Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]

           Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

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

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

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

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          The accompanying unaudited, consolidated financial statements of IDEXX have been prepared in accordance with generally accepted accounting principles for interim financial information and with the requirements of Form 10-Q.

          The accompanying interim consolidated financial statements reflect, in the opinion of the Company's management, all adjustments necessary for a fair presentation of the financial position and results of operations. The results of operations for the three and nine month periods ended September 30, 2002 are not necessarily indicative of the results to be expected for the full year. These financial statements should be read in conjunction with the Company's 2001 Annual Report on Form 10-K filed with the Securities and Exchange Commission.

           The Company has reclassified certain prior year amounts to conform to current year presentation.

           In July 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No. 141, "Business Combinations" ("SFAS No. 141"), and SFAS No. 142, "Goodwill and Other Intangible Assets" ("SFAS No. 142"). SFAS No. 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001. SFAS No. 142 changes the accounting for purchased goodwill from an amortization method to an impairment-only approach. Therefore amortization of all purchased goodwill, including amortization of goodwill recorded in past business combinations ceased upon adoption of SFAS No. 142. SFAS No. 142 is effective for fiscal years beginning after December 15, 2001. Early adoption of the SFAS No. 142 was not permitted nor was retroactive application to prior period (interim or annual) financial statements. The Company has assessed the provisions of SFAS No. 142 effective January 1, 2002 and ceased amortizing goodwill. Th e Company completed its transition test of goodwill for impairment on adoption and determined that no impairment occurred upon initial adoption of SFAS No. 142.

           The Company tested for impairment by comparing the carrying value of its net assets by reporting unit including goodwill to the estimated fair value of the related reporting unit. The Company estimated the fair value of its reporting units with goodwill using discounted cash flow analysis.

           Net intangible assets and goodwill amounted to $55.6 million as of September 30, 2002, consisting of $23.6 million related to veterinary laboratories (of which $23.2 million represents goodwill), $15.4 million related to water test products (of which $13.1 million represents goodwill), $14.6 million related to veterinary pharmaceutical products (of which $13.7 million represents goodwill) and $2.0 million of other (of which $1.7 million represents goodwill).Veterinary laboratories and pharmaceutical products are in the Companion Animal Group segment and water test products are in the Food and Environmental Group segment. The Company recorded approximately $3.8 million of goodwill amortization on these amounts during the nine months ended September 30, 2001 and would have recorded approximately $3.4 million of goodwill amortization during the same period in 2002, if the existing standards had been continued. The Company recorded $1.0 mil lion and $0.9 million of other intangible amortization during the nine months ended September 30, 2001 and September 30, 2002, respectively. The Company recorded $0.2 million and $0.6 million of other intangible amortization during the three months ended September 30, 2001 and September 30, 2002, respectively.

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           Net income and earnings per share for the three months and nine months ended September 30, 2001 adjusted to exclude amortization expense of goodwill (net of taxes) is as follows:

     Intangible assets, classified in other assets, consist of the following (in thousands):

          Amortization expense of intangible assets is expected to be as follows (in thousands):

          In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-lived Assets" ("SFAS No. 144"). Adoption of SFAS No. 144 is required for fiscal years beginning after December 15, 2001. The Company adopted the provisions of SFAS No. 144, effective January 2002. The adoption of SFAS No. 144 had no material impact on the consolidated financial statements.

          In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Nos. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections" ("SFAS No. 145"). SFAS No. 145 rescinds FASB SFAS No. 4, "Reporting Gains and Losses from Extinguishment of Debt," and an amendment of SFAS No. 64, "Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements." SFAS No. 145 also rescinds SFAS No. 44, "Accounting for Intangible Assets of Motor Carriers." SFAS No. 145 amends SFAS No. 13, "Accounting for Leases," to eliminate an inconsistency between the required accounting for sale-leaseback transactions and the required accounting for certain lease modifications that have economic effects that are similar to sale-leaseback transactions. SFAS No. 145 also amends other existing authoritative pronouncements to make various technical corrections, clarify meanings, or describe their applicability under changed conditions. Adoption of certain provisions of SFAS No. 145 was required after May 15, 2002, while other provisions must be adopted with financial statements issued after May 15, 2002 or the year beginning after May 15, 2002. The Company does not expect adoption of SFAS No. 145 to have a material impact on its operations.

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          In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities" ("SFAS No. 146"). This Statement addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force ("EITF") Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)." Adoption of SFAS No. 146 is required for exit or disposal activities initiated after December 31, 2002. The Company does not expect adoption of SFAS No. 146 to have material impact on its operations.

          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):

4.       Comprehensive Income (in thousands):

          The following is a reconciliation of shares outstanding for basic and diluted earnings per share (in thousands):

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          Options to purchase 870,000 shares for the three months ended September 30, 2001, 349,000 shares for the nine months ended September 30, 2001, 252,000 shares for the three months ended September 30, 2002 and 228,000 shares for the nine months ended September 30, 2002, and warrants to purchase 806,000 shares (at $31.59 per share) have been excluded from the calculation of shares outstanding for diluted earnings per share because they were anti-dilutive. Anti-dilutive options at September 30, 2002 have a weighted average exercise price of $29.64. The average prices used to calculate the dilutive effect of options issued to employees were $28.84 and $28.00, respectively, for the three and nine months ended September 30, 2002. An increase in price of the Company's Common Stock above the prices used in these calculations will increase the dilutive effect of options. During the nine months ended September 30, 2002, the Company issued options to acquire 1.3 million shares with a weighted average exercise price of $26.28 and cancelled options to acquire 0.2 million shares with a weighted average exercise price of $24.33.

          From time to time, the Company has received notices alleging that the Company's products infringe third-party proprietary rights. In particular, the Company has received notices claiming that certain of the Company's immunoassay products infringe third-party patents, although the Company is not aware of any pending litigation with respect to such claims. Patent litigation frequently is complex and expensive, and the outcome of patent litigation can be difficult to predict. There can be no assurance that the Company will prevail in any infringement proceedings that may be commenced against the Company. If the Company loses any such litigation, it may be stopped from selling certain products and/or it may be required to pay damages as a result of the litigation.

          The Company has a long-term supply agreement with Ortho-Clinical Diagnostics, Inc. ("OCD") under which OCD supplies the slides used in the Company's VetTest® chemistry analyzers. Under this agreement, the Company is obligated to purchase certain minimum quantities of slides over the life of the contract, which expires in 2010 but may be extended for one year by the Company under certain circumstances. As of September 30, 2002 the Company had negotiated an amendment to this agreement that reduced the Company's minimum purchase commitment for both 2002 and the life of the contract by 30 million slides, or approximately $17.7 million. See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies."

          The Company conducts business principally in two major operating segments, the Companion Animal Group ("CAG") and the Food and Environmental Group ("FEG"). The separate financial information of each segment is presented consistent with the way results are regularly evaluated by the chief operating decision maker in deciding how to allocate resources and in assessing performance.

          CAG develops, designs, manufactures and distributes products and performs services for veterinarians. FEG develops, designs, manufactures and distributes products to detect disease in poultry and livestock, and to detect contaminants in milk and water. Both CAG and FEG distribute products and services worldwide. Other is primarily comprised of corporate research and development, CEO succession charge (See Note 9), and interest income.

          The accounting policies of the operating segments are the same as those described in the summary of significant accounting policies in the Company's Annual Report on Form 10-K except that interest income and expense are not allocated to individual operating segments, settlement of foreign currency hedge contracts are included in the CAG segment, and income taxes are provided on each segment using the overall effective tax rate.

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          The following is the segment information (in thousands):

           Assets by segment as of September 30, 2002 are not disclosed as they are consistent with assets by segment as of December 31, 2001.

           The Company's Board of Directors has approved the repurchase of up to ten million shares of the Company's Common Stock. The Company may make such purchases in the open market or in negotiated transactions. During the nine months ended September 30, 2002, the Company repurchased approximately 1.0 million shares for $29.8 million. From the inception of the program to September 30, 2002, the Company had purchased 8.6 million shares for $177.3 million. In addition, during the nine months ended September 30, 2002, the Company received 36,054 shares of stock with a face market value of $1.1 million in payment of the exercise price of outstanding stock options.

           In January 2002, the Company's Founder, Chairman and Chief Executive Officer was succeeded by its current Chairman and Chief Executive Officer. Under an employment agreement, the Company is required to make certain payments to its former Chief Executive Officer and provide certain benefits to him following this succession. During the three-month periods ending March 31, 2002 and June 30, 2002, the Company incurred pre-tax charges related to this agreement of $2.9 million and $0.5 million, respectively, of which $1.8 million was non-cash.

           During the quarter ended September 30, 2002, the Company discontinued use of certain technology acquired as part of the Genera Technologies Ltd. acquisition. As a result, the Company recorded a charge of $0.5 million in general and administrative expense to reflect the impairment of intangible asset.

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           This quarterly report on Form 10-Q includes or incorporates forward-looking statements about our business and expectations within the meaning of the Private Securities Litigation Reform Act of 1995, including statements relating to future earnings, growth rates and expenses. You can generally identify forward-looking statements by the fact that they do not relate strictly to historical or current facts. Words such as "expects," "may," "anticipates," "intends," "would," "will," "plans," "believes," "estimates," "should," and similar words and expressions are intended to help you identify forward-looking statements. These statements give our current expectations or forecasts of future events, are based on current estimates, projections, beliefs, and assumptions of IDEXX and its management, and are not guarantees of future performance. Actual results may differ materially from those described in the forward-looking statements. These forwar d-looking statements involve a number of risks and uncertainties as more fully described under the heading "Future Operating Results" in this Form 10-Q and in our Annual Report on Form 10-K for the year ended December 31, 2001.

           We operate primarily through two business segments: the Companion Animal Group ("CAG") and the Food and Environmental Group ("FEG"). CAG comprises our veterinary diagnostic products and services (rapid assays, instruments, instrument consumables and laboratory and consulting services), veterinary pharmaceuticals, and veterinary information products and services. FEG comprises our services and products for water and dairy testing and our production animal services business (poultry and livestock diagnostics). Other is comprised primarily of corporate research and development, a CEO succession charge and interest income.

           The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the U.S. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to customer programs and incentives, product returns, bad debts, inventories, investments, intangible assets, income taxes, warranty obligations, restructuring and contingencies and litigation. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying valu es of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

           We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements.

           Our inventories include material, labor and overhead, and are stated at the lower of cost (first-in, first-out) or market. We write down inventory for estimated obsolescence when warranted by our estimates of future demand and market conditions. If actual market conditions are less favorable than those estimated by management, additional inventory write-downs may be required, which would have a negative effect on our results of operations. Certain major components of our inventory are discussed in more detail below.

           Nitazoxanide. Our nitazoxanide product for the treatment of equine protozoal myeloencephalitis ("EPM") is in registration with the U.S. Food and Drug Administration ("FDA"). We have completed the manufacturing and efficacy components of our submission, and in April 2002 we submitted the results of additional safety studies requested by the FDA. Our inventories as of September 30, 2002 included $8.5 million of inventory associated with the nitazoxanide product, consisting of $8.3 million of active ingredient and $0.2 million of other raw materials. The $8.3 million of active ingredient included in inventory at September 30, 2002 will expire in 2004. Expiration dates are based on a shelf life of 48 months from the date of manufacture for the active ingredient. Upon use of unexpired active ingredient in the manufacture of finished goods, the active ingredient shelf life is no longer relevant. The shelf life of the finished goods is measured from the date of manufacture, regardless of the age of the active ingredient used to manufacture the finished goods. The shelf life of the finished goods is currently 24 months from date of manufacture, although we anticipate, based on stability data that we have submitted to the FDA, that the shelf life of the finished goods will be extended to 36 months if and when the product is approved by the FDA.

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           We evaluate our nitazoxanide inventory on a quarterly basis for realizability. In the three months ended September 30, 2002, we incurred no further write-downs for this inventory. Our quarterly evaluation is based upon the expiration dates described, assumptions regarding the timing of FDA approval and our launch of the product and assumptions regarding sales volumes that we expect to achieve following approval and launch of the product. We believe that the product will be approved in early 2003 and launched shortly thereafter, that the worldwide market for EPM treatments is approximately $50 million annually, and that our nitazoxanide product will capture approximately 25-40% of that market over four years following launch. Should FDA approval be delayed beyond 2003 or should sales volumes be lower than those assumed, additional active ingredient and finished goods would expire and would need to be written off. For example, if FDA appr oval was obtained in early 2003, but sales volumes over the next four years were fifty percent lower than anticipated, and assuming a shelf life of 36 months for finished goods inventory, approximately $1.3 million of additional inventory would expire and require a charge to operations.

           If we do not receive FDA approval of the nitazoxanide product, and if we then elect to terminate our license to use the active ingredient, we have the right to require our supplier to repurchase the active ingredient at a price equal to our cost. We have no assurances that our supplier has the financial ability to repurchase all of this inventory. To the extent we were unable to sell the active ingredient to our supplier, we would incur a loss in the amount of any unrecovered costs of the active ingredient. This could result in a loss of up to the full value of our net inventory, or $8.5 million as of September 30, 2002.

           VetTest® Slides. Our inventories as of September 30, 2002 included $27.7 million of slides used in our VetTest chemistry instruments, which represents approximately 1.4 turns based on recent historical usage. Most of the slides have a shelf life of 24 months at the date of manufacture. The average remaining shelf life at September 30, 2002 was 16.0 months. In addition, we are required to purchase a minimum of $242.6 million of slides over the remaining life of our contract with Ortho-Clinical Diagnostics, Inc. ("OCD"), which expires on December 31, 2010, although our purchase obligation may be extended at our option through December 31, 2011.

           We evaluate potential losses over the life of the OCD contract on a quarterly basis. Our quarterly evaluation is based on an estimate of the value of slides that we are required to purchase under the contract but that will expire before sale. The estimated loss is calculated based on the expiration dating described, and an evaluation of our minimum contractual purchase obligations relative to assumptions regarding (i) the per-customer growth in demand for slides over the life of the contract, and (ii) changes over the life of the contract in the size of our installed base of VetTest customers resulting from (a) new VetTest instrument placements by us and (b) loss of customers who switch to other chemistry analyzers supplied by IDEXX or its competitors. We have assumed that end customer unit sales of VetTest slides will grow at an annual rate of 7% through the remainder of 2002 and 2003. This assumption is consistent with our data regar ding growth in demand from veterinary clinics for slides during 2001 and the first nine months of 2002. We also have assumed that growth rates will decline from 2004 through the end of the OCD contract.

           During the quarter ended September 30, 2002, we amended the contract with OCD to reduce our minimum purchase commitment for both 2002 and the life of the contract by 30 million slides (or approximately $17.7 million) in consideration for our agreement to forego approximately $2.0 million of certain volume rebates on slides purchased in 2002. As a result of this amendment, we do not believe we will incur a loss on the contract and we have reversed the previously established contract loss reserve of $0.7 million. However, if our assumptions regarding the per-customer demand for slides or the changes in the installed base of VetTest instruments are incorrect, we could incur loss on this contract, which could be material.

           LaserCyte™ hematology instrument. As of September 30, 2002, our inventories included $8.4 million of component parts associated with our LaserCyte hematology instrument, which we began shipping to customers in October 2002. In addition, we have placed $0.7 million in deposits with vendors to secure additional critical components and we have firm purchase commitments of an additional $1.4 million. We expect to fully realize our investment and purchase commitments. However, if we alter the final design of this product, we may be required to write off some or all of the associated inventory.

           The nitazoxanide, VetTest slides and LaserCyte products are included in our CAG segment.

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           We assess the impairment of identifiable intangibles, long-lived assets and goodwill whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Factors we consider important that could trigger an impairment review include but are not limited to the following:

           When we determine that the carrying value of intangibles, long-lived assets and goodwill may not be recoverable based on a change in events and circumstances discussed above, we measure any impairment based on factors such as projected cash flows. Net intangible assets and goodwill amounted to $55.6 million as of September 30, 2002, consisting of $23.6 million related to veterinary laboratories (of which $23.2 million represents goodwill), $15.4 million related to water test products (of which $13.1 million represents goodwill), $14.6 million related to veterinary pharmaceutical products (of which $13.7 million represents goodwill) and $2.0 million of other (of which $1.7 million represents goodwill).

           In 2002, SFAS No. 142 became effective and as a result, we ceased to amortize goodwill, but continued to amortize all other intangibles. We had recorded approximately $3.8 million of goodwill amortization on these amounts during the nine months ended September 30, 2001 and would have recorded approximately $3.4 million of goodwill amortization during the same period in 2002, if the existing standards had been continued. In addition, we recorded $1.0 million of other intangible amortization during the nine months ended September 30, 2001 and $0.9 million during the nine months ended September 30, 2002. In lieu of amortization, we are required to perform an initial impairment review of our goodwill in 2002 and an annual impairment review thereafter. We completed the initial impairment review and determined that no impairment occurred.

           Net income and earnings per share for the three months and nine months ended September 30, 2001 adjusted to exclude amortization expense of goodwill (net of taxes) is as follows:

           During the quarter ended September 30, 2002, we discontinued using certain technology that we acquired as part of the Genera Technologies Ltd. Acquisition in our FEG segment. As a result, we recorded a charge of $0.5 million as part of general and administrative expense.

           We recognize product revenue at the time of shipment (including to distributors) for substantially all products except software licenses and hardware systems and sales to leasing companies. We recognize revenue from non-cancelable software licenses and hardware systems upon installation of the software (and completion of training if applicable) or hardware because at this time collection is probable and we have no significant further obligations. We recognize revenue on sales to leasing companies after the leasing company accepts the lease from the lessee customer. Our distributors do not have the right to return products. Service revenue is recognized at the time the service is performed. Revenue associated with extended maintenance agreements is recognized over the life of the contracts. Certain instrument systems are sold to a third-party finance company that leases these systems to its customers with a right-of-return privilege. We allow the third-party finance company to return these instruments to us for a partial refund based on the time from product return to end of lease term. Therefore we recognize revenue under these contracts over the term of the underlying customer lease contract. We record estimated reductions to revenue in connection with customer programs and incentive offerings, which may give customers future rights such as free or discounted goods or services or trade-in rights.

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           We account for income taxes under SFAS No. 109, "Accounting for Income Taxes". SFAS No. 109 requires that we 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 carry forwards to the extent they are realizable. We record a valuation allowance to reduce our deferred tax assets to the amount that is more likely than not to be realized. While we have considered future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for the valuation allowance, in the event we were to determine that we would be able to realize our deferred tax assets in the future in excess of the net recorded amount, an adjustment to the deferred tax asset would increase income in the period such determination was made. Likewise, should we determine that we would not be able to realize all or pa rt of our net deferred tax asset in the future, an adjustment to the deferred tax asset would be charged to income in the period such determination was made.

           We do not provide for U.S. income taxes on earnings of our subsidiaries outside of the U.S. Our 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.

           We provide for the estimated cost of product warranties at the time revenue is recognized. Although we engage in extensive product quality programs and processes, our warranty obligation is affected by product failure rates and service delivery costs incurred in correcting a product failure. Should actual product failure rates or service delivery costs differ from our estimates, which are based on historical data and engineering estimates, where applicable, revisions to the estimated warranty liability would be required.

           We expect that sales of the LaserCyte system will cause warranty expense to increase significantly. We will charge warranty expense to the cost of LaserCyte sales based upon our experience with instrument sales and engineering information about the system. Should actual warranty expense exceed our estimates, our cost of sales of LaserCyte systems would increase.

           Total Company. Revenue for the total company increased $7.0 million, or 7%, to $104.5 million from $97.5 million in the same period of the prior year. The following table presents revenue for the Company and its operating segments:

           Companion Animal Group. Revenue for the Companion Animal Group ("CAG") increased $5.1 million, or 7%, to $82.2 million from $77.1 million in the same period of the prior year. An increase in laboratory services revenue (approximately $2.3 million) resulted primarily from higher volume worldwide and, to a lesser extent, from price increases in the U.S. and the positive impact of currency exchange rates on sales at our laboratories outside the U.S.

           Increased sales of rapid assay products (approximately $1.7 million) resulted primarily from increased unit sales of canine heartworm and feline test kits, which were partially offset by the negative impact of increased accruals on sales of canine heartworm test kits due to higher customer participation this year in a volume rebate program. See "Critical Accounting Policies - Revenue Recognition" above. Increased unit sales of canine heartworm tests resulted primarily from increased demand for the Company's SNAPâ 3DxÔ combination test.

           An increase in sales of instrument consumables (approximately $1.4 million) resulted primarily from increased sales of slides used in our VetTestâ chemistry analyzers. This increase resulted primarily from increased unit volume and, to a lesser extent, the positive impact of currency exchange rates.

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           Increased sales of pharmaceutical products (approximately $0.3 million) and veterinary practice management software products and services (approximately $0.3 million) also contributed to CAG revenue growth. The increase in sales of pharmaceutical products resulted primarily from increased sales of PZI VetÔ insulin, a feline diabetes management product that the Company introduced commercially in the third quarter. The increase in sales of veterinary practice management software resulted primarily from increased hardware upgrade sales.

           During the three months ended September 30, 2002, inventories held by our U.S. companion animal diagnostic product distributors declined $0.4 million to $13.0 million. In the same period of the prior year, such inventories increased $0.1 million to $22.4 million. Because the Company sells substantially all of its companion animal diagnostic products (primarily rapid assays and instrument consumables) in the U.S. through distributors, differences between the change in distributor inventories in the current period relative to the change in distributor inventories in the prior year period will have an impact on the growth rate in reported sales between those periods.

           Food and Environmental Group. Revenue for the Food and Environmental Group ("FEG") increased $1.9 million, or 9%, to $22.3 million from $20.4 million in the same period of the prior year. An increase in sales of poultry and livestock tests (approximately $1.2 million) resulted from higher sales volume in all geographic regions and, to a lesser extent, the favorable impact of currency exchange rates and price increases.

           An increase in sales of water testing products (approximately $1.2 million) resulted from increased unit volume, price increases primarily in the U.S. and, to a lesser extent, the favorable impact of currency exchange rates. A decrease in sales of dairy testing products (approximately $0.3 million) resulted primarily from decreased unit sales.

           Total Company. Gross profit for the total company increased $4.4 million, or 9%, to $50.8 million from $46.4 million in the same period of the prior year. As a percentage of total company revenue, gross profit increased from 48% to 49%. The following table presents gross profit and gross profit percentage for the Company and its operating segments:

           Companion Animal Group. Gross profit for CAG increased $2.5 million to $37.0 million from $34.5 million in the same period of the prior year, primarily due to increased sales volume across the CAG product lines. As a percentage of CAG revenue, gross profit during the third quarter was 45%, unchanged from the same period in the prior year. Gross profit percentage benefited from the favorable impact of reversal of an accrual for potential loss on our VetTestâ slide supply agreement with OCD (see "Critical Accounting Policies - Inventory - VetTestâ Slides" above), favorable product mix due to higher relative sales of our SNAPâ FIV/FeLV Combo test and our SNAPâ 3DxÔ canine combination test, and increased prices for laboratory services. These increases were offset by the negative impact of increased accruals on sales of canine heartworm test kits in connection with the marketing program discussed above.

           Food and Environmental Group. Gross profit for FEG increased $1.8 million to $13.8 million from $12.0 million for the same period in the prior year, primarily due to increases in gross profit percentage and, to a lesser extent, increased sales volume across the FEG product lines. As a percentage of FEG revenue, gross profit during the third quarter was 62%, compared to 59% for the third quarter of 2001. The increase in gross profit percentage was attributable primarily to lower inventory writedowns and relative favorable overhead spending and absorption and purchase price variances; a favorable mix of higher margin poultry, livestock, and water testing products; the positive impact of currency exchange rates; and higher prices for water testing products primarily in the U.S. These increases were offset partially by royalty accruals on certain livestock products.

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           Total Company. Total company operating expenses increased $1.5 million, or 5%, to $32.5 million from $31.0 million for the same period in the prior year. As a percentage of revenues, operating expenses decreased to 31% from 32% in the same period of 2001. The following tables present operating expenses and operating income for the Company and its operating segments:

           Companion Animal Group. Operating expenses for CAG increased $0.9 million to $25.4 million from $24.5 million in the same period of the prior year. Increases in sales and marketing expense and research and development expense were offset partially by a decrease in general and administrative expense. The reduction in general and administrative expense was primarily the result of the cessation of goodwill amortization expense as a result of the implementation of SFAS No. 142, a reduction in expenses related to bad debts, and severance costs in 2001 that did not recur in 2002. These decreases were offset partially by spending related to the Company's patent infringement lawsuit against Abaxis, Inc. and S.A. Scientific, Inc., the unfavorable impact of foreign exchange and currency translation, and higher corporate and regional infrastructure spending.

           Food and Environmental Group. Operating expenses for FEG increased $1.0 million to $6.6 million from $5.6 million for the same period in the prior year primarily due to the write-off of non-performing intangible assets and litigation expenses, which we do not expect to recur in the fourth quarter.

           Other. Operating expenses for other, which consists of corporate research and development, decreased $0.3 million from $0.8 million for the same period in the prior year.

           Total Company. Revenue for the total company increased $15.8 million, or 5%, to $306.8 million from $291.0 million in the same period of the prior year. The following table presents revenue for the Company and its operating segments:

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           Companion Animal Group. Revenue for CAG increased $10.0 million, or 4%, to $243.2 million from $233.2 million in the same period of the prior year. An increase in sales of laboratory services (approximately $5.2 million) resulted primarily from higher volume worldwide and, to a lesser extent, price increases in the U. S. and the impact of currency exchange rates on sales at our laboratories outside the U.S.

           An increase in sales of instrument consumables (approximately $2.5 million) resulted primarily from increased unit sales of VetTest slides worldwide. An increase in sales of rapid assay products (approximately $1.6 million) resulted primarily from increased unit sales of canine heartworm test kits, sales of IndicatoRx, a new diagnostic for feline urinary tract infections, and price increases on feline test kits, offset primarily by the negative impact of increased accruals on sales of canine heartworm test kits in connection with the marketing program discussed above and decreased unit sales of feline test kits due to a reduction in distributor inventories.

           Sales of pharmaceutical products decreased slightly due to a decline in sales of the Company's ACAREXXâ feline ear mite treatment, which was offset partially by increased sales of PZI Vet® insulin. Sales of veterinary practice management software and services increased $0.3 million.

           During the nine months ended September 30, 2002, inventories held by our U.S. companion animal product distributors declined $9.6 million to $13.0 million. In the same period of the prior year, such inventories increased $0.3 million to $22.4 million.

           Food and Environmental Group. Revenue for FEG increased $5.7 million, or 10%, to $63.5 million from $57.8 million for the same period of the prior year. An increase in sales of poultry and livestock tests (approximately $3.7 million) resulted primarily from higher unit sales of livestock products and, to a lesser extent, price increases on livestock products. Approximately half of the increased sales of livestock products were the result of testing initiatives in Germany, which may not continue into 2003.

           An increase in sales of water testing products (approximately $2.6 million) resulted primarily from increased unit sales volume and, to a lesser extent, price increases in the U.S. A decrease in sales of dairy testing products (approximately $0.5 million) was primarily attributable to lower unit sales volume.

           Total Company. Gross profit for the total company increased $3.9 million, or 3%, to $143.7 million from $139.8 million for the same period in the prior year. As a percentage of total company revenue, gross profit decreased to 47% from 48%. The following table presents gross profit and gross profit percentage for the Company and its operating segments:

           Companion Animal Group. Gross profit for CAG increased $0.6 million to $106.9 million from $106.3 million for the same period in the prior year, primarily due to increased sales volume across the CAG product lines, substantially offset by a reduction in the gross profit percentage. As a percentage of CAG revenue, gross profit declined to 44% from 46% for the same period in the prior year. The decrease in gross profit percentage was attributable primarily to the net change on foreign currency exchange rates, where hedge contracts resulted in a gain in the prior period and a loss in the current period; net unfavorable change in purchase price variances; increased amortization of VetTest instruments placed through our rental and trade-up programs; net unfavorable change in manufacturing overhead absorption and spending variances; the negative impact of increased accruals on sales of canine heartworm test kits in connection with th e marketing program discussed above; and other miscellaneous expense increases, offset partially by productivity improvements across CAG product lines, higher prices on laboratory services and feline test kits, the positive impact of currency exchange rates and reversal of the accrual for potential loss on our VetTest slide supply agreement with OCD. See "Critical Accounting Policies - Inventory" above.

           Food and Environmental Group. Gross profit for FEG increased $3.4 million to $36.9 million from $33.5 million for the same period in the prior year, primarily due to increased sales volume across the FEG product lines. As a percentage of FEG revenue, gross profit was unchanged at 58%. The favorable impact of higher prices for water testing products primarily in the U.S. and livestock products primarily in the U.S. and Europe was offset partially by royalty accruals on certain livestock products, higher inventory writedowns, relative unfavorable overhead spending and absorption and purchase price variance, and other miscellaneous expense increases.

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          Total Company. Total company operating expenses decreased $1.7 million to $96.4 from $98.1 million for the same period of the prior year. As a percentage of revenues, operating expenses declined to 31% from 34%. The following tables present operating expenses and operating income for the Company and its operating segments:

           Companion Animal Group. Operating expenses for CAG decreased $5.9 million to $73.3 million from $79.2 million in the same period of the prior year. This decrease resulted primarily from the impact of adoption of SFAS No. 142, a reduction in severance and restructuring costs, a reduction in marketing expense associated with feline diagnostic products (due to a direct to consumer marketing campaign in 2001), a reduction in expenses related to bad debt, and savings from the consolidation of our pharmaceuticals and companion animal diagnostics sales forces. These decreases were offset partially by spending associated with the Abaxis, Inc. and S.A. Scientific, Inc. litigation.

           Food and Environmental Group. Operating expenses for FEG increased $0.7 million to $17.7 million from $17.0 million in the same period of the prior year. Increased expenses resulted primarily from the write-off of non-performing intangible assets and litigation spending, which we do not expect to recur in the fourth quarter, and from increased infrastructure spending and other administrative expenses. These increases were offset partially by the impact of adoption of SFAS No. 142 and a reduction in bad debt expense.

           Other. Operating expenses for other, which consists of corporate research and development and charges related to our Chief Executive Officer succession, increased $3.5 million to $5.4 million from $1.9 million in the same period of the prior year. The increase resulted primarily from severance and related benefits in connection with the retirement of our Founder, Chairman and Chief Executive Officer in January 2002. Under an employment agreement, we are required to make certain payments to our former Chief Executive Officer and provide certain benefits to him following his retirement and the succession to our new Chief Executive Officer. During the first nine months of 2002 we incurred charges under this agreement of $3.4 million, of which $1.8 million was non-cash.

           Net interest income was $0.6 million for the three months ended September 30, 2002 compared to $0.5 million for the same period in the prior year. The increase was due to higher invested cash balances partially offset by lower effective interest rates. Net interest income was $2.1 million for the nine months ended September 30, 2002 compared with $1.7 million for the same period in the prior year. The increase was due to the reasons described above and the receipt of $0.3 million in interest on a domestic tax refund.

           Our effective tax rate was 34% for the three- and nine-month periods ended September 30, 2002 compared with 36% for the three- and nine-month periods ended September 30, 2001. The reduction in the effective tax rate was due to the elimination of non-deductible goodwill associated with the adoption of SFAS No. 142.

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           In July 2001, the FASB issued SFAS No. 141, which requires all business combinations initiated after June 30, 2001 to be accounted for using the purchase method.

           In July 2001, the FASB issued SFAS No. 142. We adopted the requirements of SFAS No. 142 effective January 1, 2002. SFAS No. 142 requires companies to test all goodwill for impairment and to cease amortization of this asset. The provisions of SFAS No. 142 apply to all goodwill regardless of when it was acquired. The impact of adoption of SFAS No. 142 is disclosed in "Critical Accounting Policies" above.

           In October 2001, the FASB issued SFAS No. 144, which addresses financial accounting and reporting for the impairment or disposal of long-lived assets. Adoption of SFAS No. 144 was required no later than the first quarter of 2002. We adopted SFAS No. 144 effective January 2002. The adoption of SFAS No. 144 had no material impact on the consolidated financial statements.

           In April 2002, the FASB issued SFAS No. 145. SFAS No. 145 rescinds SFAS No. 4, "Reporting Gains and Losses from Extinguishment of Debt," and an amendment of SFAS No. 64, "Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements." SFAS No. 145 also rescinds SFAS No. 44, "Accounting for Intangible Assets of Motor Carriers." SFAS No. 145 amends SFAS No. 13, "Accounting for Leases," to eliminate an inconsistency between the required accounting for sale-leaseback transactions and the required accounting for certain modifications that have economic effects that are similar to sale-leaseback transactions. SFAS No. 145 also amends other existing authoritative pronouncements to make various technical corrections, clarify meanings or describe their applicability under changed conditions. Adoption of certain provisions of SFAS No. 145 was required after May 15, 2002, while other provisions must be adopted with financial statements issued after May 15, 2002 or the year beginning after May 15, 2002. The Company does not expect adoption of SFAS No. 145 to have a material impact on its operations.

           In June 2002, the FASB issued SFAS No. 146, "Accounting for Cost Associated with Exit or Disposal Activities." SFAS No. 146 addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force ("EITF") Issue No. 94-3, " Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)." Adoption of SFAS No. 146 is required for exit or disposal activities initiated after December 31, 2002. The Company does not expect adoption of SFAS No. 146 to have a material impact on its operations.

           At September 30, 2002, we had $151.7 million of cash and cash equivalents (of which $0.3 million was restricted), short-term investments in investment-grade debt securities and long-term investments in investment-grade debt securities. Also at September 30, 2002 we had working capital of $179.1 million.

           We have entered into a $20.0 million uncommitted line of credit with a large multi-national bank. Under the terms of this agreement the bank retains the right to approve all borrowings and all borrowings are due on demand. Any borrowings under this line will bear interest at the bank's prime rate. There were no loans outstanding under this agreement at September 30, 2002.

           We purchased approximately $11.5 million in fixed assets during the nine months ended September 30, 2002, principally related to the CAG segment. Our total capital budget for 2002 is approximately $17.0 million. In the nine months ended September 30, 2002, net income was $32.6 million and cash provided by operating activities was $93.9 million, compared to net income of $27.8 million and cash provided by operating activities of $30.6 million for the first nine months of 2001. The difference in operating cash flow from the prior year was the result of changes in current assets and liabilities. Cash of $22.2 million was provided by an increase in accrued expenses attributable primarily to increased liabilities for marketing programs, taxes, payroll, royalties and the CEO succession charge. Cash of $11.1 million was provided by use of inventory already in stock. Cash of $6.9 million was provided by an increase in accounts payable attribut able primarily to the timing of the purchase of slides from OCD. Cash of $5.1 million was provided by a decrease in accounts receivable attributable to favorable collection results.

           In April 2002, the Company repaid $7.5 million in notes payable, of which $7.0 million was paid from restricted cash.

          During the nine months ended September 30, 2002, the Company entered into new operating leases totaling $0.2 million and entered into new purchase commitments totaling $7.4 million through 2006. As of September 30, 2002, the Company had re-negotiated a purchase commitment with OCD, which reduced its commitment (through 2010) by $17.7 million.

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           During 1999 and 2000, the Board of Directors authorized the purchase of up to ten million shares of our Common Stock in the open market or in negotiated transactions. During the nine-month period ended September 30, 2002, the Company repurchased approximately 1.0 million shares for $29.8 million at an average price of $29.83 per share. From the inception of the program to September 30, 2002, the Company had purchased 8.6 million shares for $177.3 million.

           We believe that current cash, short-term investments, long-term investments, debt facilities and funds generated from operations will be sufficient to fund our operations for the foreseeable future.

           The future operating results of IDEXX involve a number of risks and uncertainties. Actual events or results may differ materially from those discussed in this report. Factors that could cause or contribute to such differences include, but are not limited to, the factors discussed below as well as those discussed elsewhere in this report.

           To increase our growth rate, we will need to successfully implement various strategies, including:

           However, we may not be able to successfully implement some or all of these strategies and increase our growth rate.

           We face intense competition within the markets in which we sell our products and services. We expect that future competition will become even more intense, and that we will have to compete with changing and improving technologies. Some of our competitors and potential competitors, including large pharmaceutical companies, have substantially greater capital, manufacturing, marketing and research and development resources than we do.

           In the U.S., the manufacture and sale of our products are regulated by agencies such as the U.S. Department of Agriculture ("USDA"), U.S. Food and Drug Administration ("FDA") and the U.S. Environmental Protection Agency ("EPA"). Most diagnostic tests for animal health applications, including our canine, feline and poultry and livestock tests, must be approved by the USDA prior to sale. Our water testing products must be approved by the EPA before they may be used by customers in the U.S. as a part of a water quality monitoring program required by the EPA. Our pharmaceutical and dairy testing products require approval by the FDA. Any failure to comply with regulatory requirements relating to the manufacture and sale of our products could result in fines and sanctions against us or removals of our products from the market, which could have a material adverse effect on our results of operations.

           Commercialization of animal health pharmaceuticals in the U.S. requires prior approval by the FDA. To obtain such approvals we are required to submit substantial clinical, manufacturing and other data to the FDA. Regulatory approval for products submitted to the FDA may take several years and following approval, the FDA continues to regulate all aspects of the manufacture, labeling, storage, record keeping and promotion of pharmaceutical products. We have several animal pharmaceutical products in registration with the FDA, including the nitazoxanide product for treatment of equine protozoal myeloencephalitis and a non-steroidal anti-inflammatory for the treatment of lameness in horses. Failure to obtain, or delays in obtaining, FDA approval for these products would have a negative impact on our future growth.

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           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 negatively impact our future operating results.

           We sell many of our products, including substantially all of the rapid assays and instrument consumables sold in the U.S., through distributors. As a result, changes in the timing and size of distributor purchases can result in lower revenue for us because our revenue for each quarter is usually generated from orders received during that quarter. Our financial performance, therefore, is subject to an unexpected downturn in product demand and may be unpredictable.

           While our pharmaceutical products are under development, we carry related active ingredient, other raw materials and finished goods as assets on our balance sheet. To the extent that these inventories become unusable due to unanticipated delays in obtaining FDA approval for these products, or to our failure to obtain such approvals, we may be required to write down those inventories, which could have a material adverse effect on our results of operations. See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies."

           Our expense levels are based in part on expectations of future revenue levels. Therefore, a loss in expected revenue could result in a disproportionate decrease in our net income.

           We rely on a combination of patent, trade secret, trademark and copyright law to protect our proprietary rights. If we do not have adequate protection of our proprietary rights, our business may be affected by competitors who develop substantially equivalent technologies that compete with us.

           We cannot assure that we will obtain issued patents, that any patents issued or licensed to us will remain valid, or that any patents owned or licensed by us will provide protection against competitors with similar technologies. We also cannot assure that our non-disclosure agreements will provide protection for our trade secrets and other proprietary information.

           In the past we have received notices claiming that our products infringe third-party patents and we may receive such notices in the future. Patent litigation is complex and expensive and the outcome of patent litigation can be difficult to predict. We cannot assure that we will win a patent litigation case or negotiate an acceptable resolution to such a case. If we lose, we may be stopped from selling certain products and/or we may be required to pay damages and/or ongoing royalties as a result of the lawsuit. Any such adverse result could have a material adverse effect on our results of operations.

           We currently purchase certain products and materials from single sources or a limited number of sources. Some of the products that we purchase from these sources are proprietary, and therefore may not be available from other sources. These products include our chemistry and hematology analyzers and related consumables, active ingredients for pharmaceutical products and certain components of our SNAP devices and water testing products. If we are unable to obtain adequate quantities of these products in the future, then we could face cost increases or reductions or delays in product shipments, which could have a material adverse effect on our results of operations.

           The slides sold for use in our VetTest instruments are purchased under an agreement with OCD. Under this agreement we are required to purchase a minimum of $242.6 million of slides between now and 2010, although we have the option to extend this obligation through 2011. To the extent that slides purchased under the contract exceed demand for the slides, we may incur losses in the future under this agreement, which could be material. See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies."

           Various risks associated with foreign operations may impact our international sales. Possible risks include fluctuations in the value of foreign currencies, disruptions in transportation of our products, the differing product and service needs of foreign customers, difficulties in building and managing foreign operations, import/export duties and quotas, and unexpected regulatory, economic or political changes in foreign markets. Prices that we charge to foreign customers may be different than the prices we charge for the same products in the U.S. due to competitive, market or other factors. As a result, the mix of domestic and international sales in a particular period could have a material impact on our results for that period.

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           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 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 or accruals and are included in the basis of the underlying transaction. Our hedging strategy is consistent with prior periods and we believe our risk with respect to foreign currency exchange fluctuations is not materially different than at December 31, 2001.

               (a)     Evaluation of disclosure controls and procedures. Based on their evaluation of the Company's disclosure controls and procedures (as defined in Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934) as of a date within 90 days of the filing date of this Quarterly Report on Form 10-Q, the Company's chief executive officer and chief financial officer have concluded that the Company's disclosure controls and procedures are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms and are operating in an effective manner.

               (b)     Changes in internal controls. There were no significant changes in the Company's internal controls or in other factors that could significantly affect these controls subsequent to the date of their most recent evaluation.

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           Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

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