The Company operates in two primary business areas: products and services for the veterinary market and products and services for food and environmental markets.

           The Company provides a broad range of point-of-care diagnostic products for use by veterinarians in testing for a variety of companion animal diseases and health conditions. The Company markets a line of single-use, hand-held test kits that allow quick (in most cases, less than ten minutes), accurate and convenient testing without the need for laboratory equipment. These products enable veterinarians to provide improved service to animal owners by delivering test results almost immediately, allowing the veterinarians to initiate therapy during the office visit, if required.

           The Company's test kits incorporate immunoassay technology based on antibody-antigen reactions. Antibodies are proteins produced as a result of an immune response, a biological mechanism that enables certain animals to recognize and respond to substances foreign to the body, called antigens. Antibodies are produced by the immune system specifically to bind to these antigens and also signal other immune system cells to assist in eliminating the antigen. Antigens include viruses, bacteria, parasites and hormones. In immunoassay-based tests, a sample containing an unknown quantity of the analyte is mixed with one or more reagents. Certain of these reagents contain either antibodies or antigens that bind in a highly specific manner to the analyte. Certain reagents are labeled with an indicator chemical, which identifies the presence or absence of the analyte. In some cases results can be read visually; in others, instruments are used to determine the results.

           The Company's veterinary immunoassays use enzyme labels to indicate the presence or absence of a specific analyte. In these enzyme-linked immunosorbent assays ("ELISA"), the test results are measured through a color change, which varies in proportion to the amount of the analyte present in the sample.

           The Company offers SNAP immunoassays to detect feline leukemia virus ("FeLV") in cats and heartworm disease in dogs and cats. The Company also sells a feline combination test, the SNAP Combo FeLV/FIV, which enables veterinarians to test simultaneously for FeLV and feline immunodeficiency virus ("FIV") (similar to the human AIDS virus), and the SNAP 3Dx, which tests simultaneously for Lyme disease, Ehrlichia canis and heartworm. Sales of heartworm tests are significantly greater in the first half of the Company's fiscal year due to seasonality of the disease. Other small animal assays include tests for thyroid hormone levels in dogs and cats and parvovirus, which causes a gastrointestinal disease in dogs. The Company's SNAP Foal IgG equine product tests for immune status in newborn foals.

           The Company also markets a line of ELISA microwell-based test kits, under the PetChek name, for testing in larger clinics and independent laboratories serving the veterinary market. PetChek tests offer accuracy, ease of use and cost advantages to high-volume customers. The Company currently sells PetChek tests for feline leukemia virus, feline immunodeficiency virus and heartworm disease. The Company also markets a microwell-based test kit for feline coronavirus under the DiaSystems trade name.

           VetTest Analyzer. The VetTest blood chemistry analyzer is used to measure levels of certain enzymes and other substances in blood in order to assist the veterinarian in diagnosing physiologic conditions. Twenty-one separate blood chemistry tests can be performed on the VetTest analyzer. The system is capable of running up to 12 tests at a time on a single sample. The Company also offers prepackaged general health profiles that include 12 frequently used chemistries and pre-anesthetic panels for young animals consisting of six chemistries each. Commonly run tests include glucose, alkaline phosphatase, ALT (alanine aminotransferase), creatinine, BUN (blood urea nitrogen) and total protein. VetTest analyzers are manufactured for the Company by Tokyo Parts Industrial Co. under an agreement that renews annually unless either party notifies the other of its decision not to renew. The dry chemistry slides used in the VetTest analyzer ("VetTest Slides") are supplied by Ortho-Clinical Diagnostics, Inc. (formerly known as Johnson and Johnson Clinical Diagnostics, Inc.) ("Ortho") under Supply Agreements with Ortho (the "Ortho Agreements"). The Company is required to purchase all of its requirements for slides from Ortho to the extent available. In addition, the Company has committed to minimum annual purchase volumes of certain VetTest Slides during the term of the Ortho Agreements. The Ortho Agreements do not prohibit Ortho from selling dry chemistry slides or licensing its slide technology for use in veterinary applications, and Ortho currently sells dry chemistry slides for use in its own analyzer, which is primarily designed for human applications but is also used in the veterinary market. However, Ortho may not sell slides that are bar-coded for use in the VetTest analyzer to any party other than IDEXX. Although the Company does not believe sales by Ortho in the veterinary market currently have a material adverse effect on the business of the Company, there can be no assurance that such sales will not have such a material adverse effect in the future. The Ortho Agreements expire on December 31, 2010 and contain provisions for the negotiation of a renewal term of five years.

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           VetTest SNAP Reader. The VetTest SNAP Reader allows the veterinarian to obtain quantitative measurement of hormones including thyroxine and cortisol. These measurements assist in diagnosing and monitoring the treatment of certain endocrine diseases, such as hyper- and hypo-thyroidism, Cushing's syndrome and Addison's disease. In addition, the analyzer allows the veterinarian to monitor the effect of treatment on these diseases. The VetTest SNAP Reader is a module which can be integrated with the VetTest chemistry analyzer. Samples and reagents are introduced to the analyzer using the Company's SNAP device. The quantitative measurement is performed automatically with results available for interpretation in less than 15 minutes after sample introduction. The results are downloaded and displayed on the VetTest analyzer.

           VetLyte System. The VetLyte system measures three electrolytes -- sodium, potassium and chloride -- to aid in evaluating acid-base and electrolyte balances and assessing plasma hydration. Samples are introduced to the analyzer through a probe. The assay operation, including the addition of reagents from an enclosed solution pack, is performed automatically. Test results are available in less than one minute after sample introduction and are either displayed on the VetLyte analyzer or downloaded to the VetTest analyzer.

           Instruments Under Development. In 2001, the Company expects to introduce the Lasercyte system, a hematology system using laser flow cytometry technology. The Lasercyte system will provide a five-part white blood cell differential count and an absolute reticulocyte count, which cannot be obtained from existing in-clinic systems. These enhanced diagnostic capabilities will provide veterinarians with more information necessary to make important clinical decisions regarding an animal's health. The Company also expects to introduce in 2001, a computed radiography instrument designed specifically for the veterinary market. This instrument, which will be manufactured for the Company by Orex Computed Radiography Ltd., eliminates the need for conventional film and chemical-based darkroom processing of radiographs and allows veterinarians to store, enhance and transmit images digitally.

           The Company offers commercial veterinary laboratory and consulting services to approximately 6,000 veterinary clinics in the U.S. through facilities located in Arizona, California, Colorado, Illinois, Massachusetts, New Jersey, Oregon and Texas. Through subsidiaries located in the United Kingdom, Japan and Australia, the Company offers commercial veterinary laboratory services to approximately 4,000 veterinary clinics located in those countries. Veterinarians use the Company's services by submitting samples by courier or overnight delivery to the appropriate Company facility based on location, type of sample and workload at the facility. The commercial reference laboratories offer a large selection of tests and diagnostic panels to detect a number of disease states and other conditions in production and companion animals. Services include chemistry, hematology and pathology.

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           Additionally, the Company provides specialized veterinary consultation, telemedicine and advisory services, including cardiology, radiology, internal medicine, dermatology and ultrasound consulting. These services permit veterinarians to obtain readings and interpretations of test results transmitted by telephone and over the Internet from the veterinarians' offices. The services can be provided during the course of a visit, thereby giving veterinarians immediate access to specialists. The Company employs or retains as consultants approximately 33 board-certified specialists, who handle over 70,000 cases per year for over 9,000 veterinary clinics and hospitals in the U.S., Canada and approximately 12 other countries.

           Approximately 75%, 69% and 70% of the Company's total revenues were derived from sales of veterinary diagnostic products and services in 2000, 1999 and 1998, respectively.

           The Company's practice management software business was formed in 1997 with the acquisition of Advanced Veterinary Systems, located in Eau Claire, Wisconsin, and Professionals' Software, Inc., located in Effingham, Illinois. In 1998, most software operations were consolidated in Eau Claire, Wisconsin. In January 2000, the Company launched VetConnect.com, an Internet portal for the veterinary medical market. VetConnect is a comprehensive suite of information and business services designed to support veterinary medical practice and extend the value of the Company's in-clinic products, laboratory and consulting services and information offerings. The Company provides comprehensive veterinary practice information management solutions designed to assist veterinarians in delivering high quality medical care and increasing the profitability of their businesses. The Company believes that it is the leading provider of veterinary practice information management systems ("PIMS") in the U.S. with an installed based of more than 8,000 of the approximately 25,000 veterinary hospitals in North America. The Company's two principal software products are its Cornerstone and Better Choice systems. The Company provides software and hardware support for its PIMS and derives a significant proportion of its revenues from ongoing service contracts.

           In October 1998, the Company acquired Blue Ridge Pharmaceuticals, Inc. ("Blue Ridge"), a privately-held company engaged in the development of novel therapeutics for the veterinary market. Blue Ridge was formed in 1996 to develop products for therapeutic applications in companion animals and livestock that might not fit the strategic goals of larger pharmaceutical companies marketing both human and veterinary products. In December 2000, the Company introduced ACAREXX (.01% Ivermectin) otic suspension for the treatment of ear mites. Unlike competing ear mite treatments, ACAREXX is water-based, requires only a single treatment and is safe for kittens as young as four weeks. ACAREXX is the Company's first drug approved by the U.S. Food and Drug Administration ("FDA"). The Company currently has a number of other products in the registration process with the FDA. These products include a nitazoxanide-based product for treatment of equine protozoal myeloencephalitis, a neurological disease that is believed to affect approximately 200,000 horses in the U.S.; a topical non-steroidal anti-inflammatory for equine use; an insulin product for treatment of diabetic cats; and a long-acting, injectable antibiotic for cats. Through Blue Ridge, the Company also sells Facilitator, a liquid bandage for use on dogs, cats and horses.

           The Company sells products that detect microbial contaminants in water and antibiotic residues in milk, and a broad range of diagnostic products for disease surveillance and eradication and health management for production animals.

           Approximately 20%, 22% and 22% of the Company's revenues were derived from sales of food and environmental products and services in 2000, 1999 and 1998, respectively. Through a series of transactions completed late in 1999 and early 2000, IDEXX disposed of the food microbiology testing products and services business. Revenues from this business were approximately $1 million, $14 million and $13 million in 2000, 1999 and 1998, respectively.

           The Company's Colilert, Colilert-18 and Colisure tests, based on Defined Substrate Technology ("DST"), simultaneously detect total coliforms and E. coli in water. These organisms are broadly used as indicators of microbial contamination. The Company's DST products utilize indicator-nutrients which produce a change in color or fluorescence when metabolized by target microbes in the sample. Colilert, Colilert-18 and Colisure tests serve as a rapid method for determining the presence or absence of both total coliforms and E. coli, with results available in 24 hours, or 18 hours in the case of the Colilert-18 test. Colilert, Colilert-18 and Colisure tests are used by government laboratories, water utilities and private certified laboratories to test drinking water in compliance with U.S. Environmental Protection Agency ("EPA") standards. The tests also are used in evaluating water used in production processes (for example, in beverage and pharmaceutical applications) and in evaluating bottled water, recreational water, waste water and water from private wells.

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           The Company's Enterolert product is also based on DST and detects enterococci in recreational waters, with results available in 24 hours. The Quanti-Tray device, when used in conjunction with the Company's Colilert, Colilert-18, Colisure or Enterolert products, enables users to test for microbiological contamination, and to obtain quantitative results without the time-consuming steps associated with traditional methods. The Company's Colilert, Colilert-18, Colisure and Quanti-Tray products have been approved by the EPA. In addition, the Colilert test has also been approved in Japan, Brazil, Argentina, Colombia, Chile, New Zealand, Mexico, Taiwan and parts of Australia, and is under evaluation by regulatory agencies in certain countries in South America and Asia. Colilert-18 has received approval in the United Kingdom and Iceland, has been accepted for testing in Ireland, and is under evaluation by regulatory agencies in Europe.

           In August 2000, the Company acquired Genera Technologies Ltd., a U.K.-based company that develops and sells products for detection of cryptosporidia in water. Cryptosporidia are parasites which can cause potentially fatal gastrointestinal illness if ingested. Testing of water supplies for cryptosporidia is mandated in the United Kingdom.

           IDEXX is the worldwide leader in rapid testing of antibiotic residue in milk. The Company offers tests on its SNAP platform, and in 2001 received FDA approval for its Parallux instrument, which the Company believes is the most automated and complete antibiotic residue testing system in the world.

           Dairy farmers and producers use these tests for incoming quality assurance of raw milk, and government and food quality managers use them for ongoing surveillance. IDEXX dairy quality tests are designed for convenience in field and laboratory testing applications and are calibrated to detect analytes at levels specified by regulation.

           The Company's HerdChek product line consists of immunoassay kits and related instruments which detect diseases in swine and cattle, including an often fatal, highly contagious disease in swine caused by pseudorabies virus and a disease in cattle caused by infectious bovine rhinotracheitis. The product line also includes a test for porcine reproductive respiratory syndrome, a swine disease that has been shown to have a severe health impact on infected herds, and for a cattle disease known as mycobacterium paratuberculosis ("Johne's disease"), which can cause significant economic loss for cattle producers.

           The Company has three test kits based on DNA probe technology, marketed under the name IDEXX DNA Probe, for the diagnosis of Johne's disease in cattle, and Mycoplasma gallisepticum ("MG") and Mycoplasma synoviae ("MS") infections in poultry. Respiratory infections caused by MG or MS cause significant economic loss for poultry breeders. DNA probes offer a direct means of detecting the presence of certain organisms through the recognition of specific DNA sequences.

           The Company's FlockChek product line comprises a range of enzyme immunoassay test kits and related instrumentation and software used in poultry health management programs. Kits in the FlockChek product line are used to test for immunity to leading avian pathogens, including Newcastle disease virus, infectious bursal disease virus, infectious bronchitis virus, reovirus, mycoplasma and Salmonella enteriditis.

           IDEXX markets, sells and services its products in more than 50 countries through its marketing, sales and technical service groups as well as through independent distributors and other resellers. The Company maintains sales offices outside the U.S. in Australia, France, Germany, Italy, Japan, Mexico, New Zealand, The Netherlands, Spain, Taiwan and the United Kingdom.

           The Company selects the appropriate distribution channel for its products based on the type of product, technical service requirements, number and concentration of customers, regulatory requirements and other factors. The Company markets its veterinary diagnostic products to veterinarians both directly and through independent veterinary distributors in the U.S., with most instruments sold directly by IDEXX sales personnel, and test kits and consumables supplied both via the distribution channel and directly. Outside the U.S., IDEXX sells its veterinary diagnostic products through independent distributors and other resellers and, in certain countries, through its direct sales force. The Company markets its software products and veterinary laboratory services through its direct sales force. The Company markets its water, dairy, livestock and poultry products primarily through its direct sales force in the U.S. and Canada. Outside the U.S. and Canada, IDEXX markets these products through selected independent distributors and, in certain countries, through its direct sales force.

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           In 2000, 1999 and 1998, 27%, 27% and 28%, respectively, of the Company's revenue was attributable to sales of products and services to customers outside the U.S. Risks associated with foreign operations include the need for additional regulatory approvals, possible disruptions in transportation of the Company's products, the differing product needs of foreign customers, difficulties in building and managing foreign operations, fluctuations in the value of foreign currencies, import/export duties and quotas, and unexpected regulatory, economic or political changes in foreign markets. The Company engages in limited hedging activities to reduce the effect of foreign currency fluctuations on its earnings.

           The Company's research and development activities are focused on the enhancement of its existing detection systems; the development of new test kits for additional diagnostic applications; the development of new detection systems incorporating advances in immunology, cell and molecular biology, microbiology, DNA probes and other technologies; the development and delivery of new information solutions for its customers in veterinary, food and environmental markets; and the development of novel veterinary therapeutics. The Company's research and development expenses were approximately $28.3, $27.3 and $22.7 million in 2000, 1999 and 1998, respectively.

           The Company holds 35 U.S. patents and has filed U.S. patent applications for 35 other processes or products. The Company also holds foreign patents and has filed foreign patent applications that generally correspond to its U.S. patents and patent applications.

           The Company also has pursued a strategy of licensing patents and technologies from third parties to provide it with competitive advantages in selected markets and to accelerate new product introductions. These licenses include an exclusive royalty-bearing license of certain patents relating to diagnostic products for the feline immunodeficiency virus ("FIV") from The Regents of the University of California, and an exclusive royalty-bearing license of certain patents relating to the Defined Substrate Technology ("DST") utilized in the Colilert, Colisure and Enterolert water testing products. Licensed U.S. patents related to FIV diagnostics expire in 2008 and 2009. Licensed U.S. patents relating to DST expire in 2007. In addition, the Company holds a royalty-bearing patent license relating to canine heartworm tests from Barnes-Jewish Hospital. The U.S. patent rights licensed from Barnes-Jewish Hospital expire in 2006.

           The Company currently licenses certain technologies used in its products from third parties, and expects to continue to do so in the future. Moreover, to the extent the Company's products embody technologies protected by patents, copyrights or trade secrets of others, the Company may be required to obtain licenses to such technologies in order to continue to sell such 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. The failure to obtain any such licenses may delay or prevent the sale by the Company of certain new or existing products. See "Management's Discussion and Analysis of Financial Condition and Results of Operations."

           Certain components of the Company's products are available from only one source. The Company purchases all of its VetTest analyzers from Tokyo Parts Industrial Co., all of its VetTest slides from Ortho and all of its hematology components from Becton. Certain key components of the Colilert product are available only from a single source. While the Company does not anticipate difficulties in obtaining the components used in its products, the loss of any of these sources of supply would have a material adverse effect on the Company. The Company has contractual commitments or outstanding purchase orders with Ortho, Tokyo Parts Industrial Co. and Becton covering its anticipated 2001 requirements for VetTest slides and analyzers, and hematology reagents and instruments.

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           Substantially all of the Company's revenue in each quarter results from orders booked in that quarter. Accordingly, the Company maintains no significant backlog and believes that its backlog at any particular date is not indicative of future sales.

           Competition in the Company's markets is intense. IDEXX competes with a large number of companies ranging from very small businesses focused on animal health to large pharmaceutical and other companies, many of which have substantially greater financial, manufacturing, marketing, and product and service research resources than the Company. In general, the particular companies with which IDEXX competes vary with the Company's different markets. In most of its markets, the Company competes with a number of companies. However, in the U.S. market for veterinary laboratory services the Company competes primarily with Antech Diagnostics, a unit of Veterinary Centers of America, Inc. In the markets for veterinary and food and environmental test products, the Company competes primarily on the basis of the ease of use, speed, accuracy and other performance characteristics of its products and services, the breadth of its product line and services, the effectiveness of its sales and distribution channels, customer service and pricing. In the market for veterinary practice information management software systems, the Company competes primarily on the basis of ease of use, speed and other performance characteristics, the effectiveness of its customer service, advances in technologies and pricing. In the market for animal health information on the Internet, the Company competes primarily with start-up Internet companies. The Company competes in this market primarily on quality of content, ease of use and integration with existing practice management systems. In the market for veterinary laboratory services, the Company competes on the basis of service, price and quality.

           Academic institutions, governmental agencies and other public and private research organizations also are conducting research activities and may commercialize products on their own or through joint ventures. The existence of competing products, services or procedures that may be developed in the future may adversely affect the marketability of products and services developed by the Company. The Company's competitive position will also depend on its ability to attract and retain qualified scientific and other personnel, develop effective proprietary products, implement production and marketing plans, obtain patent protection and obtain adequate capital resources.

           Most diagnostic tests for animal health applications are veterinary biological products that are regulated in the U.S. by the Center for Veterinary Biologics within the U.S. Department of Agriculture's ("USDA") Animal and Plant Health Inspection Service ("APHIS"). The APHIS regulatory process involves the submission of product performance data and manufacturing documentation. Subsequent to regulatory approval to market a product, APHIS requires that each lot of product be submitted for review before release to customers. In addition, APHIS requires special approval for marketing products where test results are used in part for government-mandated disease management programs. A number of foreign governments accept APHIS approval as part of their separate regulatory approvals. However, compliance with an extensive regulatory process is required in connection with marketing diagnostic products in Japan, Germany, The Netherlands and many other countries. The Company also is required to have a facility license from APHIS to manufacture USDA-licensed products at its facility. The Company has obtained such a license for its current manufacturing facility. The Company's instrument systems are medical devices regulated by the FDA under the Food, Drug and Cosmetics Act (the "FDC Act"). While the sale of these products does not require premarket approval by FDA and does not subject the Company to the FDA's Good Manufacturing Practices regulations ("GMPs"), these products must not be adulterated or misbranded under the FDC Act.

           The manufacture and sale of veterinary drugs are regulated by the Center for Veterinarian Medicine ("CVM") of the FDA. A new animal drug may not be commercially marketed in the United States unless it has been approved as safe and effective by CVM. Approval may be requested by filing a New Animal Drug Application ("NADA") with CVM containing substantial evidence as to the safety and effectiveness of the drug. For food animals, the data must also include extensive data to support a withdrawal period or other use restriction to ensure that the proposed drug use will produce animals and animal products that are safe for human consumption. Data regarding manufacturing methods and controls is also required to be submitted with the NADA. Manufacturers of animal drugs must also comply with GMPs. Sale of animal drugs in countries outside the United States requires compliance with the laws of those countries, which may be extensive.

           The Company's water tests are not subject to formal premarket regulatory approval. However, before a test may be used as part of a water quality monitoring program required by the U.S. Environmental Protection Agency ("EPA"), the test must first be approved by the EPA. The EPA approval process involves submission of extensive product performance data in accordance with an EPA approved protocol, evaluation of the data by the EPA and publication for public comment of any proposed approval in the Federal Register prior to final approval. The sale of water testing products also is subject to extensive and lengthy regulatory processes in many other countries around the world.

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           The sale of dairy testing products in the U.S. is regulated by the FDA in conjunction with the Association of Official Analytical Chemists - Research Institute ("AOAC-RI"). Before a product may be sold, extensive product performance data must be submitted in accordance with a protocol that is approved by the FDA and the AOAC-RI. Following approval of a product by FDA, the product must also be approved by the National Conference on Interstate Milk Shipments ("NCIMS"), an oversight body that includes state, federal and industry representatives. While some foreign countries accept AOAC-RI approval as part of their regulatory approval process, many countries have separate regulatory processes.

           Any acquisitions of new products and technologies may subject the Company to additional areas of government regulation. These may involve food, drug and water quality regulations of the FDA, the EPA and the USDA, as well as state, local and foreign governments. See "Management's Discussion and Analysis of Financial Condition and Results of Operations."

           As of December 31, 2000, IDEXX had approximately 2,250 full-time and part-time employees. The Company is not a party to any collective bargaining agreement and believes that relations with its employees are good.

           IDEXX owns approximately 12 acres of land in Westbrook, Maine. IDEXX leases approximately 290,000 square feet of industrial space in Westbrook, under a lease expiring in 2008, approximately 75,000 square feet of industrial space in Memphis, Tennessee for use as a distribution facility, under a lease expiring in 2007, and approximately 60,000 square feet of office and manufacturing space in Illinois and Wisconsin for its veterinary practice management software business.

           IDEXX also leases a total of approximately 100,000 square feet of smaller office, manufacturing and warehouse space in the U.S. and elsewhere in the world. In addition, the Company owns or leases approximately 114,000 square feet of space in the U.S., Australia and the United Kingdom for use as veterinary reference laboratories and office space for its veterinary consulting services. Of this space, 46,000 square feet is owned by the Company and the remaining amount is leased, under leases having expiration dates up to the year 2002.

           Not applicable.

           No matters were submitted to a vote of security holders during the fourth quarter of the fiscal year covered by this report.

           The executive officers of the Company are as follows:

           Mr. Shaw has been President and Chief Executive Officer of the Company since July 1999. Mr. Shaw served as Chairman of the Board of Directors and Chief Executive Officer of the Company from its founding in 1983 until February 1999, and as President from 1983 until October 1993. He was Executive Chairman from February 1999 to July 1999. Before founding the Company, he was a Vice President of Agribusiness Associates, Inc., an international management consulting firm.

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           Dr. Workman joined the Company in July 1984, and he has served as Chief Scientific Officer and Executive Vice President since November 1997 and as a Director since 1993. He also served as President and Chief Operating Officer from 1993 to November 1997. Before joining the Company, he was Manager of Research and Development for the Hepatitis and AIDS Business Unit within the diagnostic division of Abbott Laboratories, Inc.

           Mr. Pollock became Senior Vice President of the Company in July 2000 and was a Vice President from December 1994. He has been President of the Company's Professional Office Diagnostics Division since July 1999. Mr. Pollock joined the Company in 1986 and served in positions of increasing responsibility in veterinary products sales management prior to serving as President of the Company's International Division from December 1994 to March 1996 and as President of the Company's Food and Environmental Division from March 1996 until July 1999. Before joining the Company, Mr. Pollock was employed in various sales and marketing positions with Abbott Laboratories, Inc.

           Mr. Deady has been Vice President and General Counsel of the Company since August 1999 and was Deputy General Counsel of the Company from June 1997. Before joining the Company in June 1997, Mr. Deady was Deputy General Counsel of Thermo Electron Corporation. Mr. Deady was previously affiliated with Hale and Dorr, a Boston law firm.

           Dr. Fratoni has been Vice President of the Company since May 1997 and Chief Information Officer since November 2000. He was President of the Company's Food and Environmental Division from July 1999 to December 2000. From May 1997 to July 1999, Dr. Fratoni was Vice President of Human Resources of the Company and from October 1996 to May 1997, he was Director of Business Development for the Food and Environmental Division. Before joining the Company in October 1996, Dr. Fratoni held various positions with Hewlett Packard Company.

           Mr. Hulsy has been Vice President of the Company since February 1999 and President of the Company's IDEXX Veterinary Services subsidiary since August 1998. Before joining the Company in August 1998, Mr. Hulsy was President of American Environmental Network, Inc. from 1992 to 1998.

           Mr. Johnson became a Vice President of the Company in October 1998. He has been President and Chief Executive Officer of Blue Ridge since August 1996. For 15 years prior to forming Blue Ridge, Mr. Johnson was employed by Ciba Animal Health, most recently as Vice President Sales and Service.

           Ms. Raines has been Vice President, Finance of the Company since May 1995. She served as Division Vice President, Finance from March 1995 to May 1995, Director of Finance from 1988 to March 1995 and Controller from 1985 to 1988.

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PART II.

           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.

           As of December 31, 2000, there were 1,513 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.

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ITEM 6.    SELECTED FINANCIAL DATA

           The following table sets forth selected consolidated financial data of the Company for each of the five years ended December 31, 2000. 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.

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           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.

           Revenue for CAG increased $16.3 million, or 6% to $295.7 million from $279.4 million in 1999. The increase was primarily attributable to an increase in sales of veterinary reference laboratory services, veterinary consumables and feline and canine test kits. The increase in veterinary reference laboratory services was partially attributable to incremental revenues from laboratories acquired in 1999 and 2000, including the laboratory businesses of Tufts University School of Veterinary Medicine acquired on December 1, 1999 and Veterinary Pathology Services Pty. Ltd. ("VPS") acquired on July 1, 2000. The increase in consumables was attributable to an increase in instrument placements, including through the Company's rental program, and in customer utilization per instrument. These increases were partially offset by a decrease in sales of veterinary practice information management systems.

           CAG's gross margin was 46% in 2000 compared to 47% in 1999. The reduction in the gross margin percentage was due primarily to increased sales of lower gross margin veterinary reference laboratory services, higher cost of veterinary instrument service and unabsorbed fixed costs associated with decreased sales of veterinary practice information management systems, partially offset by increased sales of higher margin veterinary consumables.

           Operating expenses were 34% of revenue for 2000 and 1999. The $5.7 million increase was primarily attributable to an increase in sales and marketing expenses associated with the pharmaceutical product line, research and development expenses related to the Company's Internet site for animal health professionals and enhancement of existing diagnostic platforms. Additionally, the Company incurred non-recurring severance and facilities expenses associated with consolidation of the Internet business and the veterinary practice information management systems business. The Company anticipates it will incur additional costs in 2001 related to this consolidation.

           Revenue for FED decreased $7.2 million, or 9% to $71.7 million from $78.9 million in 1999. The decrease was primarily attributable to the divestiture of the food microbiology testing business, and to a lesser extent, decreased sales of dairy test products. These decreases were partially offset by an increase in sales of water testing products, including incremental sales resulting from the acquisition of Genera Technologies Limited ("Genera") in August 2000, and increased sales of livestock test kits.

           FED's gross margin increased to 57% in 2000 from 51% in 1999. The increase was primarily due to the divestiture of the lower gross margin food microbiology testing business and increased sales of higher gross margin water testing products.

           Operating expenses were 30% and 37% of revenue for 2000 and 1999, respectively. The decrease as a percent of revenue and the dollar decrease of $7.6 million were due primarily to the elimination of operating expenses associated with the food microbiology testing products business and to a $1.5 million gain on the sale of such business which was recorded as a decrease of expenses.

           Revenue for CAG increased 12% to $279.4 million from $249.4 million in 1998. The increase was 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. Sales of practice information management products and services were unusually strong in 1999 due to customer purchases that were made in anticipation of the year 2000. These increases were partially offset by decreased sales of canine test kits and sales of veterinary instruments.

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           Gross profit as a percentage of CAG revenue was 47% for 1999 compared to 48% for 1998. Higher sales of lower margin veterinary reference laboratory services and practice information management software products and services were partially offset by increased sales of higher margin veterinary consumables.

           Operating expenses were 34% and 38% of revenue for 1999 and 1998, respectively, excluding the write-off of in-process research and development associated with the acquisition of Blue Ridge Pharmaceuticals, Inc. ("Blue Ridge"). See Note 6. The dollar increase of $0.4 million was attributable primarily to an increase in research and development expenses and sales and marketing expenses attributable to a full year of expense for Blue Ridge and to development of the Internet site for animal health professionals. The increase was partially offset by decreased salary and related expenses from sales and marketing workforce reductions, decreases in management bonus expense, provision for bad debts and currency losses.

           Revenue for FED for 1999 increased 9% to $78.9 million from $72.4 million in 1998. The increase in revenue was 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.

           Gross profit as a percentage of FED revenue was unchanged at 51% for 1999 and 1998. Increased sales of higher margin water, dairy residue and livestock test kits were offset by a decline in the average unit prices of poultry kits, which was in response to increased competition.

           Operating expenses were 37% and 43% of revenue for 1999 and 1998, respectively. The decrease as a percentage of revenue and the dollar decrease of $1.7 million were primarily attributable to lower salary and related expenses resulting from sales and marketing workforce reductions, partially offset by increased general and administrative costs associated with the divestiture of the food laboratory business and to officer severance expenses.

           Net interest income was $5.0 million for 2000 compared with $5.7 million for the prior year. The decrease in interest income was principally the result of lower invested cash balances due to the use of cash for the Company's share repurchase program and the purchase of VPS and Genera, partially offset by higher effective interest rates.

           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 was 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, 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 37% for 2000 compared with 38% for 1999. The reduction in the effective tax rate is the result of continued realization of tax benefit resulting from business operations in jurisdictions with lower effective income tax rates.

           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.

           At December 31, 2000, the Company had $75.2 million of cash, cash equivalents and short-term investments and working capital of $141.8 million. As of December 31, 2000, the Company had no long-term investments.

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           The Company's total capital budget for 2001 is approximately $30.1 million. Under the terms of certain supply agreements with suppliers of veterinary instruments, slides for its VetTest instruments and certain raw materials, the Company has aggregate commitments to purchase approximately $53.7 million of products in 2001.

           Cash provided by operating activities was $28.2 million during 2000. Cash of $28.5 million was used to fund an increase in inventories, principally attributable to the CAG segment. These purchases relate primarily to development of certain pharmaceutical products nearing FDA registration and to contractual supply agreements relating to instrument consumables.

           During 1999 and 2000, the Board of Directors authorized the purchase of up to ten million shares of the Company's Common Stock in the open market or in negotiated transactions. During 2000, the Company repurchased 3.1 million shares of the Company's Common Stock for $70.3 million. As of December 31, 1999 and 2000, approximately 3.9 million and 7.0 million cumulative shares, respectively, had been repurchased under this program. See Note 17.

           The Company believes that current cash and short-term investments and funds generated from operations will be sufficient to fund the Company's operations for the foreseeable future.

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

           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. 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 be successful in the market.

           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 and veterinary instruments. Certain 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 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, 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. The FDA also regulates all aspects of the testing, manufacture, safety, labeling, storage, record keeping, advertising and promotion of animal drugs, including the monitoring of compliance with good manufacturing practice regulations. Non-compliance with applicable requirements can result in fines and other sanctions, including the initiation of product seizures, injunction actions, criminal prosecutions, product recalls and withdrawals of approvals of products. Delays in obtaining, or the failure to obtain, any necessary regulatory approvals, or non-compliance with regulatory requirements could have a material adverse effect on the Company's results of operations.

           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. In addition, because many of the Company's products are sold through distributors, fluctuations may occur due to distributor purchasing patterns and distributor inventory management, which may be beyond the Company's control. The Company operates with relatively little backlog, 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. As a result, the Company's financial performance is susceptible to an unexpected downturn in product demand and may be 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.

Page 15

           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.

           The Company's business historically has grown as a result of both internal growth and acquisitions of products and businesses. 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.

           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.

           Certain of the Company's products, and materials and components used in products, are currently available from only one source and others are available from only a limited number of sources. 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, active ingredients for pharmaceutical products and finished pharmaceutical products, from single sources. The Company's inability to develop alternative sources if and as required in the future, or to obtain sufficient sole or limited source products, materials or components, could result in cost increases or reductions or delays in product shipments, which could have a material adverse effect on the Company's business. Certain technologies licensed by the Company and incorporated into its products also are 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 2000, international revenue was $97.7 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.

           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.

           The Company's financial 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 attempts to hedge its cash flow 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.

Page 16

           Based on the Company's overall currency rate exposure at December 31, 2000, including derivative and other foreign currency sensitive instruments, a 5% change in exchange 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.

           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.

           The response to this item is submitted as a separate section of this report commencing on Page F-1.

           None.

           Except as indicated below, the information required by Item 10 - Directors and Executive Officers of the Registrant; Item 11 - Executive Compensation; Item 12 - Security Ownership of Certain Beneficial Owners and Management; and Item 13 - Certain Relationships and Related Transactions, is omitted from this Annual Report on Form 10-K and, pursuant to Regulation 14A of the Securities Exchange Act of 1934, as amended, is incorporated herein by reference to the definitive proxy statement with respect to the Company's 2001 Annual Meeting of Stockholders to be filed by the Company with the Securities and Exchange Commission not later than 120 days after the end of the fiscal year covered by this report.

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PART IV.

Page 18

__________

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SIGNATURES

           Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized:

          Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated:

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Page F-1

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

           We have audited the accompanying consolidated balance sheets of IDEXX Laboratories, Inc. (a Delaware corporation) and subsidiaries as of December 31, 1999 and 2000, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the three years in the period ended December 31, 2000. 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 in the United States. 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, 1999 and 2000, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2000, in conformity with generally accepted accounting principles in the United States.

           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

Page F-2

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

Page F-3

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

Page F-4

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

Page F-5

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

Page F-6

IDEXX LABORATORIES, INC. AND SUBSIDIARIES

           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. 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.

           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.

           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):

           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:

Page F-7

           Other assets are as follows (in thousands):

           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 license fees. 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 $6.0 million, $7.5 million and $7.9 million for the years ended December 31, 1998, 1999 and 2000, 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.

           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 8).

           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).

           The Company recognizes product revenue at the time of shipment for substantially all products. The Company recognizes revenue from non-cancelable software licenses upon installation and customer acceptance as collection is probable and no significant vendor obligations remain after installation. 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.

           In December 1999, the U. S. Securities and Exchange Commission issued Staff Accounting Bulletin No. 101 ("SAB No. 101"). SAB No. 101 provides guidance on selected revenue recognition issues. The Company adopted the provisions of SAB No. 101 during 2000. The adoption of SAB No. 101 did not have a material impact on the financial statements of the Company.

           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.

Page F-8

(i)      Foreign Currency Translation

           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 translation losses of $528,000, $317,000 and $633,000 for the years ended December 31, 1998, 1999 and 2000, respectively. Gains and losses on foreign exchange contracts intended as hedges for intercompany sales of goods are recorded in cost of sales. Included in cost of goods sold are foreign exchange gains of $401,000, $915,000, $2,653,000 for the years ended December 31, 1998, 1999 and 2000, 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, 1999 and 2000, there were no material unrecorded gains or losses. The foreign currency contracts, which extend through December 31, 2000 and 2001, respectively, consisted of the following (in thousands):

           Financial instruments consist mainly of cash and cash equivalents, accounts receivable, accounts payable and notes payable. Financial instruments that potentially subject the Company to concentrations of credit risk are principally cash, cash equivalents, short-term investments and accounts receivable. The Company places its investments in highly rated financial institutions. Concentration of credit risk with respect to accounts receivable is limited to certain customers to whom the Company makes substantial sales. To reduce risk, the Company routinely assesses the financial strength of its customers and, as a consequence, believes that its accounts receivable credit risk exposure is limited. The Company maintains an allowance for potential credit losses but historically has not experienced any significant credit losses related to an individual customer or groups of customers in any particular industry or geographic area. The carrying amounts of the Company's financial instruments approximate fair market value.

           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 and other potentially dilutive securities 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):

           The Company incurred a loss for the year ending December 31, 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 1,720,000 shares. Options to purchase 313,000, 1,294,000 and 934,000 shares for 1998, 1999 and 2000, respectively, have been excluded from the calculation of shares outstanding for diluted earnings (loss) per share because they were antidilutive.

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

           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, resulting from net income and transactions or other events and circumstances from non-owner sources, 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.

           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.

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

Page F-10

           The provisions for (benefit of) income taxes for the years ended December 31, 1998, 1999 and 2000 are comprised of the following (in thousands):

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

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