, 1999, the Company had domestic net operating loss
carryforwards of approximately $7.4 million available to offset future taxable
income. Net operating loss carryforwards expire at various dates from 2000 to
2014. The Tax Reform Act of 1986 contains provisions that limit annual
availability of the net operating loss carryforwards due to a more than 50%
change in ownership that occurred upon the acquisition of certain companies.

At December 31, 1999, the Company had net operating loss carryforwards in
foreign subsidiaries of approximately $8.1 million available to offset future
taxable income. These net operating loss carryforwards expire at various dates
beginning in 2003. The Company has recorded a valuation allowance for the assets
because realizability is uncertain.

As of December 31, 1999, unremitted earnings in subsidiaries outside the
United States totaled $21.9 million, on which no United States taxes have been
provided. The Company's intention is to reinvest these earnings permanently or
to repatriate the earnings only when tax effective to do so. It is not practical
to estimate the amount of additional taxes that might be payable upon
repatriation of foreign earnings; however, the Company believes that United
States foreign tax credits would largely eliminate any United States taxes or
offset any foreign withholding taxes.

18
19

(3) CASH EQUIVALENTS, SHORT-TERM AND LONG-TERM INVESTMENTS

The Company accounts for investments under SFAS No. 115, Accounting for
Certain Investments in Debt and Equity Securities. Except for preferred stock,
the Company has the intent and ability to hold short-term and long-term
investments to maturity and records these investments at amortized cost which
approximates fair market value. The Company classifies its investment in
preferred stock as available-for-sale and values it at fair market value.

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):

DECEMBER 31,
--------------------
1998 1999
------- --------
Municipal bonds ............. $21,801 $24,785
Preferred stocks ............ -- 9,120
U.S. government obligations . 6,000 8,000
Certificates of deposit ..... 1,031 4,930
Commercial paper ............ 458 --
------- -------
$29,290 $46,835
======= =======

Long-term investments are investment securities with original maturities of
greater than one year and consist of the following (in thousands):

DECEMBER 31,
--------------------
1998 1999
------- -------

Municipal bonds ........... $13,297 $23,517
Certificates of deposit ... 4,000 --
U.S. government obligations -- 2,000
------- -------

$17,297 $25,517
======= =======

(4) NOTES PAYABLE

In connection with the acquisition of the business of Consolidated
Veterinary Diagnostics, Inc. ("CVD") in July 1996, the Company issued an
unsecured note payable for $3.0 million, of which $1.0 million was outstanding
at December 31, 1998. The final installment payment of $1 million was made in
July 1999.

In connection with the Central Veterinary Diagnostic Laboratory acquisition
(see Note 15(f)) the Company issued an unsecured note payable for Australian
Dollars 900,000 (US $587,000) of which Australian dollars 675,000 (US $439,000)
was outstanding at December 31, 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. ("Blue Ridge")
acquisition (see Note 15(e)), the Company issued unsecured notes payable for
$7,830,000, of which $3,103,000 was outstanding at December 31, 1999. The notes
bear interest at 5.5%, and the final installment is due on October 1, 2000.

(5) COMMITMENTS AND CONTINGENCIES

The Company leases its facilities under operating leases which expire
through 2008. In addition, the Company is responsible for the real estate taxes
and operating expenses related to these facilities. Minimum annual rental
payments under these agreements are as follows (in thousands):

YEARS ENDING
DECEMBER 31,
---------------
2000 .......... $ 4,832
2001 .......... 4,522
2002 .......... 3,615
2003 .......... 3,347
2004 .......... 2,828
Thereafter .... 9,578
-------
$28,722
=======

19
20

Rent expense charged to operations under operating leases was approximately
$3.8 million, $4.9 million and $5.1 million for the years ended December 31,
1997, 1998 and 1999, respectively.

Under the terms of certain supply agreements with suppliers of the Company's
hematology instruments and consumables, slides for its VetTest instruments, and
certain raw materials, the Company has aggregate commitments to purchase
approximately $35.6 million of products in 2000.

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. The Company is not aware of any pending
litigation with respect to such claims. Patent litigation frequently is complex
and expensive, and the outcome of patent litigation can be difficult to predict.
There can be no assurance that the Company will prevail in any infringement
proceedings that have been or may be commenced against the Company.

In January 1998, a complaint was filed in the U.S. District Court for the
District of Maine captioned ROBERT A. ROSE, et.al. v. DAVID E. SHAW, ERWIN F.
WORKMAN, JR. and IDEXX LABORATORIES, INC. The plaintiffs 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 in August 1999, the plaintiffs
appealed that ruling to the U.S. Court of Appeals for the First Circuit. In
February 2000, the Company entered into a Memorandum of Understanding (the
"MOU") with the plaintiffs pursuant to which the parties have agreed to settle
the suit. Pursuant to the MOU, the Company and the plaintiffs have filed a
Stipulation of Settlement (the "Stipulation") with U.S. District Court. Subject
to certain conditions, the Stipulation will become effective following approval
by the District Court and expiration of the time for any appeal. No assurance
can be given that the District Court will approve the Stipulation or otherwise
that the suit will be finally settled on the terms contained in the MOU. The
proposed settlement (in excess of the portion reimbursed through insurance) will
not affect results of operations in 2000. In the event that the suit is not
settled, 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.

In December 1997, SA Scientific, Inc. ("SAS") filed suit against the Company
in the State of Texas District Court. SAS has alleged breach of a development
and supply agreement between SAS and the Company, negligent misrepresentation,
fraud and conversion of SAS's intellectual property, and is seeking $8,000,000
in actual damages, $24,000,000 in punitive damages, further unspecified damages
and attorneys' fees. The Company has filed an answer to the complaint denying
SAS's allegations and has asserted counterclaims against SAS for breach of
contract, fraud and conversion of the Company's property. 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.

20
21

(6) NON-RECURRING OPERATING CHARGE

During 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 (see Note 7) and $21.3 million of the
write-downs and write-offs of certain assets and accrual of costs related to a
significant workforce reduction. The $21.3 million charge consists of the
following (in thousands):

Legal settlement and related costs ...... $ 8,000
Severance benefits and related costs .... 9,000
Idle capacity and lease termination costs 2,700
Asset impairment ........................ 1,600
-------
$21,300
=======

As of December 31, 1999, $653,000 was included in accrued expenses relating
to the non-recurring operating charge. The balance remaining at December 31,
1999 primarily represents severance payments due to terminated employees and
lease payments on unutilized facilities. During 1999, the Company paid $2.6
million related to this charge.

In September 1997, the Company settled a patent infringement suit brought by
Barnes-Jewish Hospital ("BJH") regarding IDEXX's heartworm diagnostic products.
The total costs of the settlement, including legal fees, were included in the
non-recurring operating charge.

The Company has terminated the employment of a total of 228 employees. Of
this total, 79 employees were associated with the consolidation of the
veterinary practice information management software business into the Eau
Claire, Wisconsin facility, 57 employees were associated with the consolidation
of sales, marketing and distribution operations in Europe, 33 employees were
associated with reductions in domestic sales and marketing operations, 18
employees were associated with reductions in sales and marketing operations in
the Asia-Pacific region, 16 employees were associated with the closure of the
Sunnyvale, California research and development facility and 25 employees were
associated with reductions in positions in management and financial operations.

As discussed above, the Company consolidated certain veterinary practice
information management software operations into the Eau Claire, Wisconsin
facility and closed the leased Sunnyvale, California research and development
facility. As a result of these consolidations, the Company has leased facilities
which have become excess until the end of their respective lease terms.
Additionally, the Company has determined that it will not pursue certain
immunoassay technology with respect to which it had invested a total of $1.6
million in fixed assets and license fees.

(7) WRITE-OFF OF IN-PROCESS RESEARCH AND DEVELOPMENT

(a) Blue Ridge Pharmaceuticals, Inc.

On October 1, 1998 the Company acquired Blue Ridge Pharmaceuticals, Inc., a
development-stage animal health pharmaceutical company with 11 products in
development. At the acquisition date Blue Ridge had no commercially viable
products and no historical revenue stream. The Company allocated the aggregate
purchase price of $59.2 million plus $300,000 of acquisition costs based on the
fair market value of tangible and intangible assets acquired, in accordance with
Accounting Principles Board Opinion No. 16 (APB 16). The acquisition was
accounted for as a purchase in accordance with APB 16 and the results of
operations have been included with the Company's results since the date of
acquisition. To value the intangible assets acquired the Company obtained an
independent appraisal. That appraisal was performed using proven valuation
techniques and supplemental guidance provided by the Securities and Exchange
Commission. The aggregate purchase price was allocated as follows (in
thousands):

Current assets, including cash of $1,243 $ 1,882
Long-term assets ....................... 118
Deferred tax assets .................... 3,444
Current liabilities .................... (3,400)
Intangibles ............................ 200
In-process research and development .... 37,162
Goodwill ............................... 20,094
--------
$ 59,500
========

21
22

Intangibles include $37.2 million for purchased in-process research and
development for projects that do not have future alternative uses. This
allocation represents the estimated fair value based on discounted risk-adjusted
cash flows, adjusted using percentage of completion methodology (see below),
related to the in-process research and development projects. The development of
these projects had not yet reached technological feasibility and the in-process
research and development had no alternative uses. Accordingly, these costs were
expensed as of the acquisition date in accordance with FASB Interpretation No.
4, Applicability of FASB Statement No. 2 to Business Combinations Accounted for
by the Purchase Method.

Eight of the eleven projects were pharmaceuticals for companion animals,
including horses, and three of the eleven projects were pharmaceuticals for food
animals. These projects use a combination of proprietary compounds and novel
delivery systems. To be sold commercially the products must be approved by the
Center for Veterinary Medicine ("CVM"), which is the agency within the Food and
Drug Administration ("FDA") that is responsible for managing approval of new
animal drugs. There are five types of data that must be provided to the FDA and
the CVM prior to approval. These include 1) efficacy, 2) safety to the animals
to be treated, 3) safety to the humans who will consume the animal or its
products (if applicable), 4) safety to the environment and 5) good manufacturing
practices (quality control of production to assume a consistent product). The
Company utilizes clinical studies to support its applications for approval. The
companion animal projects ranged from 19% to 78% complete, while the food animal
projects ranged from 78% to 93% complete.

Management believes that it is positioned to complete each of the major
research and development programs. These estimates are subject to change, given
the uncertainties of the development process and no assurance can be given that
deviations from these estimates will not occur. Additionally, these projects
will require maintenance expenditures when and if they have reached a state of
technological and commercial feasibility and there is no assurance that each
project will meet either technological or commercial success.

The forecasts used by the Company in valuing in-process research and
development were based upon assumptions the Company believes to be reasonable
but which are inherently uncertain and unpredictable. The Company's assumptions
may be incomplete or inaccurate and unanticipated events and circumstances are
likely to occur. For these reasons, actual results may vary significantly from
the projected results.

22
23

(b) Veterinary Practice Information Management Software Companies

During 1997 the Company acquired two veterinary practice information
management software businesses. The Company allocated the aggregate purchase
price of $19.8 million plus $200,000 of acquisition costs based on the fair
market value of tangible and intangible assets acquired, in accordance with
Accounting Principles Board Opinion No. 16 (APB 16). The acquisition was
accounted for as a purchase in accordance with APB 16 and the results of
operations have been included with the Company's results since the dates of
acquisition. To value the intangible assets acquired the Company obtained an
independent appraisal. That appraisal was performed using proven valuation
techniques and methodologies generally accepted in industry. The aggregate
purchase price was allocated as follows (in thousands):

Current assets, including cash of $848 $ 8,172
Long-term assets ..................... 789
Current liabilities .................. (13,377)
Intangibles .......................... 3,650
In-process research and development .. 13,200
Goodwill ............................. 7,566
--------
$ 20,000
========

Intangibles include $13.2 million for purchased in-process research and
development for projects that do not have future alternative uses. This
allocation represents the estimated fair value based on discounted risk-adjusted
cash flows related to the in-process research and development projects. The
development of these projects had not yet reached technological feasibility and
the in-process research and development had no alternative uses. Accordingly,
these costs were expensed as of the acquisition date in accordance with FASB
Interpretation No. 4, Applicability of FASB Statement No. 2 to Business
Combinations Accounted for by the Purchase Method.

The two projects consisted of practice information management software
programs and related modules. These products are used by veterinarians to manage
and operate their veterinary clinics. These projects are unique and complex and
frequently require modification to the product before the products are ready for
commercial markets. These projects were completed in accordance with the
original plan. These projects will require maintenance expenditures to maintain
commercial status and there is no assurance that each project will meet
commercial success. The Company realized revenue from these products in 1999.

The value assigned to purchased in-process research and development was
determined by estimating the costs to develop the purchased in-process research
and development into commercially viable products, estimating the resulting net
risk-adjusted cash flows from the projects and discounting the net cash flows to
their present value. The revenue projections used to value the in-process
research and development are based on estimates of relevant market sizes and
growth factors and nature and expected timing of new products. The rate utilized
to discount the net cash flows to their present value is based on the weighted
average cost of capital adjusted to consider the risk associated with these
technologies. The Company used a 20% discount factor to value this in-process
research and development.

(8) STOCKHOLDERS' EQUITY

(a) Preferred Stock

The Board of Directors is authorized, subject to any limitations prescribed
by law, without further stockholder approval, to issue from time to time up to
500,000 shares of Preferred Stock, $1.00 par value per share ("Preferred
Stock"), in one or more series. Each such series of Preferred Stock shall have
such number of shares, designations, preferences, voting powers, qualifications
and special or relative rights or privileges as shall be determined by the Board
of Directors, which may include, among others, dividend rights, voting rights,
redemption and sinking fund provisions, liquidation preferences, conversion
rights and preemptive rights.

23
24

(b) Series A Junior Participating Preferred Stock

On December 17, 1996, the Company designated 100,000 shares of Preferred
Stock as Series A Junior Participating Preferred Stock ("Series A Stock") in
connection with its Shareholder Rights Plan (see Note 10). In general, each
share of Series A Stock will: (i) be entitled to a minimum preferential
quarterly dividend of $10 per share and to an aggregate dividend of 1000 times
the dividend declared per share of Common Stock, (ii) in the event of
liquidation, be entitled to a minimum preferential liquidation payment of $1,000
per share (plus accrued and unpaid dividends) and to an aggregate payment of
1000 times the payment made per share of Common Stock, (iii) have 1000 votes,
voting together with the Common Stock, (iv) in the event of any merger,
consolidation or other transaction in which Common Stock is exchanged, be
entitled to receive 1000 times the amount received per share of Common Stock and
(v) not be redeemable. These rights are protected by customary antidilution
provisions. There are no shares of Series A Stock outstanding.

(9) STOCK-BASED COMPENSATION PLANS

At December 31, 1999, the Company had 11 stock-based compensation plans,
which are described below. The Company accounts for these plans under the
provisions of SFAS No. 123. Under SFAS No. 123 the Company elected the
disclosure method and will continue to account for stock-based compensation
plans under APB Opinion No. 25. Accordingly, no compensation cost has been
recognized for these plans. Had compensation cost for the Company's 11
stock-based compensation plans been determined consistent with the provisions of
SFAS No. 123, the Company's net income (loss) and net income (loss) per common
and common equivalent share would have been reduced to the following pro forma
amounts (in thousands):

YEARS ENDED DECEMBER 31,
---------------------------------
1997 1998 1999
--------- --------- --------
Net income (loss):
As reported........... $(21,120) $(15,215) $ 32,578
Pro forma............. (30,563) (21,931) 25,550
Net income (loss) per share:
Basic: as reported.... $ (0.56) $ (0.40) $ 0.85
Basic: pro forma...... (0.80) (0.57) 0.67
Diluted: as reported.. (0.56) (0.40) 0.82
Diluted: pro forma.... (0.80) (0.57) 0.64

Because the SFAS No. 123 method of accounting has not been applied to
options granted prior to January 1, 1995, the resulting pro forma compensation
cost may not be representative of that to be expected in future years.

(a) The 1984 Plan

During 1984, the Company established a stock option plan (the "1984 Plan"),
under which key employees were granted options to purchase Common Stock at
exercise prices not less than the fair market value as of the date of grant, as
determined by the Board of Directors. On April 24, 1991, the Board of Directors
terminated the 1984 Plan such that no further options may be granted under the
Plan.

(b) The 1991 Plan

During 1991, the Board of Directors approved the 1991 Stock Option Plan
which, as amended, provides for grants up to 6,475,000 incentive and
nonqualified stock options at the discretion of the Compensation Committee of
the Board of Directors. Incentive Stock Options are granted at the fair market
value on the date of grant and expire 10 years from the date of grant. Incentive
Stock Options for greater than 10% shareholders are granted at 110% of the fair
market value and expire five years from the date of grant. Nonqualified options
may be granted at no less than 100% of the fair market value on the date of
grant. The vesting schedule of all options is determined by the Compensation
Committee of the Board of Directors at the time of grant.

24
25

During 1991, the Board of Directors approved the 1991 Director Option Plan
(as amended, the "1991 Director Plan") pursuant to which Directors who are not
officers or employees of the Company may receive nonstatutory options to
purchase shares of the Company's Common Stock. The time period for granting
options under the 1991 Director Plan expired in accordance with the terms of the
plan in June 1996.

(d) The 1997 Director Option Plan

During 1997, the Board of Directors approved the 1997 Director Option Plan
(the "1997 Director Plan") pursuant to which Directors who were not officers or
employees of the Company received nonstatutory options to purchase shares of the
Company's Common Stock. On May 19, 1999 this plan was terminated and replaced
with the 1999 Director Stock Plan.

(e) 1998 Stock Incentive Plan

During 1998, the Board of Directors approved the 1998 Stock Incentive Plan
(the "1998 Stock Plan") which provides for grants of incentive and nonqualified
stock options and restricted stock awards at the discretion of the Compensation
Committee of the Board of Directors. A total of 2,500,000 shares of Common Stock
may be issued under the 1998 Stock Plan. Options granted under the 1998 Stock
Plan may not be granted at an exercise price less than the fair market value of
the Common Stock on the date granted (or less than 110% of the fair market value
in the case of incentive stock options granted to holders of more than 10% of
the Company's Common Stock). Options may not be granted for a term of more than
10 years. The number of shares subject to restricted stock awards granted at
below 100% of fair market value may not exceed 10% of the total number of shares
of Common Stock issuable under the 1998 Stock Plan. The vesting schedule of all
options granted under the 1998 Stock Plan and the duration of the Company's
repurchase rights with respect to restricted stock awarded under the 1998 Stock
Plan are determined by the Compensation Committee of the Board of Directors at
the time of grant.

(f) The 1999 Director Stock Plan

During 1999, the Board of Directors approved the 1999 Director Stock Plan
pursuant to which Directors who are not officers or employees of the Company may
receive shares of the Company's Common Stock. A total of 80,000 shares of Common
Stock may be issued under the 1999 Director Stock Plan. As of December 31, 1999,
12,860 shares were issued under this plan, and the fair value of these shares of
$343,000 was charged to expense.

(g) ETI Corporation Plan

During 1991, the Board of Directors of ETI Corporation ("ETI"), which was
acquired by the Company in 1993, approved a Stock Option Plan (the "ETI Plan").
The ETI Plan provided for the grant of up to 100,000 nonqualified stock options
at the discretion of the Board of Directors of ETI. Options were granted at the
fair market value on the date of grant and expire five years from the date of
grant. The options vest over a four-year period from the date of grant.

In connection with the merger of ETI and the Company, all outstanding ETI
options became exercisable, in accordance with their original vesting schedule,
for shares of the Company's Common Stock at the same rate at which outstanding
shares of ETI common stock were exchanged for shares of the Company's Common
Stock in the merger. In addition, the exercise price for the options was
proportionately adjusted in accordance with the adjustment to the number of
shares.

(h) Idetek, Inc. Plans

During 1986, the Board of Directors of Idetek approved the 1985 Incentive
Stock Option Plan (the "1985 Idetek Plan"). Options were granted at the fair
market value on the date of grant and expire 10 years from the date of grant.
Options for greater than 10% shareholders were granted at no less than 110% of
the fair market value and expire five years from the date of grant. The 1985
Idetek Plan was terminated by the Board of Directors of Idetek as to future
grants.

25
26

During 1987, the Board of Directors of Idetek approved the 1987 Stock Option
Plan (the "1987 Idetek Plan"), which provided for the grant of both incentive
and nonqualified stock options. Incentive Stock Options were granted at the fair
market value on the date of grant and expire 10 years from the date of grant.
Incentive Stock Options for greater than 10% shareholders were granted at 110%
of the fair market value and expire five years from the date of grant.
Nonqualified options were granted at 85% of the fair market value on the date of
grant and expire five years from the date of grant. The Company does not intend
to grant any options under the 1987 Idetek Plan in excess of the options
currently outstanding.

In February 1996, the Board of Directors of Idetek approved two separate,
single participant fixed term incentive stock option agreements with certain of
its key executive officers. Options were granted to the individual participant
named in the agreement at prices established by the Board of Directors of Idetek
and such options expire 10 years from the date of grant.

In connection with the merger of Idetek and the Company in August 1996, all
outstanding Idetek options became exercisable, in accordance with their original
vesting schedule or terms, for shares of the Company's Common Stock at the same
rate at which outstanding shares of Idetek common stock were exchanged for
shares of the Company's Common Stock in the merger. In addition, the exercise
price for the options was proportionately adjusted in accordance with the
adjustment to the number of shares.

A summary of the status of the Company's stock option plans as of December
31, 1997, 1998 and 1999 and changes during the years then ended is presented in
the table and narrative below (in thousands, except weighted average exercise
price):

WEIGHTED
NUMBER AVERAGE
OF EXERCISE
SHARES PRICE
------ --------
Outstanding, December 31, 1996 .................. 4,352 $18.41
====== ======
Granted ...................................... 1,596 $24.14
Exercised .................................... (270) 6.64
Terminated ................................... (97) 21.45
Canceled on repricing, net ................... (494) 36.85
------ ------
Outstanding, December 31, 1997 .................. 5,087 $12.98
====== ======
Exercisable, December 31, 1997 .................. 2,422 $ 9.03
====== ======
Weighted Average Fair Value of Options Granted in
1997 .......................................... $ 7.70
======
Granted ...................................... 1,233 $17.46
Exercised .................................... (555) 7.95
Terminated ................................... (386) 16.69
------ ------
Outstanding, December 31, 1998 .................. 5,379 $14.26
====== ======
Exercisable, December 31, 1998 .................. 2,600 $11.17
====== ======
Weighted average fair value of options granted in
1998 .......................................... $ 8.79
======
Granted ...................................... 1,341 $22.51
Exercised .................................... (669) 7.35
Terminated ................................... (325) 18.45
------ ------
Outstanding, December 31, 1999 .................. 5,726 $16.78
====== ======
Exercisable, December 31, 1999 .................. 2,624 $13.85
====== ======
Weighted average fair value of options granted in
1999 .......................................... $11.21
======

In April 1997, the Company implemented a Stock Option Exchange Program (the
"Program") for employees in response to the substantial decline in the trading
price of the Company's Common Stock. Under the Program, employees could
voluntarily exchange unexercised stock options and receive new options
exercisable at $17.35 per share. Employees also were required to forfeit between
0% and 50% of their options based on their relative position in the Company.
There were 2.0 million options with a weighted average exercise price of $36.85
that were exchanged for new options. 494,000 net options to acquire shares were
forfeited as a result of the Program. The other terms of the options remained
essentially unchanged. The weighted average fair value of the new options
granted was $13.00 per share.

26
27

The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions used for the grants in 1997, 1998 and 1999, respectively: no
dividend yield for all years; expected volatility of 52% for 1997, 64% for 1998,
and 54% for 1999; risk-free interest rates of 6.33%, 5.34% and 5.28% for 1997,
1998 and 1999, respectively; and expected lives of 4.55 years for 1997, 3.96
years for 1998 and 4.62 years for 1999. At December 31, 1999, the options
outstanding have the following characteristics (options in thousands):

OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------- WEIGHTED -------------------
WEIGHTED AVERAGE WEIGHTED
NUMBER AVERAGE REMAINING NUMBER AVERAGE
EXERCISE PRICE OF EXERCISE CONTRACT OF EXERCISE
RANGE OPTIONS PRICE LIFE OPTIONS PRICE
---------------- ------- ------------ --------- ------- ---------
$ 1.25 -- $ 9.88 843 $ 6.63 2.50 843 $ 6.63
11.22 -- 17.00 1,928 14.61 7.26 817 14.58
17.35 -- 21.03 1,640 17.95 6.81 758 17.94
21.88 -- 46.00 1,315 25.00 8.49 206 25.44

(i) Employee Stock Purchase Plans

During 1994, the Board of Directors approved the 1994 Employee Stock
Purchase Plan whereby the Company had reserved up to an aggregate of 300,000
shares of Common Stock for issuance in semiannual offerings over a three-year
period. During 1997, the Board of Directors approved the 1997 Employee Stock
Purchase Plan whereby the Company has reserved and may issue up to an aggregate
of 420,000 shares of Common Stock in semiannual offerings. Also during 1997 the
Board of Directors approved the 1997 International Employee Stock Purchase Plan
whereby the Company has reserved and may issue up to an aggregate of 30,000
shares of Common Stock in semiannual offerings. Stock is sold under each of
these plans at 85% of fair market value, as defined. Shares subscribed to and
issued under the plans were 119,027 in 1997, 71,734 in 1998 and 66,887 in 1999.

Under SFAS No. 123, pro forma compensation cost is recognized for the fair
value of the employees' purchase rights, which was estimated using the
Black-Scholes model with the following assumptions for 1997, 1998 and 1999,
respectively: no dividend yield for all years; an expected life of one year for
all years; expected volatility of 72% for 1997, 64% for 1998, and 54% for 1999;
and risk-free interest rates of 6.14%, 5.34% and 5.45% for 1997, 1998 and 1999,
respectively. The weighted-average fair value of those purchase rights granted
in 1997, 1998 and 1999 was $7.15, $6.57 and $7.40 per share, respectively.

(10) PREFERRED STOCK PURCHASE RIGHTS

On December 17, 1996, the Company adopted a Shareholder Rights Plan and
declared a dividend of one preferred stock purchase right for each outstanding
share of Common Stock to stockholders of record at the close of business on
December 30, 1996. Under certain conditions, each right may be exercised to
purchase one one-thousandth of a share of Series A Stock at a purchase price of
$200. The rights will be exercisable only if a person or group has acquired
beneficial ownership of 20% or more of the Common Stock or commenced a tender or
exchange offer that would result in such a person or group owning 30% or more of
the Common Stock. The Company generally will be entitled to redeem the rights,
in whole, but not in part, at a price of $.01 per right at any time until the
tenth business day following a public announcement that a 20% stock position has
been acquired and in certain other circumstances.

If any person or group becomes a beneficial owner of 20% or more of the
Common Stock (except pursuant to a tender or exchange offer for all shares at a
fair price as determined by the outside members of the Company's Board of
Directors), each right not owned by a 20% stockholder will enable its holder to
purchase such number of shares of Common Stock as is equal to the exercise price
of the right divided by one-half of the current market price of the Common Stock
on the date of the occurrence of the event. In addition, if the Company
thereafter is acquired in a merger or other business combination with another
person or group in which it is not the surviving corporation or in connection
with which its Common Stock is changed or converted, or if the Company sells or
transfers 50% or more of its assets or earning power to another person, each
right that has not previously been exercised will entitle its holder to purchase
such number of shares of common stock of such other person as is equal to the
exercise price of the right divided by one-half of the current market price of
such common stock on the date of the occurrence of the event.

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28

(11) IDEXX RETIREMENT AND INCENTIVE SAVINGS PLAN

The Company has established the IDEXX Retirement and Incentive Savings Plan
(the "401(k) Plan"). Employees eligible to participate in the 401(k) Plan may
contribute specified percentages of their salaries, a portion of which will be
matched by the Company. In addition, the Company may make contributions to the
401(k) Plan at the discretion of the Board of Directors. There were no
discretionary contributions in 1997, 1998 and 1999.

(12) SIGNIFICANT CUSTOMERS

During the years ended December 31, 1998 and 1999 one customer accounted for
11% and 10%, respectively, of the Company's revenue. The significant customer
was a wholesale distributor of the Company's veterinary products. No customer
accounted for greater than 10% of revenue in 1997.

(13) SEGMENT REPORTING

The Company adopted the provisions of Statement of Financial Accounting
Standards No. 131 Disclosures about Segments of an Enterprise and Related
Information, (SFAS No. 131) during the fourth quarter of 1998. SFAS No. 131
requires disclosures about operating segments in annual financial statement 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 and develops products for therapeutic applications in companion
animals. 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 world-wide. Other is primarily comprised of corporate research and
development, interest income and non-recurring charges.

The accounting policies of the operating segments are the same as those
described in the summary of significant accounting policies except that
non-recurring charges and most interest income and expense are not allocated to
individual operating segments.

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29

Revenues are attributed to geographic areas based on the location of the
customer (in thousands):

CAG FED OTHER TOTAL
---------- ------- --------- ---------

1999
Revenue .............................. $ 278,025 $78,189 $ -- $ 356,214
Depreciation and Amortization ........ 14,289 2,920 -- 17,209
Interest Income (Expense) ............ (151) -- 5,879 5,728
Provision for Income Taxes ........... 14,182 4,108 1,677 19,967
Net Income (Loss) .................... 23,140 6,704 2,734 32,578
Segment Assets ....................... 158,833 36,632 164,693 360,158
Expenditures for Property ............ 6,051 2,241 -- 8,292

1998
Revenue .............................. $ 247,766 $72,123 $ -- $ 319,889
Depreciation and Amortization ........ 13,786 2,101 -- 15,887
Interest Income (Expense) ............ (48) -- 6,925 6,877
Provision for Income Taxes ........... 10,150 2,017 1,865 14,032
Net Income (Loss) .................... (20,335) 3,154 1,966 (15,215)
Segment Assets ....................... 166,390 32,860 187,298 386,548
Expenditures for Property ............ 7,158 1,834 -- 8,992

1997
Revenue .............................. 200,366 62,349 255 262,970
Depreciation and Amortization ........ 12,612 1,807 6 14,425
Interest Income (Expense) ............ (280) -- 6,950 6,670
Provision for (Benefit of) Income
Taxes ............................... (2,248) 1,566 (10,458) (11,140)
Net Income (Loss) .................... (3,373) 2,349 (20,096) (21,120)
Segment Assets ....................... 149,806 36,596 186,662 373,064
Expenditures for Property ............ 10,916 1,591 -- 12,507

Revenue by principal geographic areas was as follows (in thousands):

YEARS ENDED DECEMBER 31,
------------------------------------
1997 1998 1999
-------- -------- --------

Americas
United States ....................... $179,353 $229,934 $261,370
Canada .............................. 9,668 8,719 9,667
South America ....................... 4,189 6,131 6,723

Europe
United Kingdom ...................... 20,088 22,011 23,370
Germany ............................. 9,594 8,737 8,996
France .............................. 7,869 7,645 8,033
Other Europe ........................ 13,735 16,048 16,245

Asia Pacific Region
Japan ............................... 10,250 11,271 11,629
Australia ........................... 4,513 5,800 5,766
Other Asia
Pacific ............................ 3,711 3,593 4,415
-------- -------- --------

Total ................................. $262,970 $319,889 $356,214
======== ======== ========

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Net property by principal geographic areas was as follows (in thousands):

DECEMBER 31,
---------------------------------
1997 1998 1999
------- ------- -------

Americas
United States ........................ $69,570 $87,597 $83,065
Other Americas ....................... 13 59 514

Europe
United Kingdom ....................... 1,510 1,402 1,452
Germany .............................. 321 229 137
France ............................... 783 614 73
Netherlands .......................... 73 1,445 1,631
Other Europe ......................... 507 568 519

Asia Pacific Region
Japan ................................ 1,539 1,284 1,178
Australia ............................ 1,650 1,501 1,420
Other Asia Pacific ................... 645 597 661
------- ------- -------
Total .................................. $76,611 $95,296 $90,650
======= ======= =======

(14) ACCRUED EXPENSES

Accrued expenses consist of the following (in thousands):

DECEMBER 31,
--------------------
1998 1999
------- -------
Accrued compensation and related
expenses .......................................... $11,197 $11,094
Accrued income taxes ................................ 2,926 10,177
Accrued non-recurring operating
charge ............................................ 3,225 653
Other accrued expenses .............................. 14,698 18,259
------- -------
$32,046 $40,183
======= =======

(15) ACQUISITIONS

(a) Acumedia Manufacturers, Inc.

On January 30, 1997, the Company acquired all of the capital stock of
Acumedia Manufacturers, Inc. ("Acumedia") for $3.1 million and the issuance of
$1.5 million in notes payable. The Company also agreed to pay an additional
$250,000 based on the results of operations in each of 1997 and 1998. Based on
results for 1997 and 1998, the Company paid $250,000 in both years. The payments
were treated as additional purchase price. Acumedia, located in Baltimore,
Maryland, manufactures and distributes dehydrated culture media for testing in
the food industry. The Company also entered into employment agreements for up to
three years with certain former stockholders. The Company has accounted for this
acquisition under the purchase method of accounting and the Company has included
the results of operations in its consolidated results of operations since the
date of acquisition. Pro forma information has not been presented because of
immateriality. The Company subsequently sold this subsidiary in February 2000.
See Note 16(b).

(b) Veterinary Practice Information Management Software Providers

The Company's consolidated results of operations include the results of
operations of two veterinary practice information management software businesses
acquired in 1997. These businesses were acquired for an aggregate purchase price
of approximately $19.5 million in cash. The Company paid an additional $500,000
as additional purchase price in February 1998. In connection with these
acquisitions, the Company entered into employment and non-competition agreements
for up to three years with certain former stockholders. The Company has not
presented pro forma financial information because of immateriality. These
acquisitions are as follows:

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* On March 13, 1997, the Company acquired all of the capital stock of
National Information Systems Corporation, located in Eau Claire,
Wisconsin, which operated under the trade name of Advanced Veterinary
Systems ("AVS").

* On July 18, 1997, the Company acquired all of the capital stock of
Professionals' Software, Inc. ("PSI"), located in Effingham, Illinois.

On July 1, 1997, the Company, through its wholly-owned subsidiary, IDEXX
Laboratories (Taiwan), Inc., acquired certain assets and assumed certain
liabilities of Wintek Bio-Science Inc. ("Wintek") for $960,000. Wintek, located
in Taipei, Taiwan, distributes diagnostic products to veterinarians and
hospitals in Taiwan. The Company also entered into employment and
non-competition agreements with the owners of Wintek for up to five years. The
Company has accounted for this acquisition under the purchase method of
accounting and the Company has included the results of operations in its
consolidated results of operations since the date of acquisition. Prior to the
acquisition, Wintek distributed the Company's products in Taiwan, however, the
annual sales of products to Wintek were immaterial. Pro forma information has
not been presented because of immateriality.

(d) Agri-West Laboratory

On March 1, 1998, the Company, through its wholly-owned subsidiary, IDEXX
Food Safety Net Services, Inc. ("IFSNI"), 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 since the date of acquisition. Pro forma information has not been
presented because of immateriality. The Company subsequently sold the assets of
IFSNI in December 1999. See Note 16(a).

(e) Blue Ridge Pharmaceuticals, Inc.

On October 1, 1998, the Company acquired all of the capital stock of Blue
Ridge Pharmaceuticals, Inc. 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 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 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.
The Company will record the issuance of any of the 1.24 million shares discussed
above as additional goodwill when the shares are issued. Pro forma results of
the Company, assuming the acquisition had been made as of January 1, 1997 are as
follows. Such information includes adjustments to reflect additional interest
expense and loss of investment income, both net of tax and goodwill amortization
(in thousands except per share data and unaudited):

YEARS ENDED
DECEMBER 31,
-----------------------------
1997 1998
----------- -----------
Revenue ............................... $ 262,970 $ 321,441
Net income (loss) ..................... (25,765) 16,735
Earnings (loss) per share: Basic ...... (.68) .43
Earnings (loss) per share: Diluted .... (.68) .42

For purposes of these pro forma operating results, the in-process research
and development was assumed to have been written off on December 31, 1996. Pro
forma operating results presented include only recurring costs resulting from
the acquisition of Blue Ridge.

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(f) Veterinary Reference Laboratories

The Company's 1997, 1998 and 1999 consolidated results of operations also
include the results of operations of a veterinary reference laboratory business
acquired in 1997 for aggregate purchase price of approximately $844,000 in cash,
the issuance of $587,000 in unsecured notes payable, plus the assumption of
certain liabilities.

The Company's 1999 consolidated results of operations include the results of
operations of two veterinary reference laboratory businesses acquired in 1999
for an aggregate purchase price of $4.1 million, the issuance of $539,000 in
unsecured notes payable, plus the assumption of certain liabilities.

In connection with these acquisitions, the company entered into
non-competition agreements with the sellers for up to ten years. The Company has
accounted for these acquisitions under the purchase method of accounting. The
results of operations of each of these businesses has been included in the
Company's consolidated results of operations since each of their respective
dates of acquisition. The Company has not presented pro forma information
because of immateriality. These acquisitions are as follows:

* On December 1997, the Company, through its wholly-owned subsidiary IDEXX
Laboratories Pty. Ltd., acquired certain assets and assumed certain
liabilities of Lording & Friend Pty. Ltd. and Clinpath Pty. Ltd.
(operating under the name Central Veterinary Diagnostic Laboratory),
which operated a veterinary reference laboratory in Australia.

* On March 31, 1999, the Company acquired the assets and assumed certain
liabilities of the veterinary laboratory business of Sonora Quest
Laboratories, LLC (Sonora) which operated a veterinary laboratory in
Arizona.

* On December 1, 1999, the Company acquired the assets and certain
liabilities of the veterinary laboratory business of the Tufts
University School of Veterinary Medicine which operated a veterinary
laboratory in Massachusetts.

(16) DIVESTITURES

Through a series of transactions in December 1999 and February 2000 the
Company sold certain assets and subsidiaries of its Food and Environmental
Division. As a result of these transactions, the Company recorded a loss of
approximately $400,000 in 1999 and anticipates that it will record an immaterial
gain in 2000. The results of operations of these businesses have been included
in the consolidated results of operations through the respective sale dates. Pro
forma information has not been presented because of immateriality.

(a) IDEXX Food Safety Net Services, Inc.

On December 21, 1999, the Company sold substantially all the assets and the
business of IDEXX Food Safety Net Services, Inc. to Food Safety Net Services
Ltd. for $350,000 in cash, $195,000 note payable and the assumption of certain
liabilities. The note bears interest at 6% and is due in twelve quarterly
installments. In addition, the Company entered into a non-compete agreement for
five years.

(b) Food Products and Acumedia Manufacturers, Inc.

During February 2000, the Company sold certain assets and the rights to its
Lightning, Simplate and Bind product lines and its subsidiary Acumedia
Manufacturers, Inc. ("Acumedia") for $10.4 million in cash, $450,000 note
payable, and the assumption of certain liabilities. The Company will also
receive up to an additional $1.0 million based on revenue of the Acumedia
business between the sale date and February 16, 2001. The note bears interest at
7% and is due on February 16, 2001. In addition, the Company entered into
non-compete agreements for up to five years.

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(17) SERVICE REVENUE

Service revenue, which includes laboratory service revenue and maintenance
and repair revenue, totaled approximately $46.6 million, $62.5 million and $72.6
million in 1997, 1998 and 1999, respectively. The cost of service revenue in
1997, 1998 and 1999 totaled approximately $28.4 million, $45.6 million and $58.8
million, respectively.

(18) STOCK REPURCHASE PROGRAM

During 1999, the Board of Directors authorized the purchase of up to six
million shares of the Company's Common Stock in the open market or in negotiated
transactions. As of December 31, 1999, approximately 3.9 million shares of
Common Stock were repurchased under this program.

(19) INFORMATION REGARDING CLASSES OF SIMILAR PRODUCTS OR SERVICES (UNAUDITED)

Approximately 71%, 70% and 69% of the Company's revenues were derived from
the sale of veterinary diagnostic products and services in 1997, 1998 and 1999,
respectively. Approximately 24%, 23% and 22% of revenues were derived from sales
of food and environmental products and services in 1997, 1998, and 1999,
respectively.

(20) SUMMARY OF QUARTERLY DATA (UNAUDITED)

A summary of quarterly data follows (in thousands, except per share data):

1998 QUARTER ENDED
-------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- ------- ------------ -----------
Revenue .................... $77,793 $80,886 $78,487 $ 82,723
Gross profit ............... 38,039 40,100 39,067 40,985
Operating profit (loss) .... 4,590 6,641 7,863 (27,154)
Net income (loss) .......... 3,761 5,098 5,996 (30,070)
Earnings (loss) per share:
Basic .................... 0.10 0.13 0.16 (0.78)
Diluted .................. 0.10 0.13 0.15 (0.78)

1999 QUARTER ENDED
-------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- ------- ------------ -----------
Revenue .................... $89,648 $91,524 $86,422 $ 88,620
Gross profit ............... 44,874 44,614 41,487 43,122
Operating income ........... 10,433 11,610 11,951 12,823
Net income ................. 7,281 8,025 8,428 8,844
Earnings per share:
Basic ..................... 0.19 0.20 0.22 0.24
Diluted ................... 0.18 0.20 0.21 0.24

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SCHEDULE II

IDEXX LABORATORIES, INC. AND SUBSIDIARIES

VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)

BALANCE AT CHARGED TO BALANCE
BEGINNING COSTS AND AT END
OF YEAR EXPENSES WRITE-OFFS OF YEAR
---------- ---------- ---------- -------

Allowance for doubtful accounts:
December 31, 1997 .................... $ 4,001 $ 2,246 $1,165 $ 5,082
December 31, 1998 .................... 5,082 1,357 1,071 5,368
December 31, 1999 .................... 5,368 270 810 4,828

Accrued non-recurring operating charge:
December 31, 1997 .................... -- 21,300 9,360 11,940
December 31, 1998 .................... 11,940 -- 8,715 3,225
December 31, 1999 .................... 3,225 -- 2,572 653

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MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS

The Common Stock is quoted on the Nasdaq National Market under the symbol
IDXX. The following table sets forth for the periods indicated the high and low
closing sale prices per share of the Common Stock as reported on the Nasdaq
National Market.

HIGH LOW
---------- ---------
CALENDAR 1998
First Quarter ............. $ 18 7/8 $ 12 7/8
Second Quarter ............ 25 5/16 17 5/8
Third Quarter ............. 24 15/16 17 1/2
Fourth Quarter ............ 27 13/16 18 1/4

CALENDAR 1999
First Quarter ............. $ 27 11/16 $ 19 3/4
Second Quarter ............ 27 7/8 19 5/16
Third Quarter ............. 22 7/16 15
Fourth Quarter ............ 19 5/8 14 11/16

As of December 31, 1999, there were 1,687 holders of record of the Company's
Common Stock.

The Company has never paid any cash dividends on its Common Stock and does
not anticipate paying any cash dividends in the foreseeable future. The Company
currently intends to retain future earnings to fund the development and growth
of its business.