Edgar Filing: IDEXX LABORATORIES INC /DE

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
	(Mark One)
x	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the fiscal year ended December 31, 2011
or
¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the transition period from _______________ to _______________.

COMMISSION FILE NUMBER: 0-19271
IDEXX LABORATORIES, INC.
(Exact name of registrant as specified in its charter)

DELAWARE (State or other jurisdiction of incorporation or organization) ONE IDEXX DRIVE, WESTBROOK, MAINE (Address of principal executive offices)			01-0393723 (IRS Employer Identification No.) 04092 (ZIP Code)

Registrant’s telephone number, including area code: 207-556-0300

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Name of each exchange on which registered
Common Stock, $0.10 par value per share	NASDAQ Global Market

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes x No ¨

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No x

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 by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

	Large accelerated filer	x	Accelerated filer	¨
	Non-accelerated filer	¨ (Do not check if a smaller reporting company)	Smaller reporting company	¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ¨ No x

Based on the closing sale price on June 30, 2011 of the registrant’s Common Stock as reported by the NASDAQ Global Market, the aggregate market value of the voting stock held by non-affiliates of the registrant was $4,365,391,151. For these purposes, the registrant considers its Directors and executive officers to be its only affiliates.

The number of shares outstanding of the registrant’s Common Stock was 55,054,045 on February 10, 2012.

DOCUMENTS INCORPORATED BY REFERENCE

Part III—Specifically identified portions of the Company’s definitive proxy statement to be filed in connection with the Company’s 2012 Annual Meeting to be held on May 9, 2012, are incorporated herein by reference.

IDEXX LABORATORIES, INC.

Annual Report on Form 10-K

Table of Contents

Item No.		Page No.

	PART I
Item 1	Business	3
Item 1A	Risk Factors	12
Item 1B	Unresolved Staff Comments	19
Item 2	Properties	20
Item 3	Legal Proceedings	20
Item 4	Not Applicable	20

	PART II
Item 5	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	23
Item 6	Selected Financial Data	26
Item 7	Management’s Discussion and Analysis of Financial Condition and Results of Operations	27
Item 7A	Quantitative and Qualitative Disclosure about Market Risk	52
Item 8	Financial Statements and Supplementary Data	54
Item 9	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	54
Item 9A	Controls and Procedures	55
Item 9B	Other Information	56

	PART III
Item 10	Directors, Executive Officers and Corporate Governance	56
Item 11	Executive Compensation	56
Item 12	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	56
Item 13	Certain Relationships and Related Transactions and Director Independence	57
Item 14	Principal Accountant Fees and Services	57

	PART IV
Item 15	Exhibits, Financial Statement Schedules	57

Signatures	58
Financial Statements and Supplementary Data – Index to Consolidated Financial Statements	F-1
Exhibit Index

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

This Annual Report on Form 10-K for the year ended December 31, 2011 contains statements which, to the extent they are not statements of historical fact, constitute “forward-looking statements.” Such forward-looking statements about our business and expectations within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, include statements relating to future revenue growth rates, earnings and other measures of financial performance; the effect of economic downturns on our business performance; demand for our products; realizability of assets; future cash flow and uses of cash; future repurchases of common stock; future levels of indebtedness and capital spending; interest expense; warranty expense; share-based compensation expense; and competition. Forward-looking statements can be identified by the use of words such as “expects,” “may,” “anticipates,” “intends,” “would,” “will,” “plans,” “believes,” “estimates,” “should,” and similar words and expressions. These forward-looking statements are intended to provide our current expectations or forecasts of future events; are based on current estimates, projections, beliefs, and assumptions; and are not guarantees of future performance. Actual events or results may differ materially from those described in the forward-looking statements. These forward-looking statements involve a number of risks and uncertainties as more fully described under the heading “Part I, Item 1A. Risk Factors” in this Annual Report on Form 10-K. The risks and uncertainties discussed herein do not reflect the potential impact of any mergers, acquisitions or dispositions. In addition, any forward-looking statements represent our estimates only as of the day this Annual Report on Form 10-K was first filed with the Securities and Exchange Commission (“SEC”) and should not be relied upon as representing our estimates as of any subsequent date. From time to time, oral or written forward-looking statements may also be included in other materials released to the public. While we may elect to update forward-looking statements at some point in the future, we specifically disclaim any obligation to do so, even if our estimates or expectations change.

PART I

ITEM 1. BUSINESS

We develop, manufacture and distribute products and provide services primarily for the companion animal veterinary, livestock and poultry, water testing and dairy markets. We also sell a line of portable electrolytes and blood gas analyzers for the human point-of-care medical diagnostics market. Our primary products and services are:

Point-of-care veterinary diagnostic products, comprising instruments and consumables and rapid assays;

Veterinary reference laboratory diagnostic and consulting services used by veterinarians;

Diagnostic and health-monitoring products for livestock and poultry;

Products that test water for certain microbiological contaminants;

Practice management systems and services and digital radiography systems used by veterinarians;

Products that test milk for antibiotic residues and other contaminants; and

Point-of-care electrolytes and blood gas analyzers used in the human point-of-care medical diagnostics market.

We are a Delaware corporation and were incorporated in 1983. Our principal executive offices are located at One IDEXX Drive, Westbrook, Maine 04092, our telephone number is 207-556-0300, and our Internet address is www.idexx.com. References herein to “we,” “us,” the “Company,” or “IDEXX” include our wholly-owned subsidiaries and majority-owned subsidiaries unless the context otherwise requires. References to our Web site are inactive textual references only and the content of our Web site should not be deemed incorporated by reference into this Form 10-K for any purpose.

We make available free of charge on our Web site our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to those reports as soon as reasonably practicable after we file such information with, or furnish it to, the SEC. In addition, copies of our reports filed electronically with the SEC may be accessed on the SEC’s Web site at www.sec.gov. The public may also read and copy any materials filed with the SEC at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, DC 20549. Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330.

DESCRIPTION OF BUSINESS BY SEGMENT

During 2011, we operated primarily through three business segments: diagnostic and information technology-based products and services for the veterinary market, which we refer to as the Companion Animal Group (“CAG”), water quality products (“Water”) and products for livestock and poultry health, which we refer to as Livestock and Poultry Diagnostics (“LPD”). Prior to the second quarter of 2010, we referred to LPD as our Production Animal Segment. We also operate two smaller operating segments that comprise products for milk quality and safety (“Dairy”) and products for the human point-of-care medical diagnostics market (“OPTI Medical”). Financial information about the Dairy and OPTI Medical operating segments is combined and presented with one of our remaining pharmaceutical product lines and our out-licensing arrangements in an “Other” category because they do not meet the quantitative or qualitative thresholds for reportable segments. See Note 15 to the consolidated financial statements for the year ended December 31, 2011 included in this Annual Report on Form 10-K for financial information about our segments, including geographic information, and our product and service categories.

COMPANION ANIMAL GROUP

Instruments and Consumables

We currently market an integrated suite of in-clinic laboratory analyzers for use in providing reference laboratory quality diagnostic results in companion animal veterinary practices that we refer to as the IDEXX VetLab^® suite of analyzers. The IDEXX VetLab^® suite includes several instrument systems, as well as associated proprietary consumable products, all of which are described below:

Blood and Urine Chemistry. We sell two chemistry analyzers, the Catalyst Dx^®Chemistry Analyzer and the VetTest^® Chemistry Analyzer, that are used by veterinarians to measure levels of certain enzymes and other substances in blood or urine for monitoring health status and assistance in diagnosing physiologic conditions. Both instruments use consumables manufactured for IDEXX by Ortho-Clinical Diagnostics, Inc. (“Ortho”), a subsidiary of Johnson & Johnson, based on Ortho’s dry slide technology (“Catalyst Dx^® slides,” “VetTest^® slides” or “slides”). In addition, the Catalyst Dx^® analyzer also uses dry slide electrolyte consumables manufactured by IDEXX at OPTI Medical Systems, one of our wholly-owned subsidiaries. Blood tests commonly run on these analyzers include glucose, alkaline phosphatase, ALT (alanine aminotransferase), albumin, creatinine, blood urea nitrogen (“BUN”), and total protein. Tests are sold individually and in prepackaged panels. Both analyzers also run a urine test called urine protein:creatinine ratio, which assists in the detection of early renal disease.

The Catalyst Dx^® analyzer is our latest generation chemistry analyzer, which was launched in 2008. The Catalyst Dx^® analyzer provides significantly improved throughput, ease of use and menu relative to the VetTest^® analyzer, including the ability to run electrolytes. Key ease-of-use features include the ability to run whole blood using an on-board centrifuge, the ability to run pre-packaged, multi-slide clips in addition to single chemistry slides, and an automated metering system. The Catalyst Dx^® analyzer also enables automated dilutions, which is an ease-of-use feature both for certain blood chemistries and the test for urine protein:creatinine ratio. The Catalyst Dx^® analyzer allows a veterinarian to run multiple patient samples simultaneously; to run different sample types including whole blood, plasma, serum and urine; to perform 28 different chemistry and electrolyte tests; and to automatically calculate other parameters and ratios important to blood chemistry analysis.

Our VetLyte^® Electrolyte Analyzer measures three electrolytes—sodium, potassium and chloride—to aid in evaluating acid-base and electrolyte balances and assessing plasma hydration.

Our VetStat^® Electrolyte and Blood Gas Analyzer measures electrolytes, blood gases, glucose and ionized calcium, and calculates other parameters, such as base excess and anion gap. These measurements aid veterinarians in diagnosing various disease states, evaluating fluid therapy choices and measuring respiratory function. The VetStat^® analyzer runs single-use disposable cassettes that contain various configurations of analytes. The VetStat^® analyzer and its cassettes are manufactured by OPTI Medical Systems.

Sales of consumables for use in our installed base of chemistry analyzers provide the majority of consumables volumes and revenues generated from our installed base of IDEXX VetLab^® equipment.

Hematology. We sell three hematology analyzers that assess the cellular components of blood, including red blood cells, white blood cells and platelets (also called a complete blood count (“CBC”)). These analyzers include the ProCyte Dx^®Hematology Analyzer, which uses laser-flow cytometry, optical fluorescence and laminar-flow impedance in its analysis; the LaserCyte^® Hematology Analyzer, which uses laser-flow cytometry technology in its analysis; and the IDEXX VetAutoread^™ Hematology Analyzer. We also sell the Coag Dx^™ Analyzer, which permits the detection and diagnosis of blood clotting disorders.

The ProCyte Dx^®analyzer is our latest generation hematology analyzer, which we launched in the third quarter of 2010. The ProCyte Dx^®analyzer provides significantly improved throughput, accuracy and more complete medical information relative to the LaserCyte^® and VetAutoread^™ hematology analyzers. The ProCyte Dx^®analyzer provides validated results for five species (canine, feline, equine, bovine and ferret) for up to 24 different blood parameters, providing a more complete picture of each patient’s health.

Quantitative Immunoassay Testing. With multiple-patient testing functionality, the SNAPshot Dx^® analyzer provides quantitative measurements of total thyroxine (“T₄”), cortisol and bile acids to assist in the evaluation of thyroid, adrenal and liver function. The SNAPshot Dx^® analyzer also reads, interprets and records the results of many IDEXX rapid assay SNAP^® tests, including our canine SNAP^®4Dx^®test,feline SNAP^® FIV/FeLV Combo test, canine SNAP^®cPL^™ test, feline SNAP^®fPL^™ test, SNAP^® Feline Triple test and canine SNAP^®Heartworm RT test.

Urinalysis. The IDEXX VetLab^® UA^™ Analyzer provides rapid, semi-quantitative chemical urinalysis and is validated specifically for veterinary use.

IDEXX VetLab^® Station. The IDEXX VetLab^® Station (“IVLS”) connects and integrates the diagnostic information from all the IDEXX VetLab^® equipment and thus provides reference laboratory information management system capability. We sell the IVLS as an integral component of the Catalyst Dx^®, LaserCyte^® and ProCyte Dx^®analyzers and also as a standalone hardware platform. The IVLS includes a user interface to input patient information, connect with a practice management system and send information to run the individual analyzers. IVLS also generates one integrated patient report incorporating all of the lab work generated by the IDEXX VetLab^® suite; stores, retrieves and analyzes historical patient diagnostics data, including SNAP^® test results; and sends and receives information from practice management systems, including the IDEXX Cornerstone^® system, as well as a wide variety of third-party systems. IVLS also connects back to IDEXX through SmartService^TM, a secure internet link that enables us to provide diagnostic service and support for certain IDEXX VetLab^® instruments through remote access.

Rapid Assays

We sell a broad range of single-use, handheld test kits under the SNAP^® name that provide quick, accurate and convenient diagnostic test results for a variety of companion animal diseases and health conditions. These kits work without the use of instrumentation, although many kits may also be read automatically by the SNAPshot Dx^® analyzer as discussed above.

Principal single-use canine tests include:

SNAP^®4Dx^®, which tests for the tick-borne diseases Lyme disease, Ehrlichia canis and Anaplasma phagocytophilum and the mosquito-borne disease canine heartworm;

SNAP^® 3Dx^®, which tests for Lyme disease, Ehrlichia canis and canine heartworm;

SNAP^® Heartworm RT, which tests only for canine heartworm;

SNAP^® Parvo, which tests for parvovirus, a virus causing life-threatening damage to immune and intestinal systems;

SNAP^® cPL^™, which tests only for canine pancreatitis;

SNAP^®Giardia, which is a fecal test for soluble Giardia antigens, a common cause of waterborne infection; and

SNAP^® Leishmania, which tests for a parasitological disease (“Leishmania”) transmitted by mosquitoes that affects biological systems and vital organs.

Principal single-use feline tests include:

SNAP^® Feline Triple^®, which tests for feline immunodeficiency virus (“FIV”) (which is similar to the human AIDS virus), feline leukemia virus (“FeLV”), and feline heartworm;

SNAP^® FIV/FeLV Combo Test, which tests for FIV and FeLV;

SNAP^® FeLV, which tests only for FeLV;

SNAP^®fPL^™, which we launched during the second quarter of 2011 and tests for feline pancreatitis; and

SNAP^®Giardia, which is a fecal test for soluble Giardia antigens.

Sales of canine parasite tests, including SNAP^®4Dx^®, SNAP^® 3Dx^® and SNAP^® Heartworm RT, are greater in the first half of our fiscal year due to seasonality of disease testing in the veterinary practice.

In addition to our single-use tests, we sell a line of microwell-based test kits under the PetChek^® name for canine heartworm, FIV and FeLV. Larger clinics and laboratories use these kits to test multiple samples and provide ease-of-use and cost advantages to high-volume customers.

We expect to introduce SNAP^®4Dx^® Plus to the U.S. market during the second quarter of 2012, pending approval from the U.S. Department of Agriculture (“USDA”). This next generation product tests for two additional tick-borne analytes, Ehrlichia ewingii and Anaplasma platys, in addition to those analytes currently tested by SNAP^®4Dx^®.

Reference Laboratory Diagnostic and Consulting Services

Reference Laboratory Diagnostic Services. We offer commercial reference laboratory diagnostic and consulting services to veterinarians in the U.S., Canada, Europe, Australia, Japan, South Africa, China and South Korea and to bioresearch customers in the U.S. and Europe. Customers use our services by submitting samples by courier or overnight delivery to one of our facilities. Most test results have same-day or next-day turnaround times. Our laboratories offer a large selection of tests and diagnostic panels to detect a number of disease states and other conditions in animals, including virtually all tests that can be run in-clinic at the veterinary practice with our instruments or rapid assays. This menu of tests also includes a number of specialized and proprietary tests that we have developed that allow practitioners to diagnose increasingly relevant diseases in dogs and cats, including heart disease, pancreatitis and certain infectious diseases.

In November 2011, we acquired the research and diagnostic laboratory (“RADIL”) business of the College of Veterinary Medicine from the University of Missouri. RADIL provides health monitoring and diagnostic testing services to bioresearch customers. The financial results of RADIL are reflected in the financial results of our reference laboratory diagnostic and consulting services business. The acquisition of RADIL did not have a material effect on our results of operation in 2011 and are not expected to have a material effect on our results of operation in 2012.

Consulting Services. Additionally, we provide specialized veterinary consultation, telemedicine and advisory services, including radiology, cardiology, internal medicine and ultrasound consulting. These services enable veterinarians to obtain readings and interpretations of test results transmitted by telephone and over the Internet.

Practice Management Systems and Digital Radiography

Practice Management Systems and Services. We develop, market and sell practice management systems, including hardware and software, and services that run key functions of veterinary clinics, including managing patient electronic health records, scheduling (including boarding and grooming), reminders, billing and inventory management. Our principal practice management system is Cornerstone^®. We also support several legacy practice management systems installed with our customers, including IDEXX Better Choice^®, IDEXX VPM^™ and IDEXX VetLINK^®. Our services include Cornerstone^® Coaching, Practice Profile™, Reminder Service, SmartService™ Solutions, VetVault^® Backup Solution and PetDetect^® Pet Identification System. Certain of our services are compatible with non-IDEXX practice management systems. We derive a significant portion of our revenues for this product line from ongoing service contracts.

Digital Radiography Systems and Services. Our digital radiography systems capture radiographic images in digital form, replacing traditional x-ray film and the film development process, which generally requires the use of hazardous chemicals and darkrooms. We market and sell two digital radiography systems for use in the small animal veterinary hospital: the IDEXX-DR™ 1417 and the IDEXX I-Vision CR™. The I-Vision CR™ is our latest generation computed radiography system, which we launched in January 2011. We also market and sell the IDEXX EquiView^® DR system for use as a portable unit in ambulatory veterinary practices, such as equine practices.

Our digital radiography systems use IDEXX-PACS^™ and IDEXX EquiView PACS^™ picture archiving and communication system (“PACS”) software for the viewing, manipulation, management, storage and retrieval of the digital images generated by the digital capture plate. The PACS software also permits images from our digital radiography systems to be integrated into patients’ medical records in the Cornerstone^® system, as well as transferred to other practice management systems. In September 2011, we launched IDEXX I-Vision Mobile^™, an application that allows veterinarians with the IDEXX-DR™ 1417 and IDEXX I-Vision CR™ systems, as well as our legacy digital radiography systems, to request, view and send images using an iPad^®or an Android^® mobile tablet. This application integrates with our IDEXX-PACS^™ software.

WATER

We offer a range of products used in the detection and quantification of various microbiological parameters in water.

Our principal products are the Colilert^®, Colilert^®-18 and Colisure^® tests, which simultaneously detect the presence of total coliforms and E. coli in water. These organisms are broadly used as indicators of microbial contamination in water. These products utilize indicator-nutrients that produce a change in color or fluorescence when metabolized by target microbes in the sample. Our water tests are used by government laboratories, water utilities and private certified laboratories to test drinking water in compliance with regulatory standards, including 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.

Our Enterolert^® products detect the presence of enterococci in drinking, waste and recreational waters. Enterococci, bacteria normally found in human and animal waste, are organisms broadly used as an indicator of microbial contamination in water. Our Pseudalert™ products detect the presence of pseudomonas in pool, spa and bottled waters. Pseudomonas is a pathogen that can cause “hot-tub rash,” “swimmer’s ear” and potentially fatal infections in immunocompromised individuals. Our Filta-Max^® and Filta-Maxxpress^® products are used in the detection of Cryptosporidium and Giardia in water. Cryptosporidium and Giardia are parasites that can cause potentially fatal gastrointestinal illness if ingested. We also distribute certain water testing kits manufactured by Life Technologies Corporation that complement our Cryptosporidium and Giardia testing products.

Our Quanti-Tray^® products, when used in conjunction with our Colilert^®, Colilert^®-18, Colisure^®, Enterolert^® or Pseudalert™ products, provide users quantitative measurements of microbial contamination, rather than a presence/absence indication. Our SimPlate for heterotropic plate count product detects the total number of the most common bacteria in a water sample.

We also sell consumables, parts and accessories to be used with many of our water testing products.

LIVESTOCK AND POULTRY DIAGNOSTICS

We sell diagnostic tests and related instrumentation that are used to detect a wide range of diseases and to monitor health status in livestock and poultry. Our livestock and poultry diagnostic products are purchased by government and private laboratories that provide testing services to cattle, swine and poultry veterinarians and producers. Our principal products include tests for Bovine Viral Diarrhea Virus (“BVDV”), Porcine Reproductive and Respiratory Syndrome (“PRRS”) and Bovine Spongiform Encephalopathy (“BSE” or “mad cow disease”). BVDV is a common and contagious viral infection that suppresses the immune system, making the animal susceptible to a host of other infections, impacting beef and dairy production yields as a result. PRRS is a contagious virus causing reproductive problems and respiratory diseases. BSE is a fatal neurodegenerative disease in cattle that causes a spongy degeneration in the brain and spinal cord.

OTHER

Dairy

The principal products in our Dairy business are our SNAP^® tests used to detect antibiotic drug-residue in milk. Dairy producers and processors worldwide use our tests for quality and safety assurance of raw milk. Our primary product line for detecting antibiotic residue in milk is SNAP^® Beta-Lactam, which detects penicillin, amoxicillin, ceftiofur and cephaphirin residues, followed by SNAPduo^® Beta-Tetra, which detects certain tetracycline antibiotic residues in addition to those detected by the SNAP^® Beta Lactam test kits. We also sell SNAP^®tests for the detection of certain other contaminants in milk, such as chemical melamine and Alfatoxin M1.

OPTI Medical Systems

We sell OPTI^® point-of-care analyzers and related consumables for use in human medical hospitals and clinics to measure electrolytes, blood gases, acid-base balance, glucose, lactate, BUN and ionized calcium, and to calculate other parameters such as base excess and anion gap. These analyzers are used primarily in emergency rooms, operating rooms, cardiac monitoring areas and other locations where time-critical diagnostic testing is performed within the hospital setting. The OPTI^® CCA and OPTI^® Touch Electrolyte and Blood Gas Analyzers run single-use disposable cassettes that contain various configurations of analytes; the OPTI^® R Analyzer runs reusable cassettes in various analyte configurations; and the OPTI^® LION Stat Electrolyte Analyzer runs single-use electrolyte cassettes. OPTI Medical Systems also manufactures our VetStat^® analyzer and provides the electrolyte module and dry slide reagents that make up the electrolyte testing functionality of the Catalyst Dx^® analyzer.

Other Activities

In the fourth quarter of 2008, we sold our Acarexx^® and SURPASS^® veterinary pharmaceutical products and a feline insulin product under development. Upon completion of this transaction we restructured the remaining pharmaceutical division and realigned two of our pharmaceutical product lines to the Rapid Assay line of business, which is part of CAG, and realigned the remainder of the products, which comprised of one product line and two out-licensing arrangements in effect at the time of the realignment, to the Other segment. We retained certain drug delivery technologies that we have continued to seek to commercialize through agreements with third parties, such as pharmaceutical companies, that we also include in the Other segment. See Note 22 to the consolidated financial statements for the year ended December 31, 2011 included in this Annual Report on Form 10-K for additional information regarding the restructuring of our pharmaceutical business. Since realignment to the Rapid Assay line of business, we have discontinued the production and sale of one of the remaining pharmaceutical product lines. Neither this product line nor the second remaining product line is or was a significant contributor to revenue in the Rapid Assay line of business.

MARKETING AND DISTRIBUTION

We market, sell and service our products worldwide through our marketing, sales and technical service groups, as well as through independent distributors and other resellers. We maintain sales offices outside the U.S. in Australia, Canada, China, France, Germany, Italy, Japan, the Netherlands, Spain, Switzerland, Taiwan, the United Kingdom, South Africa, Poland and South Korea. Sales and marketing expense was $204.9 million, $179.6 million and $167.7 million for the twelve months ended December 31, 2011, 2010 and 2009, respectively, or 16.8% of revenue in 2011 and 16.3% of revenue in each of 2010 and 2009.

Generally, we select the appropriate distribution channel for our products based on the type of product, technical service requirements, number and concentration of customers, regulatory requirements and other factors. We market our companion animal 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 rapid assay test kits and instrument consumables supplied primarily by distributors. Outside the U.S., we sell our companion animal diagnostic products through our direct sales force and, in certain countries, through distributors and other resellers. We sell our veterinary reference laboratory diagnostic and consulting services worldwide through our direct sales force. We market our software and digital radiography products through our direct sales force and through distributors primarily in the U.S. and Canada. We market our water, livestock and poultry and dairy products primarily through our direct sales force in the U.S. and Canada. Outside the U.S. and Canada, we market these products through selected independent distributors and, in certain countries, through our direct sales force. We sell our OPTI^® electrolyte and blood gas analyzers both directly and through independent human medical product distributors in the U.S. and we sell most of the related consumables through the distribution channel. Outside the U.S., we sell our OPTI^® products primarily through distributors and other resellers.

Our largest customers are our U.S. distributors of our products in the CAG segment. One of our CAG distributors, Butler Schein Animal Health Supply, LLC (“Butler”), accounted for 9% of our revenue in each of 2011 and 2010. Butler was formed in December 2009 when Butler Animal Health Supply, LLC combined with the U.S. animal health business of Henry Schein, Inc. Together these organizations accounted for 10% of our revenue in 2009.

RESEARCH AND DEVELOPMENT

Our business includes the development and introduction of new products and services and may involve entry into new business areas. We maintain active research and development programs in each of our business areas. Our research and development expenses, which consist of salaries, employee benefits, materials and external consulting and development costs, were $76.0 million, $68.6 million and $65.1 million for the twelve months ended December 31, 2011, 2010 and 2009, respectively, or 6.2% of revenue in 2011 and 2010 and 6.3% of revenue in 2009.

PATENTS AND LICENSES

We actively seek to obtain patent protection in the U.S. and other countries for inventions covering our products and technologies. We also license patents and technologies from third parties.

Important patents and licenses include:

Exclusive licenses from the University of Texas and Tulane University to patents that expire in 2017 and 2019, respectively, relating to reagents and methods for the detection of Lyme disease utilized in certain of our SNAP^® products and a reference laboratory diagnostic test;

A patent concerning the Colilert^®-18 product that expires in 2014;

A patent concerning the Quanti-Tray^® product that expires in 2014;

A patent that relates to certain methods and kits for simultaneously detecting antigens and antibodies, which covers certain of our SNAP^® products, including our canine and feline combination tests, that expires in 2014;

Patents covering various reagents, kits and/or immunoassays for detecting FIV antibodies utilized in certain of our SNAP^® products that expire beginning in 2014;

An exclusive license from Boehringer Ingelheim to certain patents covering reagents and methods for detecting PRRS that expire in 2014; and

An exclusive license from Cornell University to patents covering methods for detecting BVDV that expire beginning in 2017.

To the extent some of our products may now, or in the future, embody technologies protected by patents, copyrights or trade secrets of others, we may be required to obtain licenses to such technologies in order to continue to sell our products. These licenses may not be available on commercially reasonable terms or at all. Our failure to obtain any such licenses may delay or prevent the sale of certain new or existing products. See “Part I, Item 1A. Risk Factors.”

PRODUCTION AND SUPPLY

Many of the instruments that we sell are manufactured by third parties and we rely on third parties to supply us with certain important components, raw materials and consumables used in or with our products. In some cases these third parties are sole or single source suppliers.

Instruments and consumables.

Significant products supplied by sole and single source providers include VetTest^® analyzers and consumables, Catalyst Dx^® consumables (other than electrolyte consumables), LaserCyte^® consumables and VetAutoread^™, VetLyte^®, Coag Dx^™ and ProCyte^® analyzers and consumables.

VetTest^® slides and Catalyst Dx^® chemistry slides are supplied by Ortho under supply agreements that are currently set to expire at the end of 2028. We are required to purchase all of our requirements for our current menu of VetTest^®slides and Catalyst Dx^® chemistry slides from Ortho to the extent Ortho is able to supply those requirements. Through 2012, the agreements provide for price increases based upon the U.S. Producer Price Index. Starting in 2013, the agreements provide for pricing based on purchase volumes and a fixed annual inflationary adjustment. The agreements also prohibit Ortho from promoting and selling these chemistry slides in the veterinary market other than to IDEXX.

We purchase other analyzers and consumables under supply agreements with terms ranging up to 21 years, which in some cases may be extended at our option. We have minimum purchase obligations under some of these agreements, and our failure to satisfy these obligations may result in loss of some or all of our rights under these agreements. See “Part I, Item 1A. Risk Factors.”

Other components.

We purchase certain other products, raw materials and components from sole and single source suppliers. These products include certain digital radiography systems and certain components used in our SNAP^® rapid assay and dairy devices, livestock and poultry testing kits and water testing products.

Certain components incorporated into our SNAP^® products are supplied by Moss, Inc. (“Moss”) under a supply agreement that Moss may terminate with 24 months notice. We are required annually to purchase a minimum amount from Moss equal to our average purchase volumes in 2004, 2005 and 2006. Annual price increases are capped at 3%. Pursuant to the terms of the supply agreement, Moss has escrowed its manufacturing information relating to the components, which may be released to us upon certain triggering events that would render Moss incapable of supplying the components to us. If such a triggering event occurs, we will make royalty payments to Moss for the use of such information until Moss is able to again begin manufacturing.

We have been successful in ensuring an uninterrupted supply of products purchased from single source suppliers. However, there can be no assurance that uninterrupted supply can be maintained if these agreements terminate for any reason or our suppliers otherwise are unable to satisfy our requirements for products. See “Part I, Item 1A. Risk Factors.”

We do not generally maintain significant backlog and believe that our backlog at any particular date historically has not been indicative of future sales.

COMPETITION

We face intense competition within the markets in which we sell our products and services. This competition is intensifying and increasing, as new competitors have entered our markets and some of our competitors have expanded the range of products and services offered to the companion animal veterinary market and expanded the geographic scope of their operations. In addition, we have to compete with changing technologies, which could affect the marketability of our products and services. Our competitive position will depend on our ability to develop proprietary or highly differentiated products and services, integrate our products, develop and maintain effective sales channels, attract and retain qualified scientific and other personnel, develop and implement production and marketing plans, obtain or license patent rights, and obtain adequate capital resources.

We compete with many companies ranging from large human pharmaceutical and medical diagnostics companies to small businesses focused on animal health. Our companion animal veterinary diagnostic products and services compete with both reference laboratory service and in-clinic product providers. Our competitors vary in our different markets. In some markets, academic institutions, governmental agencies and other public and private research organizations conduct research activities and may commercialize products or services, which could compete with our products, on their own or through joint ventures. Several of our direct and indirect competitors have substantially greater capital, manufacturing, marketing, and research and development resources than we do.

Competitive factors in our different business areas are detailed below:

Companion animal diagnostic offerings. We compete primarily on the basis of ease of use and speed of our products, diagnostic accuracy, product quality, breadth of our product line and services, technology, information management, availability of medical consultation, effectiveness of our sales and distribution channels, quality of our technical and customer service, and our pricing relative to the value of our products and services in comparison with competitive products and services. We compete in most geographic locations in North America with Antech Diagnostics, a unit of VCA Antech, Inc., and Abaxis, Inc.

Water, livestock and poultry and dairy testing products. We compete primarily on the basis of the ease of use, speed, accuracy, product quality, and other performance characteristics of our products and services (including unique tests), the breadth of our product line and services, the effectiveness of our sales and distribution channels, the quality of our technical and customer service, and our pricing relative to the value of our products in comparison with competitive products and services.

Practice management and digital radiography systems. We compete primarily on the basis of functionality, connectivity to equipment and other systems, performance characteristics, effectiveness of our customer service, information handling capabilities, advances in technologies, and our pricing relative to the value of our products and services. We compete in most geographic locations in North America with Butler with respect to our practice management products and services.

Electrolyte and blood gas analyzers for the human point-of-care medical diagnostics market. We compete primarily with large human medical diagnostics companies such as Radiometer A/S, Siemens Medical Solutions Diagnostics, Instrumentation Laboratory, Abbott Diagnostics, and Roche Diagnostics. We compete primarily on the basis of the ease of use, menu, convenience, international distribution and service, instrument reliability, and our pricing relative to the value of our products.

GOVERNMENT REGULATION

Many of our products are subject to comprehensive regulation by U.S. and foreign regulatory agencies that relate to, among other things, product approvals, manufacturing, distribution, marketing and promotion, labeling, recordkeeping, testing, quality, storage, and product disposal. The following is a description of the principal regulations affecting our businesses.

Veterinary diagnostic products. Diagnostic tests for animal health infectious diseases, including most of our livestock and poultry products and our rapid assay products, are regulated in the U.S. by the Center for Veterinary Biologics within the United States Department of Agriculture (“USDA”) Animal and Plant Health Inspection Service (“APHIS”). These products must be approved by APHIS before they may be sold in the U.S. The APHIS regulatory approval process involves the submission of product performance data and manufacturing documentation. Following 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 to market 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. We also are required to have a facility license from APHIS to manufacture USDA-licensed products and are required to obtain special approval to import products into to the U.S. for distribution from our manufacturing facility in Montpellier, France. We have a facility license for our manufacturing facility in Westbrook, Maine and our distribution center in Memphis, Tennessee. Our manufacturing facility in Montpellier, France has been approved by APHIS and we have a permit to import products manufactured in Montpellier, France to the U.S. for distribution.

Our veterinary diagnostic instrument systems are veterinary medical devices regulated by the U.S. FDA under the Food, Drug and Cosmetics Act (the “FDC Act”). While the sale of these products does not require premarket approval by the FDA and does not subject us to the FDA’s current Good Manufacturing Practices regulations (“cGMP”), these products must not be adulterated, mislabeled or misbranded under the FDC Act.

These instrument systems also are subject to the European Medical Device Directives, which create a single set of medical device regulations for all European Union (“EU”) member countries and require companies that wish to manufacture and distribute medical devices in EU member countries to obtain European Conformity (“CE”) marking for their products.

Water testing products. Our water tests are not subject to formal premarket regulatory approval. However, before a test can be used as part of a water quality monitoring program in the U.S. that is required by the 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 before final approval. Our Colilert^®, Colilert^®-18, Colisure^®, Quanti-Tray^®, Filta-Max^®, Enterolert^®, and SimPlate^® for heterotropic plate counts products have been approved by the EPA. The sale of water testing products also is subject to extensive and lengthy regulatory processes in many other countries around the world.

Dairy testing products. Dairy products used in National Conference on Interstate Milk Shipments (“NCIMS”) milk-monitoring programs are regulated by the FDA as veterinary medical devices. However, before products requiring FDA approval can be sold in the U.S., performance data must be submitted in accordance with an FDA approved protocol administered by an independent body, such as the Association of Analytical Communities Research Institute (“AOAC RI”). Following approval of a product by the FDA, the product must also be approved by NCIMS, an oversight body that includes state, federal and industry representatives. Our SNAP^® Beta-Lactam antibiotic residue test products have been approved by the FDA, NCIMS and AOAC RI for sale in the U.S. While some foreign countries accept AOAC RI approval as part of their regulatory approval process, many countries have separate regulatory processes.

Human point-of-care electrolyte and blood gas analyzers. Our OPTI^® instrument systems are classified as Class II medical devices, and their design, manufacture and marketing are regulated by the FDA. Accordingly, we must comply with cGMP in the manufacture of our OPTI^® products. The FDA’s Quality System regulations further set forth standards for product design and manufacturing processes, require the maintenance of certain records and provide for inspections of our facilities by the FDA. New OPTI^® products fall into FDA classifications that require notification of and review by the FDA before marketing, and which are submitted as a 510(k) application.

OPTI^® Medical products are also subject to the European Medical Device Directives and regulations governing the manufacture and marketing of medical devices in other countries in which they are sold.

Any acquisitions of new products and technologies may subject us to additional areas of government regulation. These may involve food, medical device and water-quality regulations of the FDA, the EPA and the USDA, as well as state, local and foreign governments. See “Part I, Item 1A. Risk Factors.”

EMPLOYEES

At February 10, 2012, we had approximately 5,100 full-time and part-time employees.

ITEM 1A. RISK FACTORS

Our future operating results 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.

Our Failure to Successfully Execute Certain Strategies Could Have a Negative Impact on Our Growth and Profitability

The companion animal health care industry is highly competitive and we anticipate increasing levels of competition from both existing competitors and new market entrants. Our ability to maintain or enhance our growth rates and our profitability depends on our successful execution of many elements of our strategy, which include:

Developing, manufacturing and marketing innovative new or improved in-clinic laboratory analyzers that drive sales of IDEXX VetLab^® instruments, grow our installed base of instruments, and increase demand for related consumable products, services and accessories;

Developing and introducing new proprietary diagnostic tests and services that provide valuable medical information to our customers and effectively differentiate our products and services from those of our competitors;

Increasing the value to our customers of our companion animal products and services by enhancing the integration of these products and the management of diagnostic information derived from our products;

Providing our veterinary customers with the medical and business tools, information and resources that enable them to grow their practices through increased pet visits and enhanced practice of real-time care;

Achieving cost improvements in our worldwide network of laboratories by implementing global best practices including lean processing techniques, incorporating technological enhancements including laboratory automation and a global laboratory information management system, employing purchasing strategies to maximize leverage of our global scale, increasing the leverage of existing infrastructure and consolidating testing in high volume laboratory hubs;

Achieving cost improvements in the manufacture and service of our in-clinic laboratory analyzers by employing the benefits of economies of scale in both negotiating supply contracts and leveraging manufacturing overhead, and by improving reliability of our instruments;

Expanding our served market and growing our market share by strengthening our sales and marketing activities both within the U.S. and in geographies outside of the U.S.;

Identifying, completing and integrating acquisitions that enhance our existing businesses or create new business or geographic areas for us; and

Developing and implementing new technology and licensing strategies.

If we are unsuccessful in implementing and executing on some or all of these strategies, our rate of growth or profitability may be negatively impacted.

Our Dependence on a Limited Number of Suppliers Could Limit Our Ability to Sell Certain Products or Reduce Our Profitability

We currently purchase many products and materials from sole or single sources. Some of the products that we purchase from these sources are proprietary and, therefore, cannot be readily or easily replaced by alternative sources. These products include our ProCyte Dx^® hematology, IDEXX VetAutoread^™ hematology, VetLyte^® electrolyte, IDEXX VetLab^® UA^™ urinalysis, VetTest^® chemistry, and Coag Dx^™ blood coagulation analyzers and related consumables and accessories; image capture plates used in our digital radiography systems; Catalyst Dx^® and VetTest^® consumables; and certain components and raw materials used in our SNAP^® rapid assay devices, water testing products, livestock and poultry diagnostic tests, dairy testing products and LaserCyte^® hematology analyzers. To mitigate risks associated with sole and single source suppliers, we seek when possible to enter into long-term contracts that ensure an uninterrupted supply of products at predictable prices. However, some suppliers decline to enter into long-term contracts and we are required to purchase products on a purchase order basis. There can be no assurance that suppliers with which we do not have contracts will continue to supply our requirements for products, that suppliers with which we do have contracts will always fulfill their obligations under these contracts, or that any of our suppliers will not experience disruptions in their ability to supply our requirements for products. In cases where we purchase sole and single source products or components under purchase orders, we are more susceptible to unanticipated cost increases or changes in other terms of supply. In addition, under some contracts with suppliers we have minimum purchase obligations and our failure to satisfy those obligations may result in loss of some or all of our rights under these contracts or, as in the case of our contract with Moss, Inc. (“Moss”), require us to compensate the supplier. Moss supplies us with certain components incorporated into our SNAP^® products. If we are unable to obtain adequate quantities of sole and single source products in the future, we may be unable to supply the market, which could have a material adverse effect on our results of operations.

Our Biologic Products Are Complex and Difficult to Manufacture, Which Could Negatively Affect Our Ability to Supply the Market

Many of our rapid assay, livestock and poultry diagnostic, water and dairy products are biologics, which are products that are comprised of materials from living organisms, such as antibodies, cells and sera. Manufacturing biologic products is highly complex. Unlike products that rely on chemicals for efficacy (such as most pharmaceuticals), biologics are difficult to characterize due to the inherent variability of biological input materials. Difficulty in characterizing biological materials or their interactions creates greater risk in the manufacturing process. There can be no assurance that we will be able to maintain adequate sources of biological materials or that biological materials that we maintain in inventory will yield finished products that satisfy applicable product release criteria. Further, products that meet release criteria may fall out of specification while in customer inventory, which could necessitate field actions that would require the Company to incur expenses associated with recalling products and providing customers with new products and could damage customer relations. Our inability to produce or obtain necessary biological materials or to successfully manufacture biologic products that incorporate such materials could result in our inability to supply the market with these products, which could have a material adverse effect on our results of operations.

A Weak Economy Could Result in Reduced Demand for Our Products and Services or Increased Customer Credit Risk

A substantial percentage of our sales are made worldwide to the companion animal veterinary market. Demand for our companion animal diagnostic products and services is driven in part by the number of pet visits to veterinary hospitals and the practices of veterinarians with respect to the recommendations for diagnostic testing and the pet owner compliance with these recommendations. Economic weakness in our significant markets in recent years has caused and could continue to cause pet owners to skip or defer visits to veterinary hospitals or could affect their willingness to approve certain diagnostic tests, comply with a treatment plan or, even more fundamentally, continue to own a pet. In addition, concerns about the financial resources of pet owners could cause veterinarians to be less likely to recommend certain diagnostic tests and concerns about the economy may cause veterinarians to defer purchasing capital items such as our instruments and systems. A decline in pet visits to the hospital, in the willingness of pet owners to treat certain health conditions or approve certain tests, in pet ownership, or in the inclination of veterinarians to recommend certain tests or make capital purchases could result in a decrease in sales of diagnostic products and services, which could have a material adverse effect on our results of operations.

Demand for our water products is driven in part by the availability of funds at the government laboratories, water utilities and private certified laboratories that utilize our products. Availability of funds also affects demand by the government laboratories and cattle, swine and poultry producers that utilize our livestock and poultry diagnostic products, and by users of our human point-of-care diagnostic instruments. Economic weakness in our markets has caused and could continue to cause our customers to reduce their investment in such testing, which could have a material adverse effect on our results of operations.

In all of our markets, a weak economy may also cause deterioration in the financial condition of our distributors and customers, which could inhibit their ability to pay us amounts owed for products delivered or services provided in a timely fashion or at all.

Strengthening of the Rate of Exchange for the U.S. Dollar Has a Negative Effect on Our Business

Any strengthening of the rate of exchange for the U.S. dollar against non-U.S. currencies, and in particular the Euro, British pound, Canadian dollar, Japanese yen and Australian dollar, adversely affects our results, as it reduces the dollar value of sales that are made in those currencies and reduces the profits on products manufactured or sourced in U.S. dollars and exported to international markets. For the years ended December 31, 2011, 2010 and 2009, approximately 26%, 25% and 24%, respectively, of our revenue was derived from products manufactured in the U.S. and sold internationally in local currencies. To mitigate such foreign currency exposure, we utilize non-speculative forward currency exchange contracts. A strengthening U.S. dollar could also negatively impact the ability of customers outside the U.S. to pay for purchases denominated in U.S. dollars.

Various Government Regulations Could Limit or Delay Our Ability to Market and Sell Our Products

In the U.S., the manufacture and sale of our products are regulated by agencies such as the United States Department of Agriculture (“USDA”), the U.S. Food and Drug Administration (“FDA”) and the U.S. Environmental Protection Agency (“EPA”). Our infectious disease diagnostic tests for animal health applications, including most rapid assay canine and feline SNAP^® tests and livestock and poultry diagnostic tests, must be approved by the USDA prior to sale in the U.S. Our water testing products must be approved by the EPA before they can be used by customers in the U.S. as a part of a water quality monitoring program required by the EPA. Our dairy testing products require approval by the FDA. The manufacture and sale of our OPTI^® line of human point-of-care electrolytes and blood gas analyzers are regulated by the FDA and these products require approval by the FDA before they may be sold commercially in the U.S. The manufacture and sale of our products are subject to similar laws in many foreign countries. Any failure to comply with legal and regulatory requirements relating to the manufacture and sale of our products in the U.S. or in other countries could result in fines and sanctions against us or suspensions or discontinuations of our ability to manufacture or sell our products, which could have a material adverse effect on our results of operations. In addition, delays in obtaining regulatory approvals for new products or product upgrades could have a negative impact on our growth and profitability.

The Duration and Resolution of the FTC Investigation into Our Marketing and Sales Practices for Companion Animal Veterinary Products and Services are Unpredictable

In January 2010, we received a letter from the U.S. Federal Trade Commission (“FTC”), stating that it was conducting an investigation to determine whether IDEXX or others have engaged in, or are engaging in, unfair methods of competition in violation of Section 5 of the Federal Trade Commission Act (“FTC Act”), through pricing or marketing policies for companion animal veterinary products and services, including but not limited to exclusive dealing or tying arrangements with distributors or end-users of those products or services. The letter requested that we preserve all materials potentially relevant to this investigation. The letter stated that the FTC has not concluded that IDEXX or anyone else has violated Section 5 of the FTC Act.

We received subpoenas from the FTC, on April 15, 2010 and August 8, 2011, requesting that we provide the FTC with documents and information relevant to this investigation and we are cooperating fully with the FTC in its investigation. We believe that the FTC staff is nearing conclusion of its investigations and that the FTC is commencing its internal process to determine whether to file a complaint against IDEXX in the administrative law court within the FTC. We now understand that the FTC is considering whether IDEXX has violated Section 2 of the Sherman Antitrust Act and is not focusing on potential violations of Section 5 of the FTC Act. In an administrative action the FTC would have the power to seek prospective remedies but not financial penalties.

We believe that our marketing and sales practices for companion animal veterinary products and services do not violate applicable antitrust laws. However, we cannot predict whether the FTC investigation will lead to an enforcement proceeding, or what the outcome of that proceeding would be. Were this investigation to lead to an enforcement proceeding, we would defend ourselves vigorously. Were we to be unsuccessful in defending this proceeding and any applicable appeals, we could be subject to restrictions on certain of our marketing and sales practices. While we cannot be certain about what prospective remedies would be sought by the FTC in any such proceeding, we believe that any required changes in our marketing or sales practices would not have a material adverse effect on our financial statements.

Our Success Is Heavily Dependent Upon Our Proprietary Technologies

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

We cannot ensure 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. Even if our patents cover products sold by our competitors, the time and expense of litigating to enforce our patent rights could be substantial, and could have a material adverse effect on our results of operations. In addition, expiration of patent rights could result in substantial new competition in the markets for products previously covered by those patent rights.

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 ensure that we will win a patent litigation case or negotiate an acceptable resolution of 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.

Distributor Purchasing Patterns Could Negatively Affect Our 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. Distributor purchasing patterns can be unpredictable and may be influenced by factors unrelated to the end-user demand for our products. In addition, our agreements with distributors may generally be terminated by the distributors for any reason on 60 days notice. Because significant product sales are made to a limited number of distributors, the unanticipated loss of a distributor or unanticipated changes in the frequency, timing or size of distributor purchases, could have a negative effect on our results of operations.

Distributors of veterinary products have entered into business combinations resulting in fewer distribution companies. Consolidation within distribution channels increases our customer concentration level, which could increase the risks described in the preceding paragraph. See “Part I. Item 1 Business – Marketing and Distribution” in our Annual Report on Form 10-K for additional information.

Increased Competition and Technological Advances by Our Competitors Could Negatively Affect Our Operating Results

We face intense competition within the markets in which we sell our products and services and we expect that future competition may become even more intense. Competition could negatively affect our sales and profitability in a number of ways. New competitors may enter our markets and new or existing competitors may introduce new and competitive products and services, which could be superior to our products and services. In addition, multiple competitors could bundle product and service offerings through co-marketing or other arrangements, which could enhance their ability to compete with our broad product and service offering. Some of our competitors and potential competitors, including large diagnostic and pharmaceutical companies, have substantially greater financial resources than us, and greater experience in manufacturing, marketing, research and development and obtaining regulatory approvals than we do. Some of our competitors and potential competitors may choose to differentiate themselves by offering similar products and services to ours at lower sales prices, which could have a material adverse effect on our results of operations through loss of market share or a decision to lower our own sales prices to remain competitive.

Changes in Testing Patterns Could Negatively Affect Our Operating Results

The market for our companion animal and livestock and poultry diagnostic tests and our dairy and water testing products could be negatively impacted by a number of factors impacting testing practices. The introduction or broad market acceptance of vaccines or preventatives for the diseases and conditions for which we sell diagnostic tests and services could result in a decline in testing. Changes in accepted medical protocols regarding the diagnosis of certain diseases and conditions could have a similar effect. Eradication or substantial declines in the prevalence of certain diseases also could lead to a decline in diagnostic testing for such diseases. Our livestock and poultry products business in particular is subject to fluctuations resulting from changes in disease prevalence. In addition, changes in government regulations or in the availability of government funds available for monitoring programs could negatively affect sales of our products that are driven by compliance testing, such as our livestock and poultry, dairy and water products. Declines in testing for any of the reasons described, along with lost opportunities associated with a reduction in veterinary visits, could have a material adverse effect on our results of operations.

Effective January 1, 2009, the age at which healthy cattle to be slaughtered are required to be tested for bovine spongiform encephalopathy (“BSE” or “mad cow disease”) in the European Union was increased from 30 months to 48 months, which reduced the population of cattle tested by approximately 30%. In February 2011, the European Union’s Standing Committee on the Food Chain and Animal Health agreed to allow its member states to further raise the recommended testing age to 72 months, effective July 1, 2011, which is further reducing the population of cattle tested. The demand for our BSE testing products has been negatively impacted as a result of these regulatory changes.

Increase in Corporate Hospital Ownership Could Negatively Affect Our Business

An increasing percentage of veterinary hospitals in the U.S. is owned by corporations that are in the business of acquiring veterinary hospitals and/or opening new veterinary hospitals nationally or regionally. Major corporate hospital owners in the U.S. include VCA Antech, Inc., National Veterinary Associates and Banfield Pet Hospital, each of which is currently a customer of IDEXX. A similar trend exists in the U.K. and may in the future also develop in other countries. Corporate owners of veterinary hospitals could attempt to improve profitability by leveraging the buying power they derive from their scale to obtain favorable pricing from suppliers, which could have a negative impact on our results of operations. While we have strong supplier relationships with several corporate hospital groups that we believe are positive for our business, decisions by larger corporate owners, in particular Banfield Pet Hospital, to shift their purchasing of products and services away from us and to a competitor would have a negative impact on our results of operations, which could be material. In addition, certain corporate owners, most notably VCA Antech, our primary competitor in the U.S. and Canadian markets for veterinary reference laboratory diagnostic services, also operate reference laboratories that serve both their hospitals and unaffiliated hospitals. Any hospitals acquired by these companies generally use their reference laboratory services almost exclusively and shift a large portion of their testing from in-clinic testing to their reference laboratories. Furthermore, because these companies compete with us in the reference laboratory services marketplace, hospitals acquired by these companies may cease to be customers or potential customers of our other companion animal products and services, which would cause our sales of these products and services to decline.

Our Limited Experience and Small Scale in the Human Point-of-Care Market Could Inhibit Our Success in this Market

We have limited experience in the human point-of-care medical diagnostics market and we operate at a small scale in this market. This market differs in many respects from the veterinary diagnostic market. Significant differences include the impact of third party reimbursement on diagnostic testing, more extensive regulation, greater product liability risks, larger competitors, a more segmented customer base and more rapid technological innovation. Our limited experience and small scale in the human point-of-care medical diagnostics market could negatively affect our ability to successfully manage the risks and features of this market that differ from the veterinary diagnostic market. There can be no assurance that we will be successful in achieving growth and profitability in the human point-of-care medical diagnostics market comparable to the results we have achieved in the veterinary diagnostic market.

Risks Associated with Doing Business Internationally Could Negatively Affect Our Operating Results

For the year ended December 31, 2011, approximately 43% of our revenue was attributable to sales of products and services to customers outside the U.S., compared to 41% for the year ended December 31, 2010. Various possible risks associated with foreign operations may impact our international sales, including 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 licensing requirements, natural disasters and unexpected regulatory and economic or political changes in foreign markets. Further, 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. Our results of operations are also susceptible to changes in foreign currency exchange rates. As a result, the mix of domestic and international sales in a particular period could have a material impact on our results of operations for that period.

Our Operations are Vulnerable to Interruption as a Result of Natural and Man-Made Disasters or System Failures

The operation of all of our facilities may be vulnerable to interruption as a result of natural and man-made disasters, interruptions in power supply or other system failures. While we maintain plans to continue business under such circumstances, there can be no assurance that such plans will be successful in fully or partially mitigating the effects of such events.

We manufacture many of our significant companion animal products, including our rapid assay devices and certain instruments, many of our water testing products and certain of our livestock and poultry testing products, at a single facility in Westbrook, Maine. Certain of our companion animal products, as well as our human point-of-care products, are manufactured in Roswell, Georgia. We also manufacture certain of our livestock and poultry testing products in Bern, Switzerland and Montpellier, France. In addition, we maintain major distribution facilities in North America and in the Netherlands and major reference laboratories in Memphis, Tennessee; Ludwigsburg, Germany; Sacramento, California; Elmhurst, Illinois; North Grafton, Massachusetts; East Brisbane, Australia; Markham, Ontario; and Wetherby, the United Kingdom. Therefore, interruption of operations at any of these facilities could have a material adverse effect on our results of operations.

We rely on several information systems throughout our company to keep financial records, process customer orders, manage inventory, process shipments to customers and operate other critical functions. If we were to experience a system disruption that impacts any of our critical functions, it could result in the loss of sales and customers, financial misstatement and significant incremental costs, which could adversely affect our business.

We maintain property and business interruption insurance to insure against the financial impact of certain events of this nature. However, this insurance may be insufficient to compensate us for the full amount of any losses that we may incur. In addition, such insurance will not compensate us for the long-term competitive effects of being out of the market for the period of any interruption in operations.

We Could Be Subject to Class Action Litigation Due to Stock Price Volatility, which, if it Occurs, Could Result in Substantial Costs or Large Judgments Against Us

The market for our common stock may experience extreme price and volume fluctuations, which may be unrelated or disproportionate to our operating performance or prospects. Securities class action litigation has often been brought against companies following periods of volatility in the market prices of their securities. We may be the target of similar litigation in the future. Securities litigation could result in substantial costs and divert our management’s attention and resources, which could have a negative effect on our business, operating results and financial condition.

If Our Quarterly or Annual Results of Operations Fluctuate, This Fluctuation May Cause Our Stock Price to Decline, Resulting in Losses to You

Our prior operating results have fluctuated due to a number of factors, including seasonality of certain product lines; changes in our accounting estimates; the impact of acquisitions; timing of distributor purchases, product launches, operating expenditures, changes in foreign currency exchange rates, litigation and claim-related expenditures; changes in competitors’ product offerings; changes in the economy affecting consumer spending; and other matters. Similarly, our future operating results may vary significantly from quarter to quarter or year to year due to these and other factors, many of which are beyond our control. If our operating results or projections of future operating results do not meet the expectations of market analysts or investors in future periods, our stock price may fall.

Future Operating Results Could Be Negatively Affected by the Resolution of Various Uncertain Tax Positions and by Potential Changes to Tax Incentives

In the ordinary course of our business, there are many transactions and calculations where the ultimate tax determination is uncertain. Significant judgment is required in determining our worldwide provision for income taxes. We periodically assess our exposures related to our worldwide provision for income taxes and believe that we have appropriately accrued taxes for contingencies. Any reduction of these contingent liabilities or additional assessments would increase or decrease income, respectively, in the period such determination was made. Our income tax filings are regularly under audit by tax authorities and the final determination of tax audits could be materially different than that which is reflected in historical income tax provisions and accruals. Additionally, we benefit from certain tax incentives offered by various jurisdictions. If we are unable to meet the requirements of such incentives, or if they expire or are renewed at less favorable terms, our inability to realize these benefits could have a material negative effect on future earnings.

Restrictions in Our Credit Facility or Our Inability to Obtain Financing on Favorable Terms May Limit Our Activities

In July 2011, we refinanced our existing $200 million unsecured revolving credit facility by entering into an amended and restated unsecured revolving credit facility (the new credit facility and the previous credit facility are referred to collectively as the “Credit Facility”) in the principal amount of $300 million. Our ability to satisfy our obligations under the Credit Facility depends on our future operating performance and on economic, financial, competitive and other factors beyond our control. Our business may not generate sufficient cash flows to meet these obligations or generate sufficient levels of earnings to satisfy the applicable affirmative, negative and financial covenants. Our failure to comply with these covenants and the other terms of the Credit Facility could result in an event of default and acceleration of our obligations under the Credit Facility, which may require us to seek additional financing or restructure existing debt and possibly on terms not deemed favorable.

We fund our operations, capital purchase requirements and strategic growth needs through cash on hand, funds generated from operations and amounts available under our Credit Facility. If we were unable to obtain financing on favorable terms, we could face restrictions that would limit our ability to execute certain strategies, which could have an adverse effect on our revenue growth and profitability.

ITEM 1B. UNRESOLVED STAFF COMMENTS

Not applicable.

ITEM 2. PROPERTIES

Our worldwide headquarters is located on a company-owned, 65-acre site in Westbrook, Maine where we occupy a 555,900 square foot building utilized for manufacturing, research and development, marketing, sales and general and administrative support functions.

Additional property ownership and leasing arrangements with approximate square footage, purpose and location are as follows:

Additional Properties Owned:

34,200 square feet of office and laboratory space located in the U.S., used for our Reference Laboratory Diagnostic and Consulting Services line of business

23,000 square feet of office and laboratory space located in the U.K., used for our Reference Laboratory Diagnostic and Consulting Services line of business

3,100 square feet of office and laboratory space located in Canada, used for our Reference Laboratory Diagnostic and Consulting Services line of business

Additional Properties Leased:

381,540 total square feet of laboratory, office and warehousing space located throughout the United States, Europe, Canada, Australia, Asia and Africa, primarily used for our Reference Laboratory Diagnostic and Consulting Services line of business

114,400 square feet of industrial space in Tennessee for distribution and warehousing related to various lines of business

108,600 square feet of distribution, warehousing and office space in the Netherlands, which serves as our European headquarters.

70,100 square feet of office, manufacturing and warehousing space in Georgia related to our OPTI Medical Systems line of business

69,300 square feet of office and manufacturing space in Wisconsin related to our Practice Management Systems line of business

67,000 square feet of office space in Maine for Corporate, Customer Service and IT support services

50,670 total square feet of office and manufacturing space in France and Switzerland related to our Livestock and Poultry Diagnostics line of business

7,600 square feet of office and manufacturing space in the U.K. related to our Water line of business

We believe that our owned and leased properties are generally in good condition, are well-maintained, and are generally suitable and adequate to carry on our business.

ITEM 3. LEGAL PROCEEDINGS

We are not a party to any material legal proceedings.

From time to time, we are subject to other legal proceedings and claims, which arise in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on our results of operations, financial condition or cash flows.

ITEM 4. NOT APPLICABLE

EXECUTIVE OFFICERS OF THE COMPANY

Our executive officers at February 17, 2012 were as follows:

Name	Age	Title

Jonathan W. Ayers	55	Chairman of the Board of Directors, President and Chief Executive Officer
William E. Brown III, PhD	57	Corporate Vice President and Chief Scientific Officer
Conan R. Deady	50	Corporate Vice President, General Counsel and Secretary
George J. Fennell	43	Corporate Vice President
Daniel V. Meyaard	54	Corporate Vice President
Ali Naqui, PhD	58	Corporate Vice President
James F. Polewaczyk	48	Corporate Vice President
Johnny D. Powers, PhD	50	Corporate Vice President
Merilee Raines	56	Corporate Vice President, Chief Financial Officer and Treasurer
Giovani Twigge	48	Corporate Vice President
Michael J. Williams, PhD	44	Corporate Vice President

Mr. Ayers has been Chairman of the Board, Chief Executive Officer and President of IDEXX since January 2002. Prior to joining IDEXX, from 1999 to 2001, Mr. Ayers was President of Carrier Corporation, the then-largest business unit of United Technologies Corporation, a provider of high-technology products and support services to customers in the aerospace and building industries worldwide, and from 1997 to 1999, he was President of Carrier’s Asia Pacific Operations. From 1995 to 1997, Mr. Ayers was Vice President, Strategic Planning at United Technologies. Before joining United Technologies, from 1986 to 1995, Mr. Ayers held various positions at Morgan Stanley & Co. in mergers and acquisitions and corporate finance. Prior to Morgan Stanley, Mr. Ayers was a strategy consultant for Bain & Company, a global management consulting firm, from 1983 to 1986 and was in the field sales organization of IBM’s Data Processing Division from 1978 to 1981. Mr. Ayers holds an undergraduate degree in molecular biophysics and biochemistry from Yale University and graduated from Harvard Business School in 1983.

Dr. Brown has been Corporate Vice President of the Company since December 2008 and was promoted to Chief Scientific Officer of the Company in March 2010. Prior to joining IDEXX, from 1982 to 2007, Dr. Brown held various positions at Abbott Laboratories, Inc., a broad-based healthcare company that manufactures and markets pharmaceuticals, medical products, and diagnostics, most recently as Corporate Officer and Divisional Vice President of R&D, Assays and Instrument Systems for the Diagnostic Division.

Mr. Deady has been Corporate Vice President and General Counsel of the Company since 1999 and has been leading the Company’s business development activities since April 2005 and its regulatory function since October 2008. Mr. Deady was Deputy General Counsel of the Company from 1997 to 1999. Before joining the Company in 1997, Mr. Deady was Deputy General Counsel of Thermo Electron Corporation (now Thermo Fisher Scientific Inc.), a provider of analytical and laboratory products and services. Previously, Mr. Deady was a partner at Hale and Dorr LLP (now Wilmer Cutler Pickering Hale and Dorr LLP).

Mr. Fennell joined IDEXX in June 2011 as a Corporate Vice President of the Company, and leads the Companion Animal Group Customer Facing Organization in North America. Mr. Fennell came to IDEXX from Pfizer Animal Health, a division of Pfizer Inc., the world’s largest research-based pharmaceutical company, where in April 2003 he began as head of marketing for the companion animal business. He then served as vice president of the U.S. Companion Animal Division from 2005 through 2010, and from January 2011, was Vice President, Pfizer Animal Genetics, Diagnostics and Aquaculture. Before his tenure at Pfizer, he held a series of sales, marketing and operational roles in the crop sciences business for American Cyanamid and BASF, diversified chemical companies.

Mr. Meyaard joined IDEXX as Corporate Vice President in September 2009 and oversees the Company’s worldwide operations function, including supply chain management, instrument and reagent manufacturing, quality assurance, facilities and operational excellence. Prior to joining the Company, from 1980 to 2009, Mr. Meyaard held various positions at multiple divisions of Siemens Healthcare Diagnostics, a clinical diagnostics company, and its predecessors, most recently as Vice President of Global Instrument Manufacturing for Siemens Medical Solutions Diagnostics.

Dr. Naqui has been Corporate Vice President of the Company since January 2006 and has overseen the Company’s international commercial operations since December 2007 and its Asia Pacific and Latin America operations since January 2006. Dr. Naqui led the Company’s Water and Dairy businesses from January 2000 to December 2007. He was General Manager of the Water business from September 1997 to January 2000, and Director of Research and Development from February 1993 to September 1997. Dr. Naqui joined the Company in 1993 as a result of the Company’s acquisition of Environetics, the original manufacturer of the Colilert water testing product line, where he was the Director of Research and Development. Prior to joining Environetics, he was a research and development manager with Becton, Dickinson and Company, a medical technology company.

Mr. Polewaczyk joined IDEXX as Corporate Vice President in February 2007 and oversees the Company’s Rapid Assay, Digital Imaging and Telemedicine lines of business. Before joining IDEXX, Mr. Polewaczyk was employed from 2001 to 2006 at Philips Medical Systems, a subsidiary of Royal Philips Electronics, the Netherlands, a healthcare, lifestyle and lighting technologies company, as General Manager of their Medical Consumables and Sensors Business. Prior to that, Mr. Polewaczyk spent 15 years at Hewlett-Packard Corporation, a technology company, in a variety of senior marketing and medical technology product development roles.

Dr. Powers joined IDEXX as Corporate Vice President in February 2009 and oversees the Company’s worldwide reference laboratories business. Prior to joining the Company, Dr. Powers was Vice President responsible for the Cancer Diagnostics business of Becton, Dickinson and Company, a medical technology company, from 2007 to 2008. Dr. Powers joined Becton, Dickinson and Company as a result of its acquisition in 2007 of TriPath Imaging Inc., a cancer screening products developer and manufacturer, where he held various positions from 2001 to 2007, most recently serving as President of the TriPath Oncology business unit. From 1996 to 2001, Dr. Powers was employed by Ventana Medical Systems, Inc., a developer and manufacturer of tissue-based diagnostic solutions, most recently as Vice President and General Manager of Manufacturing Operations. From 1989 to 1996, Dr. Powers was employed by Organon Teknika Corporation, a medical diagnostics company, in various technical manufacturing roles.

Ms. Raines has been Chief Financial Officer of the Company since October 2003 and Corporate Vice President, Finance of the Company since May 1995. Ms. Raines served as Vice President, Finance from March 1995 to May 1995, Director of Finance from 1988 to March 1995 and Controller from 1985 to 1988. . Ms. Raines has also served as a member of the board of directors of Watts Water Technologies, Inc. since February 2011. Watts Water Technologies is a publicly-traded manufacturer of products to control the efficiency, safety, and quality of water within residential, commercial, and institutional applications.

Mr. Twigge became a Corporate Vice President of the Company in August 2010 and oversees worldwide human resources. Before joining IDEXX, from 1999 to 2010, Mr. Twigge held various human resources leadership positions at Abbott Laboratories, Inc., a broad-based healthcare company that manufactures and markets pharmaceuticals, medical products, and diagnostics. Most recently Mr. Twigge was Divisional Vice President, HR, for Abbott Diagnostics. Prior to that, he served as Divisional Vice President, HR, for Abbott Nutrition International and as Regional HR Director for a number of international operations including those in Europe, Latin America/Canada and the Middle East.

Dr. Williams has been Corporate Vice President of the Company since September 2006 and General Manager of the Companion Animal Instrument and Consumables line of business since 2004. Dr. Williams has also overseen the OPTI Medical Systems business since its acquisition in January 2007. Dr. Williams was Vice President and General Manager of the Company’s chemistry instruments and consumables business from 2003 to 2004. Prior to joining the Company in 2003, Dr. Williams was a healthcare strategy consultant at McKinsey & Company, a management consulting firm, from 1995 to 2002, and a senior research associate at the Scripps Research Institute, a non-profit research organization, from 1992 to 1995.

PART II

ITEM 5.

MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Information

Our common stock is quoted on the NASDAQ Global Market under the symbol IDXX. The following table shows the quarterly range of high and low sale prices per share of our common stock as reported on the NASDAQ Global Market for the years 2011 and 2010.

For the Quarter Ended	High		Low

March 31, 2010	$	59.95	$	49.03
June 30, 2010		68.57		57.31
September 30, 2010		64.00		54.80
December 31, 2010		72.40		59.65

March 31, 2011		79.33		68.48
June 30, 2011		82.40		72.42
September 30, 2011		86.97		68.97
December 31, 2011		78.64		66.13

Holders of Common Stock

As of February 10, 2012, there were 741 holders of record of our common stock.

Purchases of Equity Securities by the Issuer

During the three months ended December 31, 2011, we repurchased shares of common stock as described below:

Period	Total Number of Shares Purchased (a)		Average Price Paid per Share (b)		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (c)		Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs (d)

October 1, 2011 to October 31, 2011		425,800	$	70.92		425,800		5,197,504
November 1, 2011 to November 30, 2011		425,900		72.22		425,900		4,771,604
December 1, 2011 to December 31, 2011		384,678		74.32		383,897		4,387,707
Total		1,236,378	$	72.43		1,235,597		4,387,707

As of December 31, 2011, our board of directors had approved the repurchase of up to 48,000,000 shares of our common stock in the open market or in negotiated transactions. The plan was approved and announced on August 13, 1999, and subsequently amended on October 4, 1999, November 16, 1999, July 21, 2000, October 20, 2003, October 12, 2004, October 12, 2005, February 14, 2007, February 13, 2008, February 10, 2010 and October 12, 2011 and does not have a specified expiration date. There were no other repurchase plans outstanding during the three months ended December 31, 2011, and no repurchase plans expired during the period. Repurchases of 1,235,597 shares were made during the three months ended December 31, 2011 in transactions made pursuant to our repurchase plan.

During the three months ended December 31, 2011, we received 781 shares of our common stock that were surrendered by employees in payment for the minimum required withholding taxes due on the vesting of restricted stock units and settlement of deferred stock units. In the above table, these shares are included in columns (a) and (b), but excluded from columns (c) and (d). These shares do not reduce the number of shares that may yet be purchased under the repurchase plan.

During the year ended December 31, 2011, we repurchased 3,418,765 shares of our common stock in transactions made pursuant to our repurchase plan and received 55,721 shares of common stock that were surrendered by employees in payment for the minimum required withholding taxes due on the vesting of restricted stock units and settlement of deferred stock units. See Note 18 to the consolidated financial statements for the year ended December 31, 2011 included in this Annual Report on Form 10-K for further information.

Dividends

We have never paid any cash dividends on our common stock. From time to time our board of directors may consider the declaration of a dividend. However, we have no present intention to pay a dividend.

Securities Authorized for Issuance Under Equity Compensation Plans

Equity Compensation Plan Information
For the Year Ended
December 31, 2011

Number of Securities Remaining

Number of Securities

Weighted Average

Available for

To be Issued Upon Exercise

Exercise Price of

Future Issuance Under Equity

of Outstanding Options,

Outstanding Options,

Compensation Plans (Excluding

Warrants and Rights

Warrants and Rights ⁽³⁾

Securities Reflected in Column (a))

Plan Category

(a)

(b)

(c)

Equity compensation plans approved by security holders

3,683,707

⁽¹⁾

43.31

3,205,987

⁽²⁾

Equity compensation plans not approved by security holders

Total

3,683,707

43.31

3,205,987

(1)

Consists of shares of common stock subject to outstanding options, restricted stock units and deferred stock units under the following compensation plans: 1991 Stock Option Plan (46,595 shares), 1998 Stock Incentive Plan (344,189 shares), 2003 Stock Incentive Plan (2,048,565 shares) and 2009 Stock Incentive Plan (1,244,358 shares). Excludes 202,219 shares issuable under the 1997 Employee Stock Purchase Plan in connection with the current and future offering periods. See Note 4 to the consolidated financial statements for the year ended December 31, 2011 included in this Annual Report on Form 10-K for a description of our equity compensation plans.

(2)

Includes 3,003,768 shares available for issuance under our 2009 Stock Incentive Plan. The 2009 Stock Incentive Plan provides for the issuance of incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock and other stock unit awards. Also includes 202,219 shares issuable under our 1997 employee stock purchase plan in connection with the current and future offering periods. No new grants may be made under the other plans listed in footnote (1) except for the 2009 Stock Incentive Plan. See Note 4 to the consolidated financial statements for the year ended December 31, 2011 included in this Annual Report on Form 10-K for a description of our equity compensation plans.

(3)

Only stock option awards were used in computing the weighted-average exercise price.

Stock Performance

This graph compares our total stockholder returns, the Standard & Poor’s (“S&P”) MidCap 400 Index, the S&P MidCap 400 Health Care Index, the S&P SmallCap 600 Health Care Index and the Total Return Index for the NASDAQ Stock Market (U.S. Companies) prepared by the Center for Research in Security Prices (the “NASDAQ Index”). This graph assumes the investment of $100 on December 31, 2006 in IDEXX’s common stock, the S&P MidCap 400 Index, the S&P MidCap 400 Health Care Index, the S&P SmallCap 600 Health Care Index and the NASDAQ Index and assumes dividends, if any, are reinvested. Measurement points are the last trading days of the years ended December 2007, 2008, 2009, 2010 and 2011. We have added the S&P MidCap 400 Index to this year’s stock performance graph because it is comprised of companies with market capitalizations more similar to that of the company’s than those companies in the S&P SmallCap 600 Health Care Index. Accordingly, we believe that including this new index provides a more appropriate comparison of our stock performance with the performance of other companies in our industry. We have retained the S&P SmallCap 600 Health Care Index for this year for comparison purposes, but will not include that index in our stock performance graph going forward.

	12/29/2006		12/31/2007		12/31/2008		12/31/2009		12/31/2010		12/30/2011

IDEXX Laboratories, Inc.	$	100.00	$	147.87	$	91.00	$	134.80	$	174.58	$	194.10
S&P MidCap 400 Health CareIndex		100.00		112.52		75.06		101.07		123.89		124.74
S&P SmallCap 600 Health Care Index		100.00		118.74		84.98		103.86		126.94		144.04
S&P MidCap 400 Index		100.00		106.69		66.92		90.34		112.79		109.30
NASDAQ Index¹		100.00		108.47		66.35		95.38		113.19		113.81

¹ The Center for Research in Security Prices Total Return Indexes for the NASDAQ Stock Market are calculated anew each month and may incorporate historical edits to the data which changes values calculated in previous months.

ITEM 6. SELECTED FINANCIAL DATA

The following table sets forth selected consolidated financial data of the Company for each of the five years ending with December 31, 2011. The selected consolidated financial data presented below has been derived from the Company’s consolidated financial statements. These financial data should be read in conjunction with the consolidated financial statements, related notes and other financial information appearing elsewhere in this Annual Report on Form 10-K.

	For the Years Ended December 31, (in thousands, except per share data)
	2011			2010			2009			2008			2007

INCOME STATEMENT DATA:
Revenue	$	1,218,689		$	1,103,392		$	1,031,633		$	1,024,030		$	922,555
Cost of revenue		572,183			524,769			505,352			494,264			459,033
Gross profit		646,506			578,623			526,281			529,766			463,522
Expenses:
Sales and marketing		204,850			179,626			167,748			169,956			151,882
General and administrative		129,389			126,519			117,440			116,681			108,119
Research and development		76,042			68,597			65,124			70,673			67,338
Income from operations		236,225			203,881			175,969			172,456			136,183
Interest expense, net		(1,803	)		(1,752	)		(1,430	)		(2,269	)		(1,340	)
Income before provision for income taxes		234,422			202,129			174,539			170,187			134,843
Provision for income taxes		72,668			60,809			52,304			54,018			40,829
Net income		161,754			141,320			122,235			116,169			94,014
Less: Net (loss) income attributable to noncontrolling interest		(32	)		36			10			-			-
Net income attributable to IDEXX Laboratories, Inc. stockholders	$	161,786		$	141,284		$	122,225		$	116,169		$	94,014
Earnings per share:
Basic	$	2.85		$	2.45		$	2.08		$	1.94		$	1.53
Diluted		2.78			2.37			2.01			1.87			1.46
Weighted average shares outstanding:
Basic		56,790			57,713			58,809			59,953			61,560
Diluted		58,214			59,559			60,682			62,249			64,455

BALANCE SHEET DATA:
Cash and cash equivalents	$	183,895		$	156,915		$	106,728		$	78,868		$	60,360
Working capital		87,348			175,479			120,033			60,598			82,271
Total assets		1,030,814			897,144			808,527			765,437			702,179
Total debt		246,418			133,280			123,884			156,479			76,683
Total stockholders’ equity		539,593			574,281			514,579			438,194			438,323

ITEM 7.

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

Description of Segments. During 2011, we operated primarily through three business segments: diagnostic and information technology-based products and services for the veterinary market, which we refer to as the Companion Animal Group (“CAG”), water quality products (“Water”) and products for livestock and poultry health, which we refer to as Livestock and Poultry Diagnostics (“LPD”). Prior to the second quarter of 2010, we referred to LPD as our Production Animal Segment. We also operate two smaller segments that comprise products for milk quality and safety (“Dairy”) and products for the human point-of-care medical diagnostic market (“OPTI Medical”). Financial information about the Dairy and OPTI Medical operating segments and about a product line and out-licensing arrangements remaining from our pharmaceutical business is combined and presented in an “Other” category because they do not meet the quantitative or qualitative thresholds for reportable segments. See Note 15 to the consolidated financial statements for the year ended December 31, 2011 included in this Annual Report on Form 10-K for financial information about our segments, including geographic information, and about our product and service categories.

Effective January 1, 2011, we changed the measure of profitability of our reportable segments, which resulted in the movement of certain expenses from our operating segments to the caption “Unallocated Amounts.” See Note 15 to the consolidated financial statements for the year ended December 31, 2011 included in this Annual Report on Form 10-K for additional information regarding this change in the measure of profitability of our reportable segments. The segment income (loss) from operations discussed within this report for the years ended December 31, 2010 and 2009 have been restated to conform to our new measure of segment profitability. This change in measure of segment profitability did not have a material impact on the results of operations for any of our individual segments. There was no change to the business composition of our reportable segments or to our consolidated results of operations.

The following is a discussion of the strategic and operating factors that we believe have the most significant effect on the performance of our business.

Companion Animal Group

In the CAG segment, we believe we have developed a strategic advantage over companies with more narrow product or service offerings. The breadth and complementary nature of our products and services give us scale in sales and distribution, permit us to offer integrated disease-management diagnostic solutions that leverage the advantages of both point-of-care and outside laboratory testing, and facilitate the flow of medical and business information in the veterinary practice by connecting practice management systems with reference laboratory test data, in-clinic test data from our IDEXX VetLab^® suite of analyzers and rapid assay tests and radiographic data from the IDEXX-PACS^™ and IDEXX EquiView PACS^™ software generated by our digital radiography systems. Our real-time care strategy aims to provide veterinarians with the tools and services to enhance the pet owner experience with veterinary medical care, while also growing veterinary practice revenues and improving staff efficiencies.

Instruments and Consumables. Our strategy in our IDEXX VetLab^® instrument line of business is to provide veterinarians in many countries around the world with an integrated set of instruments that, individually and together, provide superior diagnostic information and performance features, enabling veterinarians to practice better medicine and improve practice efficiency and, in doing so, achieve their practice economic objectives, including growth and profitability. We derive substantial revenues and margins from the sale of consumables that are used in these instruments. Additionally, we offer extended maintenance agreements in connection with the sale of our instruments.

During the early stage of an instrument’s life cycle, we derive relatively greater revenues from instrument placements, while consumable sales become relatively more significant in later stages as the installed base of instruments increases and instrument placement revenues begin to decline. Instrument sales have significantly lower gross margins than sales of consumables, and therefore the mix of instrument and consumable sales in a particular period will impact our gross margins in this line of business.

Our Catalyst Dx^® analyzer is our latest generation chemistry analyzer, which was launched in 2008. In addition, we continue to place VetTest^®instruments through sales, lease, rental and other programs, with substantially all of our revenues from that product line currently derived from consumable sales. As of December 31, 2011, these two chemistry analyzers provided for a combined active installed base of approximately 32,000 units. A substantial portion of 2011 Catalyst Dx^® analyzer placements were to veterinary clinics that elected to upgrade from their VetTest^® analyzer to a Catalyst Dx^® analyzer, however, a number of placements were also to competitive accounts. As we continue to experience growth in placements of Catalyst Dx^® analyzers and sales of related consumables, we expect this growth to be partly offset by a decline in placements of VetTest^®instrumentsand in sales of related VetTest^®consumables.

The ProCyte Dx^®analyzer is our latest generation hematology analyzer, which we launched in the third quarter of 2010. In addition we sell the LaserCyte^® analyzer and VetAutoread^™ analyzer. As of December 31, 2011 these three hematology analyzers provided for a combined active installed base of approximately 23,000 units. A substantial portion of ProCyte Dx^® analyzer placements continue to be made at veterinary clinics that elect to upgrade from their LaserCyte^® analyzer to a ProCyte Dx^® analyzer. However, a number of placements have been made at competitive accounts since the launch of this instrument in 2010. While customers continue to upgrade from their LaserCyte^® analyzer to a ProCyte^® analyzer, we continue to place a substantial number of LaserCyte^® instruments, both new and refurbished, as trade-ups from the VetAutoread^™ analyzer and at new and competitive accounts. In 2011, a significant number of LaserCyte^® instruments that were placed were refurbished instruments that had been received in trade in the sale of a ProCyte Dx^® analyzer. As we continue to experience growth in placements of ProCyte^® and LaserCyte^® analyzers and in sales of related consumables, we expect this growth to be partly offset by a decline in placements of VetAutoread^™ analyzers and in sales of related VetAutoread^™consumables.

Our long-term success in this area of our business is dependent upon new customer acquisition, customer loyalty and retention and customer utilization of existing and new assays introduced for use on our analyzers. We continuously seek opportunities to enhance the care that veterinary professionals give to their patients and clients through supporting the implementation of real-time care testing workflows. Our latest generation of chemistry and hematology instruments demonstrates this commitment by offering enhanced ease of use, faster time to results and greater sample throughput. Utilization can increase due to a greater number of patient samples being run or to an increase in the number of tests being run per patient sample. Our strategy is to increase both drivers. To increase utilization, we seek to educate veterinarians about best medical practices that emphasize the importance of chemistry and hematology testing at the point of care for a variety of diagnostic purposes. We also can offer protocol-based rebates when customers utilize the broad testing functionality of our analyzers. In addition, we provide marketing tools and consultative services that help drive efficiencies in veterinary practice processes and allow practices to increase the number of clients they see on a daily basis.

With all of our instrument product lines, we seek to differentiate our products from our competitors’ products based on time-to-result, ease-of-use, throughput, breadth of diagnostic menu, flexibility of menu selection, accuracy, reliability, ability to handle compromised samples, analytical capability of software, integration with the IDEXX VetLab^® Station, education and training, and superior sales and customer service. Our success depends, in part, on our ability to differentiate our products in a way that justifies a premium price.

Rapid Assay Products. Our rapid assay line of business consists primarily of single-use kits for point-of-care testing and, to a limited degree, microwell-based kits for laboratory testing for canine and feline diseases and conditions. Our rapid assay strategy is to develop, manufacture, market and sell proprietary tests that address important medical needs for particular diseases prevalent in the companion animal population. We seek to differentiate our tests from those of other in-clinic test providers and reference laboratory diagnostic service providers through ease-of-use and superior performance, including by providing our customers with combination tests that test a single sample for multiple analytes. We further augment our product development and customer service efforts with sales and marketing programs that enhance medical awareness and understanding regarding certain diseases and the importance of diagnostic testing.

We also seek to enhance the attractiveness of our tests by providing the SNAPshot Dx^® analyzer, which automatically reads certain SNAP^® test results, and records those results in the electronic medical record. We continue to work on enhancing the functionality of the SNAPshot Dx^® analyzer to read the results of additional tests from our canine and feline family of rapid assay products.

Reference Laboratory Diagnostic and Consulting Services. We believe that more than half of all diagnostic testing by U.S. veterinarians is provided by outside reference laboratories such as our IDEXX Reference Laboratories. In many markets outside the U.S., in-clinic testing is less prevalent and an even greater percentage of diagnostic testing is done in reference laboratories. We attempt to differentiate our reference laboratory testing services from those of our competitive reference laboratories and competitive in-clinic offerings primarily on the basis of test menu, technology employed, quality, customer service and the complementary manner in which our laboratory services work with our point of care offerings.

Revenue growth in this line of business is achieved both through increased sales to existing customers and through the acquisition of new customers, including through reference laboratory acquisitions, customer list acquisitions and the opening of new reference laboratories, including laboratories that are co-located with large practice customers. In November 2011, we acquired the research and diagnostic laboratory (“RADIL”) business of the College of Veterinary Medicine from the University of Missouri. RADIL provides health monitoring and diagnostic testing services to bioresearch customers. We believe the acquisition of RADIL allows us to leverage our expertise in veterinary diagnostics and expand our integrated offering of reference laboratory diagnostic and consulting services and in-clinic testing solutions in an adjacent market.

Profitability of our reference laboratory diagnostic and consulting services business is largely the result of our ability to achieve efficiencies from both volume and operational improvements. Start-up laboratories that we open typically will operate at a loss until testing volumes reach a level that permits profitability. Acquired laboratories frequently operate less profitably than our existing laboratories and acquired laboratories may not achieve the profitability of our existing laboratory network for several years until we complete the implementation of operating improvements and efficiencies. Therefore, in the short term, new and acquired reference laboratories generally will have a negative effect on the operating margin of the reference laboratory diagnostic and consulting services line of business.

Practice Management Systems and Digital Radiography. Our strategy in the practice management systems line of business is to provide superior integrated information solutions, backed by superior customer support and education, to allow the veterinarian to practice better medicine and achieve the practice’s business objectives, including superior client experience, staff efficiency and practice profitability. We differentiate our practice management systems through enhanced functionality and ease of use. Our veterinary-specific digital radiography systems allow veterinarians to capture digital radiographs with ease and without the use of hazardous chemicals. Our strategy in digital radiography is to offer a convenient system that provides superior image quality and software capability at a competitive price, backed by the same customer support provided for our other products and services in CAG.

Water

Our strategy in the water testing business is to develop, manufacture, market and sell proprietary products with superior performance, supported by exceptional customer service. Our customers primarily consist of water utilities, government laboratories and private certified laboratories that highly value strong relationships and customer support. Sales of water testing products outside of the U.S. represented 51% of total water product sales in 2011, and we expect that future growth in this business will be significantly dependent on our ability to increase international sales. Growth also will be dependent on our ability to enhance and broaden our product line. Most water microbiological testing is driven by regulation, and, in many countries, a test may not be used for compliance testing unless it has been approved by the applicable regulatory body. As a result, we maintain an active regulatory program that involves applying for regulatory approvals in a number of countries, primarily in Europe.

Livestock and Poultry Diagnostics

We develop, manufacture, market and sell a broad range of tests for various cattle, swine and poultry diseases and conditions, and have an active research and development, and in-licensing program in this area. Our strategy is to offer proprietary tests with superior performance characteristics, with growth primarily coming from disease outbreaks and emerging markets. Disease outbreaks are episodic and unpredictable, and certain diseases that are prevalent at one time may be substantially contained or eradicated at a later time. In response to outbreaks, testing initiatives may lead to exceptional demand for certain products in certain periods. Conversely, successful eradication programs may result in significantly decreased demand for certain products. The performance of this business, therefore, can fluctuate. In 2011, approximately 90% of our sales in this business were from markets outside of the U.S., and in particular Europe. Because of the significant dependence of this business on international sales, the performance of the business is particularly subject to the various risks described above that are associated with doing business internationally. See “Part I, Item 1A. Risk Factors.”

Other

Dairy. Our strategy in the dairy testing business is to develop, manufacture and sell antibiotic residue testing products that satisfy applicable regulatory requirements for testing of milk by processors and producers and provide reliable field performance. The manufacture of these testing products leverages, almost exclusively, the SNAP^® platform as well as the production equipment of our rapid assay business, incorporating customized reagents for antibiotic detection. The majority of our sales in this business are international. To successfully increase sales of dairy testing products, we believe that we need to increase penetration in the processor and producer segments of the dairy market, and to develop product line enhancements and extensions. Because of the significant dependence of this business on international sales, the performance of the business is particularly subject to the various risks described above that are associated with doing business internationally. See “Part I, Item 1A. Risk Factors.”

OPTI Medical Systems. Our strategy in the OPTI Medical Systems business for the human market is to develop, manufacture, and sell electrolyte and blood gas analyzers and related consumable products for the medical point-of-care diagnostics market worldwide, with a focus on small- to mid-sized hospitals. We seek to differentiate our products based on ease of use, menu, convenience, international distribution and service, and instrument reliability. Similar to our veterinary instruments and consumables strategy, a substantial portion of the revenues from this product line is derived from the sale of consumables for use on the installed base of electrolyte and blood gas analyzers. During the early stage of an instrument’s life cycle, relatively greater revenues are derived from instrument placements, while consumable sales become relatively more significant in later stages as the installed base of instruments increases and instrument placement revenues begin to decline. Our long-term success in this area of our business is dependent upon new customer acquisition, customer retention and increased customer utilization of existing and new assays introduced on these instruments.

OPTI Medical Systems also manufactures our VetStat^® analyzer, an instrument and consumable system that is a member of the IDEXX VetLab^® suite for the veterinary market. In addition, OPTI Medical Systems provides the electrolyte module and dry slide reagents that make up the electrolyte testing functionality of the Catalyst Dx^® analyzer. Our strategy in the OPTI Medical Systems business for the veterinary market is to utilize this unit’s know-how, intellectual property and manufacturing capability to continue to expand the menu and instrument capability of the VetStat^® and Catalyst Dx^® platforms for veterinary applications while reducing our cost of consumables by leveraging experience and economies of scale.

Other Activities. We have developed certain proprietary technology that we believe may have application in areas that do not align with one of our existing business or service categories. Our strategy is to out-license these technologies to partners that are best positioned to complete the development and commercialization of products utilizing these technologies. To the extent we are successful in doing so, we may receive one-time or recurring payments based on the achievement of development or sales milestones or royalties. Our ability to succeed in this area of our business depends on our ability to attract and retain qualified scientific personnel to develop proprietary products or technology and our ability to identify suitable third parties to complete the commercialization of these technologies.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). 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 ongoing basis, we evaluate our estimates. We base our estimates on historical experience and on various assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. Note 2 to the consolidated financial statements included in this Annual Report on Form 10-K describes the significant accounting policies used in preparation of these consolidated financial statements.

We believe the following critical accounting estimates and assumptions may have a material impact on reported financial condition and operating performance and involve significant levels of judgment to account for highly uncertain matters or are susceptible to significant change.

Revenue Recognition

We recognize revenue when four criteria are met: (i) persuasive evidence that an arrangement exists; (ii) delivery has occurred or services have been rendered; (iii) the sales price is fixed or determinable; and (iv) collectability is reasonably assured. See Note 2(i) to the consolidated financial statements for the year ended December 31, 2011 included in this Annual Report on Form 10-K for additional information about our revenue recognition policy and criteria for recognizing revenue.

Multiple element arrangements (“MEAs”). Arrangements to sell products to customers frequently include multiple deliverables. Our most significant MEAs include the sale of one or more of the instruments from the IDEXX VetLab^® suite of analyzers or digital radiography systems, combined with one or more of the following products: extended maintenance agreements (“EMAs”), consumables, reference laboratory diagnostic and consulting services and practice management software. Practice management software is frequently sold with post-contract customer support and implementation services. Delivery of the various products or performance of services within the arrangement may or may not coincide. Delivery of our IDEXX VetLab^® instruments, digital radiography systems, and practice management software generally occurs at the onset of the arrangement. EMAs, consumables, and reference laboratory diagnostic and consulting services typically are delivered over future periods, generally one to six years. In certain arrangements revenue recognized is limited to the amount invoiced or received that is not contingent on the delivery of future products and services.

On January 1, 2010, we adopted amendments to authoritative guidance that modified the revenue recognition guidance for establishing separate units of accounting in arrangements outside of the scope of software that contain multiple elements. We allocate revenue to each element based on the relative selling price and recognize revenue when the elements have standalone value and the four criteria for revenue recognition have been met for each element. We establish the selling price of each element based on vendor-specific objective evidence (“VSOE”) if available, third-party evidence (“TPE”) if VSOE is not available, or best estimate of selling price (“BESP”) if neither VSOE nor TPE is available. We generally determine selling price based on amounts charged separately for the delivered and undelivered elements to similar customers in standalone sales of the specific elements. When these arrangements include a separately-priced EMA, we recognize revenue related to the EMA at the stated contractual price on a straight-line basis over the life of the agreement to the extent the separately stated price is substantive. If there is no stated contractual price for an EMA, or the separately stated price is not substantive, we recognize revenue according to the MEA policy stated above. We elected prospective adoption of these amendments. The impact of adopting these amendments to authoritative guidance did not have a material impact on our financial position, results of operations or cash flows.

When arrangements within the scope of software revenue recognition guidance include multiple elements, we allocate revenue to each element based on relative fair value, when VSOE exists for all elements, or by using the residual method when there is VSOE for the undelivered elements but no such evidence for the delivered elements. Under the residual method, the fair value of the undelivered elements is deferred and the residual revenue is allocated to the delivered elements. Revenue is recognized on any delivered elements when the four criteria for revenue recognition have been met for each element. If VSOE does not exist for the undelivered element, all revenue from the arrangement is deferred until the earlier of the point at which such sufficient VSOE does exist or all elements of the arrangement have been delivered. We determine fair value based on amounts charged separately for the delivered and undelivered elements to similar customers in standalone sales of the specific elements.

Certain arrangements with customers include discounts on future sales of products and services. We apply judgment in determining whether future discounts are significant and incremental. When the future discount offered is not considered significant and incremental, we do not account for the discount as an element of the original arrangement. If the future discount is significant and incremental, we recognize that discount as an element of the original arrangement and allocate the discount to the other elements of the arrangement based on relative selling price. To determine whether a discount is significant and incremental, we look to the discount provided in comparison to standalone sales of the same product to similar customers, the level of discount provided on other elements in the arrangement, and the significance of the discount to the overall arrangement. If the discount in the MEA approximates the discount typically provided in standalone sales, that discount is not considered incremental.

Customer programs. We record reductions to revenue related to customer marketing and incentive programs, which include end-user rebates and other volume based incentives. Incentives may be provided in the form of IDEXX Points, credits or cash and are earned by end-users upon achieving defined volume purchase or utilization levels or upon entering an agreement to purchase products or services in future periods. Our most significant customer programs are categorized as follows:

Customer Loyalty Programs. Our customer loyalty programs offer customers the opportunity to earn incentives on a variety of IDEXX products and services as those products and services are purchased and utilized. Revenue reductions related to customer loyalty programs are recorded based on the actual issuance of incentives, incentives earned but not yet issued and estimates of incentives to be earned in the future based on applicable product inventories held by distributors at the end of the period.

Up-Front Customer Loyalty Programs. Our up-front loyalty programs provide incentives to customers upon entering agreements to purchase products or services in future periods. These incentives are considered to be customer acquisition costs and are capitalized and recognized as a reduction to revenue over the term of the customer agreement. If these up-front incentives are subsequently utilized to purchase IDEXX VetLab^® instruments, digital radiography systems or Cornerstone^® practice management systems, product revenue and cost is deferred and recognized over the term of the customer agreement as products and services are provided to the customer. We monitor customer purchases over the term of their agreement to assess the realizability of our capitalized customer acquisition costs. For the years ended December 31, 2011, 2010 and 2009, we did not have any impaired customer acquisition costs.

IDEXX VetLab^® Instrument Marketing Programs. Our instrument marketing programs require the customer to enroll at the time of instrument purchase and offer customers the opportunity to earn incentives in future periods based on the volume of the products they purchase and utilize over the term of the program. These arrangements are considered MEAs in accordance with our revenue recognition policy stated above. Revenue reductions related to instrument marketing programs are recorded based on an estimate of customer purchase and utilization levels and the incentive the customer will earn over the term of the program. Our estimates are based on historical experience and the specific terms and conditions of the marketing program and require us to apply judgment to approximate future product purchases and utilization. Differences between our estimates and actual incentives earned are accounted for as a change in estimate. These differences were not material for the years ended December 31, 2011, 2010 and 2009. At December 31, 2011, a 5% change in our estimate of future customer utilization would increase or reduce revenue by approximately $0.2 million.

IDEXX Points may be applied against the purchase price of IDEXX products and services purchased in the future or applied to trade receivables due to us. IDEXX Points that have not yet been used by customers are classified as a liability until use or expiration occurs. We estimate the amount of IDEXX Points expected to expire, or breakage, based on historical expirations and we recognize the benefit of breakage as IDEXX Points are redeemed. On November 30 of each year, unused IDEXX Points earned before January 1 of the prior year generally expire and any variance from the breakage estimate is accounted for as a change in estimate. This variance was not material for the years ended December 31, 2011, 2010 and 2009.

Future market conditions and changes in product offerings may cause us to change marketing strategies to increase or decrease customer incentive offerings, possibly resulting in incremental reductions of revenue in future periods as compared to reductions in the current or prior periods. Additionally, certain customer programs require us to estimate, based on historical experience, and apply judgment to approximate the number of customers who will actually redeem the incentive. In determining estimated revenue reductions we utilize data supplied from distributors and collected directly from end-users, which includes the volume of qualifying products purchased and the number of qualifying tests run as reported to us by end-users via IDEXX SmartService^TM, a secure internet link that enables us to extract data and provide diagnostic service and support for certain IDEXX VetLab^® instruments through remote access. Differences between estimated and actual customer participation in programs may impact the amount and timing of revenue recognition.

Following is a summary of revenue reductions recorded in connection with our customer programs for the years ended December 31, 2011, 2010 and 2009 (in thousands):

	For the Years Ended December 31,
	2011		2010		2009
Revenue Reductions Recorded
Customer Loyalty Programs	$	16,591	$	17,467	$	17,067
Up-Front Customer Loyalty Programs		3,954		921		74
IDEXX VetLab® Instrument Marketing Programs		11,137		4,304		2,335
Other Customer Programs		1,513		1,474		1,536
Total revenue reductions	$	33,195	$	24,166	$	21,012

At December 31, 2011, 2010 and 2009, the total accrued revenue reductions were $37.8 million, $23.3 million and $18.3 million, respectively. Accrued customer programs are included within accrued liabilities and other long-term liabilities, depending on the anticipated settlement date, in the consolidated balance sheets included in this Annual Report on Form 10-K. Following is a summary of changes in the accrual for estimated revenue reductions attributable to customer marketing and incentive programs and the ending accrued revenue reductions balance for the years ended December 31, 2011, 2010 and 2009 (in thousands):

	For the Years Ended December 31,
	2011			2010			2009

Accrued Customer Programs:
Balance, beginning of the year	$	23,321		$	18,265		$	15,697
Current provision for Customer Loyalty Programs		16,591			17,467			17,067
Up-Front Customer Loyalty Program Awards		21,259			6,037			100
Current provision for IDEXX VetLab® Instrument Marketing Programs		11,137			4,304			2,335
Current provision for Other Customer Programs		1,513			1,474			1,536
IDEXX Points redeemed and credits issued		(35,629	)		(23,859	)		(18,256	)
Breakage		(325	)		(334	)		(367	)
Exchange impact on balances denominated in foreign currency		(100	)		(33	)		153
Balance, end of year	$	37,767		$	23,321		$	18,265

Inventory Valuation

We write down inventory for estimated obsolescence when warranted by estimates of future demand, market conditions, remaining shelf life, or product functionality. If actual market conditions or results of estimated functionality are less favorable than those we estimated, additional inventory write-downs may be required, which would have a negative effect on results of operations.

Valuation of Goodwill and Other Intangible Assets

A significant portion of the purchase price for acquired businesses is generally assigned to intangible assets. Intangible assets other than goodwill are initially valued at fair value. If a market value is not readily available, the fair value of the intangible asset is estimated based on discounted cash flows using market participant assumptions, which are assumptions that are not specific to IDEXX. The selection of appropriate valuation methodologies and the estimation of discounted cash flows require significant assumptions about the timing and amounts of future cash flows, risks, appropriate discount rates, and the useful lives of intangible assets. When material, we utilize independent valuation experts to advise and assist us in allocating the purchase prices for acquired businesses to the fair values of the identified intangible assets and in determining appropriate amortization methods and periods for those intangible assets. Goodwill is initially valued based on the excess of the purchase price of a business combination over the fair values of acquired net assets, including intangible assets.

We assess goodwill for impairment annually, at the reporting unit level, in the fourth quarter and whenever events or circumstances indicate impairment may exist. An impairment charge is recorded for the amount, if any, by which the carrying amount of goodwill exceeds its implied fair value. Our reporting units are the individual product and service categories that comprise our CAG operating segment, our Water and LPD operating segments and goodwill remaining from the restructuring of our pharmaceutical business in the fourth quarter of 2008, referred to herein as the Technology reporting unit. A substantial portion of the goodwill remaining from the pharmaceutical business is associated with products that have been, or that we expect to be, licensed to third parties and is included in our “Other” segment. Realization of this goodwill is dependent upon the success of those third parties in developing and commercializing products, which will result in our receipt of royalties and other payments. Our Dairy and OPTI Medical businesses are also presented in our “Other” segment. There is no goodwill associated with those businesses. Contingent consideration is included within the acquisition cost and is recognized at its fair value on acquisition date. A liability resulting from contingent consideration is remeasured to fair value at each reporting date until the contingency is resolved. Changes in fair value are recognized in earnings.

The fair values of the reporting units are estimated using an income approach based on discounted forecasted cash flows. We make significant assumptions about the extent and timing of future cash flows, growth rates and discount rates. Model assumptions are based on our projections and best estimates. As a measure to assess the reasonableness of the results of the income approach, we aggregate the calculated fair value of each of the reporting units and compare that aggregate amount to the overall market capitalization of the Company. As of November 30, 2011, the date that we performed our assessment of goodwill for impairment, the total aggregate fair value of the reporting units approximated the Company’s market capitalization. While we believe that the assumptions used to determine the estimated fair values of each of our reporting units are reasonable, a change in assumptions underlying these estimates could result in a material effect on the consolidated financial statements. Our fair value estimates assume the achievement of future financial results contemplated in our forecasted cash flows, and there can be no assurance that we will realize that value. We use our internal forecasts to estimate future cash flows and include an estimate of long-term future growth rates based on our most recent views of the long-term outlook for each business. Actual results may differ from those assumed in our forecasts. The discount rate is based on a weighted average cost of capital (“WACC”) derived from industry peers. Changes in market conditions, interest rates, growth rates, tax rates, costs, pricing, capital expenditures or the discount rate would affect the estimated fair values of reporting units and could result in a goodwill impairment charge in a future period. The results of the 2011 annual impairment test, completed in the fourth quarter, indicated the fair value of each reporting unit was substantially in excess of its carrying value. No goodwill impairments were identified as a result of the annual review during the years ended December 31, 2011, 2010 or 2009.

A prolonged economic downturn resulting in lower long-term growth rates and reduced long-term profitability may reduce the fair value of our reporting units. Industry specific events or circumstances that have a negative impact to the valuation assumptions may also reduce the fair value of our reporting units. Should such events occur and it becomes more likely than not that a reporting unit’s fair value has fallen below its carrying value, we will perform an interim goodwill impairment test(s), in addition to the annual impairment test. Future impairment tests may result in an impairment of goodwill, depending on the outcome of both step one and step two of the impairment review process. An impairment of goodwill would be reported as a non-cash charge to earnings.

We assess the realizability of intangible assets other than goodwill whenever events or changes in circumstances indicate that the carrying value may not be recoverable. If an impairment review is triggered, we evaluate the carrying value of intangible assets based on estimated undiscounted future cash flows over the remaining useful life of the primary asset of the asset group and compare that value to the carrying value of the asset group. The cash flows that are used contain our best estimates, using appropriate and customary assumptions and projections at the time.

No impairments of intangible assets other than goodwill were identified during the years ended December 31, 2011 and 2010. During 2009, we recognized an impairment charge of $1.5 million to write off an acquired intangible asset associated with our equine digital radiography business, which is part of our CAG segment. Based on changes in estimated future demand and market conditions, we determined that we would not fully realize our investment and, therefore, fully expensed this asset. No other impairments were identified during the year ended December 31, 2009.

Share-Based Compensation

Our share-based compensation programs include grants of a mix of stock options, restricted stock units and deferred stock unit awards, along with the issuance of employee stock purchase rights.

On January 1, 2006 we adopted amendments to the accounting provisions governing share-based payments and adopted the straight-line method to prospectively expense share-based awards granted subsequent to December 31, 2005. The graded-vesting, or accelerated, method was used to calculate the expense for stock options granted prior to January 1, 2006. Had the straight-line method been used for share-based awards granted prior to January 1, 2006, recorded expense for the years ended December 31, 2006 through 2010 would have been higher. The total fair value of future awards may vary significantly from past awards based on a number of factors, including our share-based award practices. Therefore, share-based compensation expense is likely to fluctuate, possibly significantly, from year to year.

We use the Black-Scholes-Merton option-pricing model to determine the fair value of options granted. Option-pricing models require the input of highly subjective assumptions, particularly for the expected stock price volatility and the expected term of options. The risk-free interest rate is based on the U.S. Treasury yields for the expected term in effect at the approximate date of grant. We have never paid any cash dividends on our common stock and we have no present intention to pay a dividend; therefore, we assume that no dividends will be paid over the expected terms of option awards. We determine the assumptions to be used in the valuation of option grants as of the date of grant. As such, we may use different assumptions during the year if we grant options at different dates. However, substantially all of our options granted during the years ended December 31, 2011, 2010 and 2009 were granted in the first quarter of each year. The weighted average of each of the valuation assumptions used to determine the fair value of each option grant during each of the previous three years is as follows:

	For the Years Ended December 31,
	2011			2010			2009

Expected stock price volatility		33	%		31	%		31	%
Expected term, in years ⁽¹⁾		4.8			4.9			4.8
Risk-free interest rate		2.3	%		2.3	%		1.6	%

(1)

Options granted after January 1, 2006 have contractual terms of seven years. Options granted prior to January 1, 2006 have contractual terms of 10 years.

Changes in the subjective input assumptions, particularly for the expected stock price volatility and the expected term of options, can materially affect the fair value estimate. Our expected stock price volatility assumption is based on the historical volatility of our stock over a period similar to the expected term and other relevant factors. Lower estimated volatility reduces the fair value of a stock option. The total fair value of stock options granted during the year ended December 31, 2011 was $13.6 million. If the weighted average of the stock price volatility assumption was increased or decreased by 10% to 36.2% or 29.6%, respectively, the total fair value of stock options awarded during the year ended December 31, 2011 would have increased or decreased by approximately 8% and the total expense recognized for the year ended December 31, 2011 for options awarded during the same period would have increased or decreased by approximately $0.2 million.

We derive the expected term assumption for stock options based on historical experience and other relevant factors concerning expected behavior with regard to option exercise. The expected term is determined using a consistent method at each grant date. Longer expected term assumptions increase the fair value of stock option awards, and therefore increase the expense recognized per award. If the weighted average of the expected term was increased or decreased by one year, the total fair value of stock options awarded during the year ended December 31, 2011 would have increased by 10% or decreased by 12%, respectively, and the total expense recognized for the year ended December 31, 2011 for options awarded during 2011 would have increased or decreased by $0.3 million.

Share-based compensation expense is based on the number of awards ultimately expected to vest and is, therefore, reduced for an estimate of the number of awards that are expected to be forfeited. The forfeiture estimates are based on historical data and other factors, and compensation expense is adjusted for actual results. Total share-based compensation expense for the year ended December 31, 2011 was $15.5 million, which is net of a reduction of $3.0 million for actual and estimated forfeitures. Changes in estimated forfeiture rates and differences between estimated forfeiture rates and actual experience may result in significant, unanticipated increases or decreases in share-based compensation expense from period to period. The termination of employment of certain employees who hold large numbers of share-based compensation instruments may also have a significant, unanticipated impact on forfeiture experience and, therefore, on share-based compensation expense. Modifications of the terms of outstanding options may result in significant increases or decreases in share-based compensation. There were no modifications to the terms of outstanding options, restricted stock units or deferred stock units with vesting conditions during 2011, 2010 or 2009.

The fair value of stock options, restricted stock units, deferred stock units, and employee stock purchase rights issued during the years ended December 31, 2011, 2010 and 2009 totaled $25.5 million, $16.3 million and $16.4 million, respectively. The total unrecognized compensation expense, net of estimated forfeitures, for unvested share-based compensation awards outstanding at December 31, 2011 was $31.1 million, which will be recognized over a weighted average of approximately 1.7 years.

Income Taxes

We recognize a current tax liability or asset for current taxes payable or refundable, respectively, and a deferred tax liability or asset, as the case may be, for the estimated future tax effects of temporary differences between book and tax treatment of assets and liabilities and carryforwards to the extent they are realizable.

The future tax benefit arising from net deductible temporary differences and tax carryforwards, net of valuation allowances, was $0.5 million and $8.6 million at December 31, 2011 and 2010, respectively. On a quarterly basis, we assess our current and projected earnings by jurisdiction to determine whether or not our earnings during the periods when the temporary differences become deductible will be sufficient to realize the related future tax benefits. Should we determine that we would not be able to realize all or part 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. A reduction of net income before taxes in each subsidiary equal to 5% of revenue, compared to the corresponding reported amounts for the year ended December 31, 2011, would not result in the recognition of incremental valuation allowances except in one subsidiary where a 5% reduction could result in our recording a valuation allowance of $0.3 million for this subsidiary.

For those jurisdictions where tax carryforwards are likely to expire unused or the projected operating results indicate that realization is not more likely than not, a valuation allowance is recorded to offset the deferred tax asset within that jurisdiction. In assessing the need for a valuation allowance, we consider future taxable income and ongoing prudent and feasible tax planning strategies. Alternatively, in the event that 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.

Our net deductible temporary differences and tax carryforwards are recorded using the enacted tax rates expected to apply to taxable income in the periods in which the deferred tax liability or asset is expected to be settled or realized. Should the expected applicable tax rates change in the future, an adjustment to the net deferred tax asset would be credited or charged, as appropriate, to income in the period such determination was made. For example, an increase of one percentage point in our anticipated U.S. state income tax rate would cause us to increase our net deferred tax asset balance by $0.3 million. This increase in the net deferred asset would increase net income in the period that our rate was adjusted. Likewise, a decrease of one percentage point to our anticipated U.S. state income tax rate would have the opposite effect.

We periodically assess our exposures related to our worldwide provision for income taxes and believe that we have appropriately accrued taxes for contingencies. Any reduction of these contingent liabilities or additional assessment would increase or decrease income, respectively, in the period such determination was made.

We consider the majority of the operating earnings of non-United States subsidiaries to be indefinitely invested outside the U.S. The cumulative earnings of these subsidiaries were $275.2 million at December 31, 2011, of which approximately $180 million was held in cash and cash equivalents as of December 31, 2011. No provision has been made for U.S. federal and state, or international taxes that may result from future remittances of these undistributed earnings of non-United States subsidiaries. Should we repatriate these earnings in the future, we would have to adjust the income tax provision in the period in which the decision to repatriate earnings is made. For the operating earnings not considered to be indefinitely invested outside the United States we have accounted for the tax impact on a current basis.

We record a liability for uncertain tax positions that do not meet the more likely than not standard as prescribed by the authoritative guidance for income tax accounting. We record tax benefits for only those positions that we believe will more likely than not be sustained. For positions that we believe that it is more likely than not that we will prevail, we record a benefit considering the amounts and probabilities that could be realized upon ultimate settlement. If our judgment as to the likely resolution of the uncertainty changes, if the uncertainty is ultimately settled or if the statute of limitation related to the uncertainty expires, the effects of the change would be recognized in the period in which the change, resolution or expiration occurs. Our net liability for uncertain tax positions was $5.6 million and $5.5 million as of December 31, 2011 and 2010, respectively, which includes estimated interest expense and penalties.

RESULTS OF OPERATIONS AND TRENDS

Effects of Certain Factors on Results of Operations

Distributor Purchasing and Inventories. The instrument consumables and rapid assay products in our CAG segment are sold in the U.S. and certain other geographies by third party distributors, who purchase products from us and sell them to veterinary practices, which are the end users. As a result, distributor purchasing dynamics have an impact on our reported sales of these products. Distributor purchasing dynamics may be affected by many factors and may be unrelated to underlying end-user demand for our products. Consequently, reported results may reflect fluctuations in distributors’ inventories and not necessarily reflect changes in underlying end-user demand. Therefore, we believe it is important to track distributor sales to end users and to distinguish between the impact of end-user demand and the impact of distributor purchasing dynamics on reported revenue.

Where growth rates are affected by changes in end-user demand, we refer to this as the impact of practice-level sales on growth. Where growth rates are affected by distributor purchasing dynamics, we refer to this as the impact of changes in distributors’ inventories on growth. If during the current year, distributors’ inventories grew by less than those inventories grew in the comparable period of the prior year, then changes in distributors’ inventories have a negative impact on our reported sales growth in the current period. Conversely, if during the current year, distributors’ inventories grew by more than those inventories grew in the comparable period of the prior year, then changes in distributors’ inventories have a positive impact on our reported sales growth in the current period.

At the end of a quarter, we believe that our U.S. CAG distributors typically hold inventory equivalent to approximately four weeks of our anticipated end-user demand for instrument consumables and rapid assay products.

Currency Impact. For the years ended December 31, 2011, 2010 and 2009, approximately 26%, 25% and 24%, respectively, of IDEXX sales were derived from products manufactured in the U.S. and sold internationally in local currencies. Strengthening of the rate of exchange for the U.S. dollar relative to other currencies has a negative impact on our revenues derived in currencies other than the U.S. dollar and on profits of products manufactured in the U.S. and sold internationally, and a weakening of the U.S. dollar has the opposite effect. Similarly, to the extent that the U.S. dollar is stronger in current or future periods relative to the exchange rates in effect in the corresponding prior periods, our growth rate will be negatively affected. The impact of foreign currency denominated operating expenses and foreign currency denominated supply contracts partly offset this exposure.

The impact on revenue resulting from changes in foreign currency exchange rates is a non-U.S. GAAP measure that is calculated by applying the difference between the average exchange rates during the current year period and the comparable previous year period to foreign currency denominated revenues for the current year period.

During the twelve months ended December 31, 2011, compared to the twelve months ended December 31, 2010, changes in foreign currency exchange rates increased total company revenue by approximately $27.1 million, due primarily to the weakening of the U.S. dollar against the Euro and, to a lesser extent, the Australian dollar, Japanese yen, Canadian dollar, British pound and Swiss franc.

During the twelve months ended December 31, 2010, compared to the twelve months ended December 31, 2009, changes in foreign currency exchange rates increased total company revenue by approximately $2.9 million, due primarily to the weakening of the U.S. dollar against the Canadian dollar, Australian dollar and, to a lesser extent, the Japanese yen. These favorable impacts were partly offset by the strengthening of the U.S. dollar against the Euro between these two periods. Although the changes in foreign currency exchange rates had a net favorable impact on total company revenues for the twelve months ended December 31, 2010, our LPD segment was negatively impacted since the U.S. dollar strengthened against the Euro and, compared to our other segments, a larger portion of LPD sales are denominated in the Euro.

Economic Conditions. Demand for many of our products and services has been negatively affected by economic conditions since mid-2008. In our CAG segment, we believe that low economic growth and relatively high unemployment have led to negative or cautious consumer sentiment, which has affected the number of patient visits to veterinary clinics. Based on data provided by a subset of our customers that use our practice management systems, we observed a decline in patient visits beginning in mid-2008 that continued throughout 2009. Patient visits have been flat to slightly down since 2009, until the fourth quarter of 2011, when we observed a slight improvement. We believe that this data, though limited, provides a fair and meaningful representation of patient visit activity in the U.S. We further believe that the overall decline in patient visits since the beginning of the economic downturn has had a slightly negative impact on the growth rate of sales of rapid assay tests, instrument consumables and reference laboratory diagnostic and consulting services. In addition, we believe the rate of growth of sales of our instruments and digital radiography systems, which are larger capital purchases for veterinarians, has been negatively affected by continued caution among veterinarians regarding economic conditions. Weaker economic conditions since mid-2008 have also caused our customers to remain sensitive to the pricing of our products and services resulting in lower growth due to limited price increases for certain products.

We also believe that current economic conditions have affected purchasing decisions of our Water business customers. Lower water testing volumes have resulted from a decline in discretionary testing and a decline in mandated testing as a result of lower home and commercial construction.

We believe that the diversity of our products and services, and the geographic diversity of our markets, has partially mitigated the effects of the economic environment and negative consumer sentiment on our revenue growth rates. Looking forward, we are cautiously optimistic that the improvements we began to see in the fourth quarter of 2011 are reflective of a gradual and steady improvement to the macroeconomic environment and that with this improvement the negative impact on our growth rates that we have experienced since mid-2008 will begin to lessen.

Twelve Months Ended December 31, 2011 Compared to Twelve Months Ended December 31, 2010

Revenue

Total Company. The following table presents revenue by operating segment:

	For the Year		For the Year
	Ended		Ended							Percentage			Percentage			Organic
Net Revenue	December 31,		December 31,		Dollar		Percentage			Change from			Change from			Revenue
(dollars in thousands)	2011		2010		Change		Change			Currency ⁽¹⁾			Acquisitions ⁽²⁾			Growth⁽³⁾

CAG	$	999,722	$	905,655	$	94,067		10.4	%		2.3	%		0.3	%		7.8	%
Water		82,125		76,514		5,611		7.3	%		2.5	%		-			4.8	%
LPD		94,112		81,177		12,935		15.9	%		4.5	%		-			11.4	%
Other		42,730		40,046		2,684		6.7	%		2.1	%		-			4.6	%
Total	$	1,218,689	$	1,103,392	$	115,297		10.4	%		2.4	%		0.2	%		7.8	%

(1)

The percentage change from currency is a non-U.S. GAAP measure. It represents the percentage change in revenue resulting from the difference between the average exchange rates during the twelve months ended December 31, 2011 and the same period of the prior year applied to foreign currency denominated revenues for the twelve months ended December 31, 2011.

(2)

The percentage change from acquisitions is a non-U.S. GAAP measure. It represents the percentage change in revenue during the year ended December 31, 2011 compared to the year ended December 31, 2010 attributed to incremental revenues from businesses acquired subsequent to December 31, 2009.

(3)

Organic revenue growth is a non-U.S. GAAP measure and represents the percentage change in revenue during the year ended December 31, 2011 compared to the year ended December 31, 2010 net of acquisitions and the effect from changes in foreign currency exchange rates.

The following revenue analysis and discussion includes references to organic revenue growth. Organic revenue growth should be considered in addition to, and not as a replacement for or as superior to, revenues reported in accordance with U.S. GAAP, and may not be comparable to similarly titled measures reported by other companies. Management believes that discussing organic revenue growth provides useful information to investors by facilitating easier comparisons of our revenue performance with prior and future periods and to our peers. In determining organic revenue growth, we exclude the effect of changes in foreign currency exchange rates because changes in foreign currency exchange rates are not under management’s control, are subject to volatility and can obscure underlying business trends. We also exclude the effects of acquisitions and divestitures because the nature, size and number of acquisitions can vary dramatically from period to period and therefore can also obscure underlying business trends.

Companion Animal Group. The following table presents revenue by product and service category for CAG:

	For the Year		For the Year
	Ended		Ended							Percentage			Percentage			Organic
Net Revenue	December 31,		December 31,		Dollar		Percentage			Change from			Change from			Revenue
(dollars in thousands)	2011		2010		Change		Change			Currency ⁽¹⁾			Acquisitions ⁽²⁾			Growth⁽³⁾

Instruments and consumables	$	394,586	$	354,239	$	40,347		11.4	%		2.7	%		-			8.7	%
Rapid assay products		154,342		146,538		7,804		5.3	%		1.2	%		-			4.1	%
Reference laboratory diagnostic and consulting services		373,919		329,666		44,253		13.4	%		2.7	%		0.8	%		9.9	%
Practice management systems and digital radiography		76,875		75,212		1,663		2.2	%		0.4	%		-			1.8	%
Net CAG revenue	$	999,722	$	905,655	$	94,067		10.4	%		2.3	%		0.3	%		7.8	%

(1)

(2)

(3)

Instruments revenue was $93.7 million and $85.5 million for the twelve months ended December 31, 2011 and 2010, respectively. Consumables revenue was $256.0 million and $228.0 million for the twelve months ended December 31, 2011 and 2010, respectively. Instrument service and accessories revenue was $43.8 million and $39.7 million for the twelve months ended December 31, 2011 and 2010, respectively. The remaining sources of revenue are not significant to overall instruments and consumables revenue. Instruments revenue growth was due primarily to sales of ProCyte Dx^®, the hematology analyzer that we began shipping during the third quarter of 2010, and higher sales volumes of our Catalyst Dx^® instrument. These favorable impacts were partly offset by lower average unit sales prices driven primarily by discounts associated with our IDEXX VetLab^® instrument marketing programs. Consumables revenue growth was due primarily to higher sales of consumables used with our Catalyst Dx^®instrument, partly offset by lower sales of consumables used with our VetTest^® chemistry instrument as customers continue to upgrade from our VetTest^® instrument to our Catalyst Dx^® instrument. Higher sales of consumables used with our ProCyte Dx^® instrument also contributed to the increase in consumables revenue. Service and accessories revenue growth was primarily a result of the increase in our active installed base of instruments. The impact of changes in distributors’ inventory levels was not significant to instruments and consumables revenue growth.

The increase in rapid assay revenue was due primarily to an increase in U.S. practice-level sales of our canine combination test products and, to a lesser extent, sales of our feline pancreatitis test products, which we began shipping during the second quarter of 2011. The impact of changes in distributors’ inventory levels was not significant to rapid assay revenue growth.

The increase in reference laboratory diagnostic and consulting services revenue resulted primarily from the impact of higher testing volumes and, to a lesser extent, price increases. Higher testing volumes were driven by the acquisition of new customers due, in part, to geographic expansion and our customer loyalty programs in which customers are provided incentives in the form of IDEXX Points or cash in exchange for agreements to purchase services in future periods.

The increase in practice management systems and digital radiography revenue resulted primarily from an increase in service and support revenue and an increase in sales volumes of our practice management systems. The increase in service and support revenue was due primarily to an increase in our active installed base of digital radiography systems and, to a lesser extent, practice management systems. Higher sales volumes of our digital radiography systems also contributed to the overall increase in revenue. These favorable factors were partly offset by an increase in placements of digital radiography systems and practice management systems under our customer loyalty programs for which the related revenue is recognized in future periods.

Water. The increase in Water revenue resulted primarily from higher sales volumes of Colilert^® test products, partly offset by the unfavorable impact of higher relative sales of Colilert^® test products in geographies where these products are sold at lower average unit sales prices.

Livestock and Poultry Diagnostics. The increase in LPD revenue resulted primarily from higher sales volumes of certain bovine tests and, to a lesser extent, higher sales volumes of certain swine and poultry tests. The increased sales volume of certain bovine tests was driven primarily by sales in Germany where we have won several government tenders for testing in connection with a country-wide eradication program for a virus impacting beef and dairy production yields.

Other. The increase in Other revenue was primarily attributable to higher sales volumes of our OPTI Medical consumables and, to a lesser extent, instruments, partly offset by lower sales volumes of our Dairy SNAP^®tests used for the detection of antibiotic residue in milk and lower average unit sales prices in our OPTI Medical line of business due, in part, to higher relative sales in geographies where products are sold at lower average unit sales prices.

Gross Profit

Total Company. The following table presents gross profit and gross profit percentages by operating segment:

	For the Year						For the Year
	Ended						Ended
	December 31,			Percent of			December 31,			Percent of			Dollar			Percentage
Gross Profit (dollars in thousands)	2011			Revenue			2010			Revenue			Change			Change

CAG	$	515,656			51.6	%	$	458,491			50.6	%	$	57,165			12.5	%
Water		51,555			62.8	%		48,231			63.0	%		3,324			6.9	%
LPD		63,619			67.6	%		55,187			68.0	%		8,432			15.3	%
Other		17,231			40.3	%		17,732			44.3	%		(501	)		(2.8	%)
Unallocated amounts		(1,555	)		N/A			(1,018	)		N/A			(537	)		N/A
Total Company	$	646,506			53.0	%	$	578,623			52.4	%	$	67,883			11.7	%

Companion Animal Group. Gross profit for CAG increased due to higher sales and an increase in the gross profit percentage to 52% from 51%. The increase in the gross profit percentage was due primarily to improvements in costs to manufacture our IDEXX VetLab^® instruments, higher relative sales of products that yield higher margins and an overall increase in average unit sales prices, driven by our reference laboratory diagnostic and consulting services line of business. These favorable impacts were partly offset by the unfavorable impact of currency as the net favorable impact of changes in foreign currency exchange rates was more than offset by the impact of increased hedging losses during the year ended December 31, 2011 compared to the year ended December 31, 2010.

Water. Gross profit for Water increased as higher sales were partly offset by a slight decrease in the gross profit percentage. The decrease in the gross profit percentage was due primarily to lower average unit sales prices of our Colilert^® products and higher freight costs as a result of rising fuel surcharges. These unfavorable impacts were partly offset by higher relative sales of our Colilert^® products that yield higher margins and lower manufacturing costs driven by cost improvement initiatives.

Livestock and Poultry Diagnostics. Gross profit for LPD increased as higher sales were partly offset by a slight decrease in the gross profit percentage. The decrease in the gross profit percentage was due primarily to the net unfavorable impact of currency as the net favorable impact of changes in foreign currency exchange rates was more than offset by hedging losses during the year ended December 31, 2011 compared to hedging gains during the year ended December 31, 2010. This unfavorable impact was partly offset by lower manufacturing costs and higher relative sales of products that yield higher margins. Lower manufacturing costs were driven largely by benefits achieved from economies of scale as a result of the increase in production volume.

Other. Gross profit for Other decreased as higher sales were more than offset by a decrease in the gross profit percentage to 40% from 44%. The decrease in the gross profit percentage was due primarily to lower average unit sales prices in our OPTI Medical line of business and higher freight costs in our Dairy line of business that were due, in part, to rising fuel surcharges.

Unallocated Amounts. Gross profit for Unallocated Amounts decreased due primarily to the unfavorable impact of certain manufacturing costs that we do not expect to continue at this level, partly offset by a decrease in certain personnel-related costs. With respect to manufacturing costs, the costs reported in our operating segments include our standard cost for products sold and any variances from standard cost for products purchased or manufactured within the period. We capitalize these variances for inventory on hand at the end of the period to record inventory in accordance with U.S. GAAP. We then record these costs as cost of product revenue as that inventory is sold. The impact to cost of product revenue resulting from this variance capitalization and subsequent expense recognition is reported within the caption “Unallocated Amounts.” With respect to personnel-related costs, we estimate certain personnel-related costs and allocate the estimated expenses to the operating segments. This allocation differs from actual expense and consequently yields a difference that is reported under the caption “Unallocated Amounts.” The decrease in certain personnel-related costs for Unallocated Amounts is due primarily to lower self-insured health care costs during the year ended December 31, 2011 compared to the same period of the prior year.

Operating Expenses and Operating Income

Total Company. The following tables present operating expenses and operating income by operating segment:

	For the Year					For the Year
	Ended					Ended
Operating Expenses	December 31,		Percent of			December 31,		Percent of			Dollar			Percentage
(dollars in thousands)	2011		Revenue			2010		Revenue			Change			Change

CAG	$	325,822		32.6	%	$	293,278		32.4	%	$	32,544			11.1	%
Water		17,711		21.6	%		16,618		21.7	%		1,093			6.6	%
LPD		39,880		42.4	%		35,584		43.8	%		4,296			12.1	%
Other		14,675		34.3	%		13,607		34.0	%		1,068			7.8	%
Unallocated amounts		12,193		N/A			15,655		N/A			(3,462	)		(22.1	%)
Total Company	$	410,281		33.7	%	$	374,742		34.0	%	$	35,539			9.5	%

Operating Income (dollars in thousands)	For the Year Ended December 31, 2011			Percent of Revenue			For the Year Ended December 31, 2010			Percent of Revenue			Dollar Change			Percentage Change

CAG	$	189,834			19.0	%	$	165,213			18.2	%	$	24,621			14.9	%
Water		33,844			41.2	%		31,613			41.3	%		2,231			7.1	%
LPD		23,739			25.2	%		19,603			24.2	%		4,136			21.1	%
Other		2,556			6.0	%		4,125			10.3	%		(1,569	)		(38.0	%)
Unallocated amounts		(13,748	)		N/A			(16,673	)		N/A			2,925			17.5	%
Total Company	$	236,225			19.4	%	$	203,881			18.5	%	$	32,344			15.9	%

Companion Animal Group. The following table presents CAG operating expenses by functional area:

Operating Expenses (dollars in thousands)	For the Year Ended December 31, 2011		Percent of Revenue			For the Year Ended December 31, 2010		Percent of Revenue			Dollar Change		Percentage Change

Sales and marketing	$	173,679		17.4	%	$	151,652		16.7	%	$	22,027		14.5	%
General and administrative		102,699		10.3	%		97,721		10.8	%		4,978		5.1	%
Research and development		49,444		5.0	%		43,905		4.9	%		5,539		12.6	%
Total operating expenses	$	325,822		32.6	%	$	293,278		32.4	%	$	32,544		11.1	%

The increase in sales and marketing expense resulted primarily from an increase in personnel, the unfavorable impact of changes in foreign currency exchange rates and higher sales commission expenses attributable to the increase in sales volume. The increase in general and administrative expense resulted primarily from higher personnel-related costs, the unfavorable impact of changes in foreign currency exchange rates and an increase in costs attributable to investments in information technology. These increases were partly offset by a certain bad debt expense in 2010 that was absent in 2011 and payments that were earned during 2011 pursuant to certain product development arrangements and a license agreement. The bad debt expense in 2010 was in connection with the bankruptcy of one of our U.S. distributors, Professional Veterinary Products, Inc. (“PVP”). The increase in research and development expense was due primarily to increased personnel-related costs and higher external consulting and development costs.

Water. The following table presents Water expenses by functional area:

Operating Expenses (dollars in thousands)	For the Year Ended December 31, 2011		Percent of Revenue			For the Year Ended December 31, 2010		Percent of Revenue			Dollar Change			Percentage Change

Sales and marketing	$	8,906		10.8	%	$	7,898		10.3	%	$	1,008			12.8	%
General and administrative		6,443		7.8	%		6,328		8.3	%		115			1.8	%
Research and development		2,362		2.9	%		2,392		3.1	%		(30	)		(1.3	%)
Total operating expenses	$	17,711		21.6	%	$	16,618		21.7	%	$	1,093			6.6	%

The increase in sales and marketing expense resulted primarily from increased personnel-related costs and the unfavorable impact of changes in foreign currency exchange rates. The increase in general and administrative expense resulted primarily from the unfavorable impact of changes in foreign currency exchange rates, partly offset by a decrease in personnel-related costs. The slight decrease in research and development expense resulted primarily from lower personnel-related costs.

Livestock and Poultry Diagnostics. The following table presents LPD operating expenses by functional area:

	For the Year					For the Year
	Ended					Ended
Operating Expenses	December 31,		Percent of			December 31,		Percent of			Dollar		Percentage
(dollars in thousands)	2011		Revenue			2010		Revenue			Change		Change

Sales and marketing	$	15,933		16.9	%	$	13,820		17.0	%	$	2,113		15.3	%
General and administrative		12,079		12.8	%		12,025		14.8	%		54		0.4	%
Research and development		11,868		12.6	%		9,739		12.0	%		2,129		21.9	%
Total operating expenses	$	39,880		42.4	%	$	35,584		43.8	%	$	4,296		12.1	%

The increase in sales and marketing expense resulted primarily from higher personnel-related costs and the unfavorable impact of changes in foreign currency exchange rates. The increase in personnel-related costs was due primarily to an increase in sales personnel to support growth in developing markets. The slight increase in general and administrative expense resulted primarily from the unfavorable impact of changes in foreign currency exchange rates, partly offset by a decrease in personnel-related costs. The increase in research and development expense was due primarily to an increase in personnel-related costs and, to a lesser extent, the unfavorable impact of changes in foreign currency exchange rates.

Other. Operating expenses for Other increased $1.1 million to $14.7 million for the year ended December 31, 2011. This increase was due primarily to increased research and development costs in our OPTI Medical line of business driven, in part, by higher personnel-related costs and increased consulting and external development costs.

Unallocated Amounts. Operating expenses that are not allocated to our operating segments decreased $3.5 million to $12.2 million for the year ended December 31, 2011 due primarily to a decrease in certain personnel-related costs, receipt of a payment related to the sale of certain raw material inventory in connection with the restructuring of our pharmaceutical business in the fourth quarter of 2008, an impairment charge in 2010 that was absent in 2011, a decrease in legal and other professional fees incurred in connection with the U.S. Federal Trade Commission (“FTC”) and United Kingdom Office of Fair Trading (“OFT”) investigations and decreased foreign exchange losses during the year ended December 31, 2011 compared to the year ended December 31, 2010. The FTC investigation is discussed in more detail under the heading “Part I. Item 1A. Risk Factors”. We estimate certain personnel-related costs and allocate the estimated expenses to the operating segments. This allocation differs from actual expense and consequently yields a difference that is reported under the caption “Unallocated Amounts.” The decrease in certain personnel-related costs for Unallocated Amounts is due primarily to lower self-insured health care costs during the year ended December 31, 2011 compared to the same period of the prior year. The payment related to the sale of certain raw material inventory was not recorded in our results of operation until received due to uncertain collectability. The impairment charge in 2010 was to write-off certain design costs related to a facilities project that had changed in scope.

Interest Income and Interest Expense

Interest income was $1.7 million for the twelve months ended December 31, 2011 compared to $0.7 million for the same period of the prior year. The increase in interest income was due primarily to interest earned on a note issued in connection with a November 2010 strategic investment in a company that owns and operates veterinary hospitals and, to a lesser extent, from higher cash balances.

Interest expense was $3.5 million for the twelve months ended December 31, 2011 compared to $2.4 million for the same period of the prior year. In July 2011, we refinanced our existing $200 million unsecured revolving credit facility by entering into an amended and restated credit agreement relating to a five-year unsecured revolving credit facility in the principal amount of $300 million with a syndicate of multinational banks, which matures on July 25, 2016 (the new credit facility and the previous credit facility are referred to collectively as the “Credit Facility”) and requires no scheduled prepayments before that date. The increase in interest expense during the year ended December 31, 2011 in comparison to the same period of the prior year was due primarily to higher debt balances outstanding on our Credit Facility and higher effective interest rates on borrowings under our Credit Facility. As a result of the refinancing event in July 2011, applicable interest rates on borrowings under the Credit Facility generally range from 0.875 to 1.25 percentage points (the range of applicable interest rates on borrowing under the new credit facility and the previous credit facility are referred to collectively as the “Credit Spread”) above the London interbank rate (“LIBOR”) or the Canadian Dollar-denominated bankers’ acceptance rate (“CDOR”) as opposed to a Credit Spread of 0.375 to 0.875 under the pre-existing Credit Facility. Because the Credit Spread increased as a result of the refinancing event, interest expense during the year ended December 31, 2011 increased in comparison to the same period of the prior year and we expect that interest expense will continue to increase in 2012 in comparison 2011.

Provision for Income Taxes

Our effective income tax rate was 31.0% for the year ended December 31, 2011 and 30.1% for the year ended December 31, 2010. The increase in the tax rate is primarily due to lower tax benefits recognized related to the federal research and development tax incentives, lower benefits recognized in connection with the expiration of certain statutes of limitations and increased state tax.

In 2012, it is reasonably possible that we could recognize up to $1.3 million of income tax benefits that have not been recognized at December 31, 2011. The income tax benefits are primarily due to the lapse in the statutes of limitations for various U.S. and international tax jurisdictions.

Twelve Months Ended December 31, 2010 Compared to Twelve Months Ended December 31, 2009

Revenue

Total Company. The following table presents revenue by operating segment:

	For the Year		For the Year
	Ended		Ended							Percentage			Percentage			Organic
Net Revenue	December 31,		December 31,		Dollar		Percentage			Change from			Change from			Revenue
(dollars in thousands)	2010		2009		Change		Change			Currency ⁽¹⁾			Acquisitions ⁽²⁾			Growth⁽³⁾

CAG	$	905,655	$	843,303	$	62,352		7.4	%		0.5	%		0.5	%		6.4	%
Water		76,514		73,214		3,300		4.5	%		0.8	%		-			3.7	%
LPD		81,177		77,208		3,969		5.1	%		(2.5	%)		-			7.6	%
Other		40,046		37,908		2,138		5.6	%		-			-			5.6	%
Total	$	1,103,392	$	1,031,633	$	71,759		7.0	%		0.3	%		0.4	%		6.3	%

(1)

The percentage change from currency is a non-U.S. GAAP measure. It represents the percentage change in revenue resulting from the difference between the average exchange rates during the twelve months ended December 31, 2010 and the same period of the prior year applied to foreign currency denominated revenues for the twelve months ended December 31, 2010.

(2)

The percentage change from acquisitions is a non-U.S. GAAP measure. It represents the percentage change in revenue during the year ended December 31, 2010 compared to the year ended December 31, 2009 attributed to incremental revenues from businesses acquired subsequent to December 31, 2008.

(3)

Organic revenue growth is a non-U.S. GAAP measure and represents the percentage change in revenue during the year ended December 31, 2010 compared to the year ended December 31, 2009 net of acquisitions and the effect from changes in foreign currency exchange rates.

Companion Animal Group. The following table presents revenue by product and service category for CAG:

	For the Year		For the Year
	Ended		Ended								Percentage			Percentage			Organic
Net Revenue	December 31,		December 31,		Dollar			Percentage			Change from			Change from			Revenue
(dollars in thousands)	2010		2009		Change			Change			Currency ⁽¹⁾			Acquisitions ⁽²⁾			Growth⁽³⁾

Instruments and consumables	$	354,239	$	332,706	$	21,533			6.5	%		0.1	%		-			6.4	%
Rapid assay products		146,538		147,078		(540	)		(0.4	%)		0.3	%		-			(0.7	%)
Reference laboratory diagnostic and consulting services		329,666		298,410		31,256			10.5	%		1.0	%		1.2	%		8.3	%
Practice management systems and digital radiography		75,212		65,055		10,157			15.6	%		0.9	%		0.5	%		14.2	%
Pharmaceutical products		-		54		(54	)		(100	%)		-			-			(100	%)
Net CAG revenue	$	905,655	$	843,303	$	62,352			7.4	%		0.5	%		0.5	%		6.4	%

(1)

The percentage change from currency is a non-U.S. GAAP measure. It represents the percentage change in revenue resulting from the difference between the average exchange rates during the twelve months ended December 31, 2010 and the same period of the prior year applied to foreign currency denominated revenues for the twelve months ended December 31, 2010.

(2)

(3)

Instruments revenue was $85.5 million and $77.3 million for the twelve months ended December 31, 2010 and 2009, respectively. Consumables revenue was $228.0 million and $218.5 million for the twelve months ended December 31, 2010 and 2009, respectively. Instrument service and accessories revenue was $39.7 million and $35.7 million for the twelve months ended December 31, 2010 and 2009, respectively. The remaining sources of revenue are not significant to overall instruments and consumables revenue. Instruments revenue growth was due primarily to sales of our ProCyte Dx^® instrument, our hematology analyzer that we began shipping during the third quarter of 2010, and increased sales of our Catalyst Dx^® instrument and IDEXX VetLab Station^®. This increase in instrument revenue was partly offset by lower average unit sales prices and lower sales volumes of our LaserCyte^® instrument, due primarily to a shift in focus of our sales efforts to ProCyte Dx^®. Consumables revenue growth was due primarily to higher sales volumes of consumables used with our Catalyst Dx^® instrument, partly offset by lower sales of consumables used with our VetTest^® instrument as Catalyst Dx^® instruments continue to replace VetTest^® instruments at certain customers. Instrument service and accessories revenue growth was primarily a result of the growth of our active installed base of instruments. The impact of changes in distributors’ inventory levels was not significant to reported instruments and consumables revenue.

The slight decrease in rapid assay revenue was due primarily to lower average unit sales prices of our SNAP^® tests resulting from competitive pressures and increased price sensitivity in certain segments of our customer base as a result of economic conditions and, to a lesser extent, lower U.S. practice-level sales primarily attributable to economic conditions. These decreases were partly offset by higher sales volumes outside of the U.S. and the favorable impact of changes in distributors’ inventory levels, which increased reported rapid assay revenue growth by 1%.

The increase in practice management systems and digital radiography revenue resulted primarily from higher sales volumes of companion animal digital radiography systems as this market is transitioning from older film-based systems to digital as the standard of care. An increase in service and support revenue related to both digital radiography systems and practice management systems also contributed to revenue growth. These increases were partly offset by lower average unit sales prices of our digital radiography systems resulting from competitive conditions.

Water. The increase in Water revenue resulted primarily from higher Colilert^® product sales volumes, partly offset by lower average unit sales prices. The lower average unit sales prices resulted primarily from higher relative sales of Colilert^® products in geographies where those products are sold at lower average unit sales prices.

Livestock and Poultry Diagnostics. The increase in LPD revenue resulted primarily from higher sales volumes of certain bovine tests and, to a lesser extent, higher sales volumes of certain swine tests. The increased sales volumes of certain bovine tests was driven primarily by increased sales in Germany where we have won several government tenders for testing in connection with a country-wide eradication program for a virus impacting beef and dairy production yields. These increases were partly offset by lower average unit sales prices due to competitive conditions.

Other. The increase in Other revenue was attributable primarily to higher sales volumes of our Dairy SNAP^®test for the detection of the chemical melamine and higher sales volumes of consumables used with our OPTI Medical^® instruments. These increases were partly offset by lower sales volumes of our Dairy SNAP^® Beta Lactam test used for the detection of antibiotic residue in milk.

Gross Profit

Total Company. The following table presents gross profit and gross profit percentages by operating segment:

	For the Year						For the Year
	Ended						Ended
Gross Profit	December 31,			Percent of			December 31,		Percent of			Dollar			Percentage
(dollars in thousands)	2010			Revenue			2009		Revenue			Change			Change

CAG	$	458,491			50.6	%	$	410, 033		48.6	%	$	48,458			11.8	%
Water		48,231			63.0	%		46,793		63.9	%		1,438			3.1	%
LPD		55,187			68.0	%		51,711		67.0	%		3,476			6.7	%
Other		17,732			44.3	%		16,919		44.6	%		813			4.8	%
Unallocated amounts		(1,018	)		N/A			825		N/A			(1,843	)		(223.4	%)
Total Company	$	578,623			52.4	%	$	526,281		51.0	%	$	52,342			9.9	%

Companion Animal Group. Gross profit for CAG increased due to higher sales and an increase in the gross profit percentage to 51% from 49%. The increase in the gross profit percentage was attributable primarily to improvements in the cost to manufacture and service our IDEXX VetLab^® instruments and increased volume leverage and other efficiency gains in our reference laboratory diagnostics and consulting services business. Lower depreciation on instruments placed at customer sites under usage agreements also contributed to the increase in the gross profit percentage, as we have reduced this type of placement activity and an increasing number of prior placements have become fully depreciated and ownership has transferred to the customer. These favorable impacts were partly offset by the unfavorable impact of currency driven primarily by hedging losses during the year ended December 31, 2010 compared to hedging gains during the year ended December 31, 2009.

Water. Gross profit for Water increased as higher sales were partly offset by a decrease in the gross profit percentage to 63% from 64%. The decrease in the gross profit percentage for Water was driven primarily by hedging losses during the year ended December 31, 2010 compared to hedging gains during the year ended December 31, 2009. These unfavorable impacts were partly offset by higher relative sales of higher margin products and lower overall manufacturing costs.

Livestock and Poultry Diagnostics. Gross profit for LPD increased due to higher sales and an increase in the gross profit percentage to 68% from 67%. The increase in the gross profit percentage was due primarily to lower overall manufacturing costs and higher relative sales of higher margin products. These increases were partly offset by lower overall average unit sales prices and the unfavorable impact of currency driven by the net unfavorable impact of changes in foreign currency exchange rates and lower hedging gains during the year ended December 31, 2010 compared to the year ended December 31, 2009.

Other. Gross profit for Other increased as higher sales were partly offset by a slight decrease in the gross profit percentage. The slight decrease in the gross profit percentage was due primarily to increased overall manufacturing costs in our OPTI Medical and Dairy businesses and the unfavorable impact of currency driven by the net unfavorable impact of changes in foreign currency exchange rates and lower hedging gains during the year ended December 31, 2010 compared to the year ended December 31, 2009. These unfavorable impacts were partly offset by lower costs of service in our OPTI Medical and Dairy businesses.

Unallocated Amounts. Gross profit for Unallocated Amounts decreased due primarily to an increase in certain personnel-related costs. We estimate certain personnel-related costs and allocate the estimated expenses to the operating segments. This allocation differs from actual expense and consequently yields a difference that is reported under the caption “Unallocated Amounts.” The increase in certain personnel-related costs for Unallocated Amounts is due primarily to higher self-insured health care costs during the year ended December 31, 2010 compared to the same period of the prior year.

Operating Expenses and Operating Income

Total Company. The following tables present operating expenses and operating income by operating segment:

	For the Year					For the Year
	Ended					Ended
Operating Expenses	December 31,		Percent of			December 31,		Percent of			Dollar			Percentage
(dollars in thousands)	2010		Revenue			2009		Revenue			Change			Change

CAG	$	293,278		32.4	%	$	278,295		33.0	%	$	14,983			5.4	%
Water		16,618		21.7	%		15,950		21.8	%		668			4.2	%
LPD		35,584		43.8	%		34,360		44.5	%		1,224			3.6	%
Other		13,607		34.0	%		13,740		36.3	%		(133	)		(1.0	%)
Unallocated amounts		15,655		N/A			7,967		N/A			7,688			96.5	%
Total Company	$	374,742		34.0	%	$	350,312		34.0	%	$	24,430			7.0	%


	For the Year						For the Year
	Ended						Ended
Operating Income	December 31,			Percent of			December 31,			Percent of			Dollar			Percentage
(dollars in thousands)	2010			Revenue			2009			Revenue			Change			Change

CAG	$	165,213			18.2	%	$	131,738			15.6	%	$	33,475			25.4	%
Water		31,613			41.3	%		30,843			42.1	%		770			2.5	%
LPD		19,603			24.2	%		17,351			22.5	%		2,252			13.0	%
Other		4,125			10.3	%		3,179			8.4	%		946			29.8	%
Unallocated amounts		(16,673	)		N/A			(7,142	)		N/A			(9,531	)		(133.5	%)
Total Company	$	203,881			18.5	%	$	175,969			17.1	%	$	27,912			15.9	%

Companion Animal Group. The following table presents CAG operating expenses by functional area:

	For the Year					For the Year
	Ended					Ended
Operating Expenses	December 31,		Percent of			December 31,		Percent of			Dollar		Percentage
(dollars in thousands)	2010		Revenue			2009		Revenue			Change		Change

Sales and marketing	$	151,652		16.7	%	$	142,434		16.9	%	$	9,218		6.5	%
General and administrative		97,721		10.8	%		95,305		11.3	%		2,416		2.5	%
Research and development		43,905		4.9	%		40,556		4.8	%		3,349		8.3	%
Total operating expenses	$	293,278		32.4	%	$	278,295		33.0	%	$	14,983		5.4	%

The increase in sales and marketing expense resulted primarily from increased personnel-related costs, including an investment in field sales technical support personnel. The increase in general and administrative expense resulted primarily from higher personnel-related costs, the unfavorable impact of changes in foreign currency exchange rates, an increase in costs attributable to information technology investments and an increase in bad debt expense in connection with the bankruptcy of one of our U.S. distributors, PVP. These increases were partly offset by the absence of an impairment charge of $1.5 million that was recorded in the fourth quarter of 2009 to write off an acquired intangible asset associated with our equine digital radiography business. The increase in research and development expense resulted primarily from increased personnel-related costs.

Water. The following table presents Water expenses by functional area:

	For the Year					For the Year
	Ended					Ended
Operating Expenses	December 31,		Percent of			December 31,		Percent of			Dollar			Percentage
(dollars in thousands)	2010		Revenue			2009		Revenue			Change			Change

Sales and marketing	$	7,898		10.3	%	$	7,192		9.8	%	$	706			9.8	%
General and administrative		6,328		8.3	%		6,108		8.3	%		220			3.6	%
Research and development		2,392		3.1	%		2,650		3.6	%		(258	)		(9.7	%)
Total operating expenses	$	16,618		21.7	%	$	15,950		21.8	%	$	668			4.2	%

The increase in sales and marketing expense resulted primarily from increased personnel-related costs. The increase in general and administrative expense resulted from an increase in costs attributable to information technology investments and increased personnel-related costs. The decrease in research and development expense was due primarily to decreased spending related to qualifying additional suppliers of certain raw materials and a reduction in personnel-related costs.

Livestock and Poultry Diagnostics. The following table presents LPD operating expenses by functional area:

	For the Year					For the Year
	Ended					Ended
Operating Expenses	December 31,		Percent of			December 31,		Percent of			Dollar			Percentage
(dollars in thousands)	2010		Revenue			2009		Revenue			Change			Change

Sales and marketing	$	13,820		17.0	%	$	12,679		16.4	%	$	1,141			9.0	%
General and administrative		12,025		14.8	%		13,173		17.1	%		(1,148	)		(8.7	%)
Research and development		9,739		12.0	%		8,508		11.0	%		1,231			14.5	%
Total operating expenses	$	35,584		43.8	%	$	34,360		44.5	%	$	1,224			3.6	%

The increase in sales and marketing expense resulted primarily from an increase in personnel-related costs. The decrease in general and administrative expense resulted primarily from decreased personnel-related costs and lower amortization on our existing intangible assets. These decreases were partly offset by the net unfavorable impact of changes in foreign currency exchange rates and an increase in costs attributable to information technology investments. The increase in research and development expense was due primarily to an increase in personnel-related costs.

Other. Operating expenses for Other decreased $0.1 million to $13.6 million for the year ended December 31, 2010. This slight decrease was due primarily to an incremental milestone payment earned in 2010 related to the sale of product rights previously included in our pharmaceutical product lines, partly offset by higher personnel-related costs in our Dairy business attributable, in part, to the development of business in China. Milestone payments in the third and fourth quarters of 2010 totaling $3.0 million were earned due to the achievement of certain sales milestones by the third party that purchased the product rights. In the fourth quarter of 2009, we earned a milestone payment of $2.0 million from the same third party as the result of the achievement of certain development milestones for this product. Because we have no obligation to deliver product or services, or otherwise provide support to the third party under this agreement, and because collectability is reasonably assured, these milestone payments, and any other related milestone payments we earn in the future, are included in results of operations when earned, but are not classified as revenue because the transaction was accounted for as the sale of a business.

Unallocated Amounts. Operating expenses that are not allocated to our operating segments increased $7.7 million to $15.7 million for the year ended December 31, 2010 due primarily to increased legal and other fees incurred in connection with our response to the FTC subpoena, discussed in more detail under the heading “Part I, Item 1A. Risk Factors” in this Annual Report on Form 10-K; foreign currency exchange losses during the year ended December 31, 2010 compared to gains during the year ended December 31, 2009; an increase in costs attributable to investments in information technology; and the write-off in 2010 of certain design costs related to a facilities project that changed in scope. These unfavorable impacts were partly offset by the absence of an impairment charge in 2010 compared to 2009 and lower research and development personnel-related costs. The impairment charge recorded in 2009 was to write-off software to manage the various aspects of product development and product lifecycles.

Interest Income and Interest Expense

Interest income was $0.7 million for the year ended December 31, 2010 compared to $0.5 million for the same period of the prior year. The increase in interest income was due primarily to higher average invested cash balances.

Interest expense was $2.4 million for the year ended December 31, 2010 compared to $1.9 million for the same period of the prior year. The increase in interest expense was due primarily to higher effective interest rates and, to a lesser extent, higher average balances outstanding on our Credit Facility. With the commencement of our interest rate swap agreements on March 31, 2010, we effectively fixed our interest rate at 2% plus the Credit Spread on $80 million of funds borrowed under the Credit Facility through March 31, 2012. As the fixed rate under the interest rate swap agreements is higher than the weighted average interest rate of debt outstanding during 2009, interest expense was higher for the year ended December 31, 2010 compared to the same period of the prior year.

Provision for Income Taxes

Our effective income tax rate was 30.1% for the year ended December 31, 2010 and 30.0% for the year ended December 31, 2009. The slight increase in the tax rate is due primarily to an increase in earnings taxed at domestic rates that are higher than international rates, partly offset by tax benefits related to U.S. manufacturing activities that were fully phased in effective January 1, 2010.

RECENT ACCOUNTING PRONOUNCEMENTS

A discussion of recent accounting pronouncements is included in Note 2 to the consolidated financial statements for the year ended December 31, 2011 included in this Annual Report on Form 10-K.

LIQUIDITY AND CAPITAL RESOURCES

We fund the capital needs of our business through cash on hand, funds generated from operations, and amounts available under our Credit Facility. At December 31, 2011 and December 31, 2010, we had $183.9 million and $156.9 million, respectively, of cash and cash equivalents, and working capital of $87.3 million and $175.5 million, respectively. Additionally, at December 31, 2011, we had remaining borrowing availability of $56.0 million under our $300 million Credit Facility. We believe that, if necessary, we could obtain additional borrowings at prevailing market interest rates to fund our growth objectives. We further believe that current cash and cash equivalents, funds generated from operations, and available borrowings will be sufficient to fund our operations, capital purchase requirements, and strategic growth needs for the next twelve months, and that these resources will be sufficient in the long-term to fund our business as currently conducted.

We consider the majority of the operating earnings of certain non-United States subsidiaries to be indefinitely invested outside the U.S. Changes to this position could have adverse tax consequences. We manage our worldwide cash requirements considering available funds among all of our subsidiaries. Our foreign cash balances are generally available without restrictions to fund ordinary business operations outside the U.S. Of our total cash and cash equivalents at December 31, 2011, approximately $180 million was held by our foreign subsidiaries and were subject to material repatriation tax effects. The amount of cash and cash equivalents held by foreign subsidiaries subject to other restrictions on the free flow of funds (primarily securing various obligations) was approximately $1.2 million. As of December 31, 2011, 51% of the cash and cash equivalents held by our foreign subsidiaries were held as bank deposits, 46% were invested in money market funds restricted to U.S. government and agency securities, and 3% were invested in money market funds restricted to non-U.S. government securities corresponding to the investment currency. Approximately 66% of the cash and cash equivalents held by our foreign subsidiaries were held in U.S. dollars.

Should we require more capital in the U.S. than is generated by our operations domestically, for example to fund significant discretionary activities, we could elect to repatriate future earnings from foreign jurisdictions or raise capital in the U.S. through debt or equity issuances. These alternatives could result in higher effective tax rates, increased interest expense, or other dilution of our earnings. We have borrowed funds domestically and continue to have the ability to borrow funds domestically at reasonable interest rates.

The following table presents additional key information concerning working capital:

	For the Three Months Ended
	December 31,		September 30,		June 30,		March 31,		December 31,
	2011		2011		2011		2011		2010

Days sales outstanding⁽¹⁾		41.0		43.1		41.2		40.2		38.7
Inventory turns⁽²⁾		1.8		1.7		1.7		1.8		1.8

⁽¹⁾ Days sales outstanding represents the average of the accounts receivable balances at the beginning and end of each quarter divided by revenue for that quarter, the result of which is then multiplied by 91.25 days.

⁽²⁾ Inventory turns represents inventory-related cost of product revenue for the 12 months preceding each quarter-end divided by the inventory balance at the end of the quarter.

Sources and Uses of Cash

The following table presents cash provided (used):

	For the Years Ended December 31,
(dollars in thousands)	2011			2010			Dollar Change

Net cash provided by operating activities	$	220,700		$	178,833		$	41,867
Net cash used by investing activities		(96,996	)		(43,190	)		(53,806	)
Net cash used by financing activities		(97,657	)		(86,769	)		(10,888	)
Net effect of changes in exchange rates on cash		933			1,313			(380	)
Net increase in cash and cash equivalents	$	26,980		$	50,187		$	(23,207	)

Operating Activities. Cash provided by operating activities was $220.7 million for the year ended December 31, 2011 compared to $178.8 million for the same period in 2010. The total of net income and net non-cash charges, excluding the impact of reclassifying the tax benefit from exercises of stock options and vesting of restricted stock units to a financing activity, was $230.4 million for the year ended December 31, 2011 compared to $200.1 million for the same period in 2010, resulting in incremental operating cash flows of $30.3 million driven primarily by the increase in net income. The total of changes in operating assets and liabilities and the tax benefit from share-based compensation arrangements decreased cash by $9.7 million and $21.3 million for the years ended December 31, 2011 and 2010, respectively, resulting in an incremental increase in cash of $11.6 million.

The following table presents cash flows from changes in operating assets and liabilities and the tax benefit from share-based compensation arrangements:

	For the Years Ended December 31,
(dollars in thousands)	2011			2010			Dollar Change

Accounts receivable	$	(24,809	)	$	(6,914	)	$	(17,895	)
Inventories		(6,310	)		(19,469	)		13,159
Other assets		(1,339	)		(13,208	)		11,869
Accounts payable		13,884			3,482			10,402
Accrued liabilities		17,564			30,604			(13,040	)
Deferred revenue		7,341			2,370			4,971
Tax benefit from share-based compensation arrangements		(16,007	)		(18,126	)		2,119
Total change in cash due to changes in operating assets and liabilities and the tax benefit from share-based compensation arrangements	$	(9,676	)	$	(21,261	)	$	11,585

The increase in inventory during the year ended December 31, 2011 was less than the increase during the year ended December 31, 2010 due primarily to the timing of inventory receipts, most significantly of slides used with our chemistry analyzers. Incremental cash provided by the change in other assets was due primarily to the use of prepaid tax amounts resulting in lower taxes paid during the year ended December 31, 2011 in comparison to the same period of the prior year. The increase in accounts payable during both the year ended December 31, 2011 and 2010 was due primarily to a combination of the timing of payments and the increase in expenses during both periods. Incremental cash provided by the changes in deferred revenue is the result of an increase in placements of IDEXX VetLab^® instruments, digital radiography systems and Cornerstone^® practice management systems under customer programs, discussed in more detail under the heading “Part II, Item 7. Critical Accounting Policies and Estimates”. Incremental cash used related to the changes in accounts receivable was driven primarily by higher revenues in the last month of the quarter ended December 31, 2011 and a slightly higher number of days sales outstanding as compared to the comparative periods in the prior year. Incremental cash used related to the changes in accrued liabilities was driven primarily by higher accelerated tax deductions as compared to the same period of the prior year.

We historically have experienced proportionally lower net cash flows from operating activities during the first quarter and proportionally higher cash flows from operating activities for the remainder of the year and for the annual period driven primarily by the payment of annual bonuses in connection with management and non-management employee incentive programs in the first quarter following the year for which the bonuses were earned.

Investing Activities. Cash used by investing activities was $97.0 million for the year ended December 31, 2011 compared to cash used of $43.2 million for the same period of 2010. The increase in cash used by investing activities was due primarily to the acquisitions of three businesses, incremental investments in our facilities and information technology and the acquisition of a customer list intangible asset. During the year ended December 31, 2011, we paid an aggregate of $46.8 million in cash to acquire three businesses, each accounted for as separate business combinations. The incremental investments in our facilities were driven primarily by a $5.6 million investment in our Memphis, Tennessee location and a $4.3 million incremental investment in the renovation and expansion of our Westbrook, Maine location during the year ended December 31, 2011 in comparison to the same period of the prior year. The additional investments in information technology were driven primarily by a $4.1 million incremental investment in our suite of business software applications and related hardware during the year ended December 31, 2011 in comparison to the same period of the prior year. Also during the year ended December 31, 2011, we paid $1.0 million to acquire a customer list intangible asset unrelated to the aforementioned business acquisitions.

This increase in cash used was partly offset by the receipt of milestone payments aggregating $3.0 million during the year ended December 31, 2011 in connection with the gain and receivable recorded in the third and fourth quarters of 2010 related to the achievement of certain sales milestones by the acquirer of our feline insulin product.

Our total capital expenditure plan for 2012 is approximately $60 million, which includes approximately $11 million for the renovation and expansion of our headquarters facility.

Financing Activities. Cash used by financing activities was $97.7 million for the year ended December 31, 2011 compared to cash used of $86.8 million for the same period in 2010. The increase in cash used by financing activities was due primarily to an increase in cash used to repurchase common stock, partly offset by higher net borrowings under the Credit Facility.

Cash used to repurchase common stock increased by $112.4 million during the year ended December 31, 2011 compared to the year ended December 31, 2010. From the inception of our common stock repurchase program in August 1999 to December 31, 2011, we have repurchased 43.6 million shares. During the year ended December 31, 2011, we purchased 3.4 million shares for an aggregate cost of $255.5 million compared to purchases of 2.5 million shares for an aggregate cost of $143.1 million during the year ended December 31, 2010. We believe that the repurchase of our common stock is a favorable investment, and we also repurchase to offset the dilutive effect of our share-based compensation programs. Repurchases of our common stock may vary depending upon the level of other investing activities and the share price. See Note 18 to the consolidated financial statements included in this Annual Report on Form 10-K for additional information about our share repurchases.

Net borrowing and repayment activity under our Credit Facility resulted in incremental cash provided of $103.8 million during the year ended December 31, 2011 compared to the same period of the prior year. At December 31, 2011, we had $243.0 million outstanding under the Credit Facility. The general availability of funds under the Credit Facility is further reduced by $1.0 million for a letter of credit issued related to our workers’ compensation policy covering claims for the years 2009, 2010 and 2011. The obligations under the Credit Facility may be accelerated upon the occurrence of an event of default under the Credit Facility, which includes customary events of default including, without limitation, payment defaults, defaults in the performance of affirmative and negative covenants, the inaccuracy of representations or warranties, bankruptcy and insolvency related defaults, defaults relating to judgments, certain events related to employee pension benefit plans under the Employee Retirement Income Security Act of 1974, the failure to pay specified indebtedness, and a change of control default. The Credit Facility contains affirmative, negative and financial covenants customary for financings of this type. The negative covenants include restrictions on liens, indebtedness of subsidiaries of the Company, fundamental changes, investments, transactions with affiliates and certain restrictive agreements. The financial covenant is a consolidated leverage ratio test that requires our ratio of debt to earnings before interest, taxes, depreciation and amortization, defined as the consolidated leverage ratio under the terms of the Credit Facility, not to exceed 3-to-1. At December 31, 2011, we were in compliance with the covenants of the Credit Facility.

Other Commitments, Contingencies and Guarantees

Under our worker’s compensation insurance policies for U.S. employees since January 1, 2003, we have retained the first $250,000 in claim liability per incident with aggregate maximum claim liabilities per year of $2.0 million in 2011 and $2.9 million in each of 2010 and 2009. The insurance company provides for insurance claims above the individual occurrence and aggregate limits. We have recognized cumulative expenses of $0.5 million, $0.6 million, and $0.4 million for claims incurred during the years ended December 31, 2011, 2010 and 2009. Our estimated liability for worker’s compensation as of December 31, 2011 and 2010 was $0.7 million and $1.1 million, respectively. Therefore, it is possible that we could incur additional healthcare and wage indemnification costs beyond those previously recognized up to our aggregate liability for each of the respective claim years. For the seven years ended on or prior to December 31 2009, based on our retained claim liability per incident and our aggregate claim liability per year, our maximum liability at December 31, 2011 in excess of the amounts deemed probable and previously recognized is not material. In connection with these policies, we have outstanding letters of credit totaling $1.6 million to the insurance companies as security for these claims.

We have contingent commitments outstanding of up to $10.3 million related primarily to the acquisition of an intangible asset in 2008 and due to the seller upon our achievement of certain revenue and other milestones. We have not accrued for the commitments related to this intangible asset acquisition as we do not deem them to be probable of occurring as of December 31, 2011. The remaining commitments are not material.

We are contractually obligated to make the following payments in the years below:

(in thousands)	Total		2012		2013–2014		2015–2016		After 2016

Long-term debt obligations ⁽¹⁾	$	3,636	$	1,091	$	2,181	$	364	$	-
Operating leases		60,202		12,813		18,137		11,172		18,080
Purchase obligations ⁽²⁾		110,130		106,814		3,316		-		-
Minimum royalty payments		5,689		914		1,720		1,140		1,915
Total contractual cash obligations	$	179,657	$	121,632	$	25,354	$	12,676	$	19,995

(1)

Long-term debt amounts include interest payments associated with long-term debt.

(2)

Purchase obligations include agreements to purchase goods or services that are enforceable and legally binding and that specify all significant terms, including fixed or minimum quantities, pricing, and approximate timing of purchase transactions.

These commitments do not reflect unrecognized tax benefits of $5.2 million and deferred compensation liabilities of $2.1 million as of December 31, 2011 as the timing of recognition is uncertain. Refer to Note 12 of the consolidated financial statements for the year ended December 31, 2011 included in this Annual Report on Form 10-K for additional discussion of unrecognized tax benefits.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

Our financial market risk consists primarily of foreign currency exchange risk and interest rate risk. Our functional currency is the U.S. dollar and our primary manufacturing operations are in the U.S., but we distribute our products worldwide both through direct export and through our foreign subsidiaries. Our primary foreign currency transaction risk consists of intercompany purchases and sales of products and we attempt to mitigate this risk through our hedging program described below. For the years ended December 31, 2011, 2010 and 2009, approximately 26%, 25% and 24%, respectively, of IDEXX sales were derived from products manufactured in the U.S. and sold internationally in local currencies. The functional currency of most of our subsidiaries is their local currency. For one of our subsidiaries located in the Netherlands, the functional currency is the U.S. dollar.

The primary purpose of our foreign currency hedging activities is to protect against the volatility associated with foreign currency transactions. We also utilize natural hedges to mitigate our transaction and commitment exposures. Our corporate policy prescribes the range of allowable hedging activity. We enter into foreign currency exchange contracts with large multinational financial institutions and we do not hold or engage in transactions involving derivative instruments for purposes other than risk management. Our accounting policies for these contracts are based on our designation of such instruments as hedging transactions. Changes in the fair value of our derivative instruments are either recognized in earnings or deferred in other comprehensive income (“OCI”), net of tax, and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. We primarily utilize foreign currency exchange contracts with durations of less than 24 months.

Our subsidiaries enter into foreign currency exchange contracts to manage the exchange risk associated with their forecasted intercompany inventory purchases and sales for the next year. From time to time, we may also enter into foreign currency exchange contracts to minimize the impact of foreign currency fluctuations associated with specific, significant transactions.

Our foreign currency hedging strategy is consistent with prior periods and there were no material changes in our market risk exposure during the year ended December 31, 2011. We enter into foreign currency exchange contracts designated as cash flow hedges for amounts that are less than the full value of forecasted intercompany purchases and sales and for amounts that are equivalent to, or less than, other significant transactions, thus no significant ineffectiveness has resulted or been recorded through the statements of operations. Our hedging strategy related to intercompany inventory purchases and sales provides that we employ the full amount of our hedges for the succeeding year at the conclusion of our budgeting process for that year, which is complete by the end of the preceding year. Quarterly, we enter into contracts to hedge incremental portions of anticipated foreign currency transactions for the current and following year that are in excess of amounts previously hedged. Accordingly, our risk with respect to foreign currency exchange rate fluctuations may vary throughout each annual cycle.

We enter into hedge agreements where we believe we have meaningful exposure to foreign currency exchange risk. The notional amount of foreign currency exchange contracts to hedge forecasted intercompany purchases and sales outstanding at December 31, 2011 and 2010 was $161.8 million and $133.2 million, respectively. At December 31, 2011, we had $4.1 million in net unrealized gains on foreign currency exchange contracts designated as hedging instruments recorded in other comprehensive income, which is net of $1.0 million in taxes.

Our foreign currency exchange risk is comprised of three components: 1) local currency revenues and expenses; 2) the impact of settled hedge contracts; and 3) intercompany and monetary balances for our subsidiaries that are denominated in a currency that is different from the functional currency used by each subsidiary. Based on projected revenues and expenses for 2012 excluding the impact of intercompany and trade balances denominated in currencies other than the functional subsidiary currencies, a 10% strengthening of the U.S. dollar would reduce operating income by approximately $8 million. The impact of the intercompany and monetary balances referred to in the third component above have been excluded, as they are transacted at multiple times during the year and we are not able to reliably forecast the impact that changes in exchange rates would have.

In July 2011, we refinanced our existing $200 million unsecured revolving credit facility by entering into an amended and restated credit agreement relating to a five-year unsecured revolving credit facility in the principal amount of $300 million with a syndicate of multinational banks, which matures on July 25, 2016 (the new credit facility and the previous credit facility are referred to collectively as the “Credit Facility”). We are subject to interest rate risk based on the terms of our Credit Facility to the extent that the London interbank rate (“LIBOR”) or the Canadian Dollar-denominated bankers’ acceptance rate (“CDOR”) increases. Borrowings under our Credit Facility bear interest in the range from 0.875 to 1.25 percentage points (the range of applicable interest rates on borrowing under the new credit facility and the previous credit facility are referred to collectively as the “Credit Spread”) above the LIBOR or the CDOR, dependent on our consolidated leverage ratio, and the interest period terms for the outstanding borrowings, which range from one to six months. As discussed below, we have entered into forward fixed interest rate swaps to mitigate interest rate risk in future periods. Borrowings outstanding under the Credit Facility at December 31, 2011 were $243.0 million at a weighted-average interest rate of 1.7%. Based on amounts outstanding at December 31, 2011, an increase in the LIBOR or the CDOR of 1% would increase interest expense by approximately $1.6 million on an annualized basis.

In 2009, we entered into two forward fixed interest rate swap agreements to manage the economic effect of variable interest obligations. Under these agreements, beginning on March 31, 2010 the variable interest rate associated with $80 million of borrowings outstanding under the Credit Facility became effectively fixed at 2% plus the Credit Spread through March 30, 2012. In August 2011, we entered into two additional forward fixed interest rate swap agreements for the same purpose. Under these agreements, beginning on March 30, 2012, the variable interest rate associated with $40 million of borrowings outstanding under the Credit Facility will become effectively fixed at 1.36% plus the Credit Spread through June 30, 2016 and beginning on March 28, 2013, the variable interest rate associated with an additional $40 million of borrowings outstanding under the Credit Facility will become effectively fixed at 1.64% plus the Credit Spread through June 30, 2016. We have designated these swaps as qualifying instruments to be accounted for as cash flow hedges. See Note 17 to the consolidated financial statements included in this Annual Report on Form 10-K for a discussion of our derivative instruments and hedging activities.

ITEM 8.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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

ITEM 9.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Not applicable.

ITEM 9A.

CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

Our management is responsible for establishing and maintaining disclosure controls and procedures, as defined by the SEC in its Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 as amended (the “Exchange Act”). The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by the issuer 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. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures at December 31, 2011, our chief executive officer and chief financial officer have concluded that, as of such date, the Company’s disclosure controls and procedures were effective at the reasonable assurance level.

Report of Management on Internal Control Over Financial Reporting

We are responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. The Company’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles in the United States of America and includes those policies and procedures that:

Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company;

Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the Company; and

Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. In addition, projections of any evaluation of effectiveness to future periods are subject to risk that controls may become inadequate because of changes in conditions and that the degree of compliance with the policies and procedures may deteriorate.

We conducted an evaluation of the effectiveness of internal control over financial reporting based on the framework in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, we conclude that, at December 31, 2011, our internal control over financial reporting was effective.

The effectiveness of the Company's internal control over financial reporting at December 31, 2011 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which appears herein.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the three months ended December 31, 2011 that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Certifications

The certifications with respect to disclosure controls and procedures and internal control over financial reporting of the Company’s chief executive officer and chief financial officer are attached as Exhibits 31.1 and 31.2 to this Annual Report on Form 10-K.

ITEM 9B.

OTHER INFORMATION

Not applicable.

PART III

ITEM 10.

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The information required by this Item with respect to Directors, Section 16(a) compliance and corporate governance is omitted from this Annual Report on Form 10-K and, pursuant to Regulation 14A of the Exchange Act, is incorporated herein by reference from the sections entitled “Corporate Governance – Committees of the Board of Directors – Audit Committee,” “Corporate Governance – Corporate Governance Guidelines and Code of Ethics,” “Election of Directors” and “Section 16(a) Beneficial Ownership Reporting Compliance” in the Company’s definitive proxy statement with respect to its 2012 Annual Meeting of Stockholders, which proxy statement will be filed with the SEC within 120 days after the end of the fiscal year covered by this report. For information required by this Item regarding Executive Officers with respect to Item 401 of Regulation S-K, see the section titled “Executive Officers of the Company” under “Part I.”

ITEM 11.

EXECUTIVE COMPENSATION

The information required by this Item is omitted from this Annual Report on Form 10-K and, pursuant to Regulation 14A of the Exchange Act, is incorporated herein by reference from the sections entitled “Executive Compensation,” “Corporate Governance – Committees of the Board – Compensation Committee – Analysis of Risks Associated with Compensation Practices,” “Corporate Governance – Committees of the Board – Compensation Committee – Compensation Committee Interlocks and Insider Participation,” and “Executive Compensation - Compensation Committee Report” in the Company’s definitive proxy statement with respect to its 2012 Annual Meeting of Stockholders, which proxy statement will be filed with the SEC within 120 days after the end of the fiscal year covered by this report.

ITEM 12.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The information required by this Item with respect to Item 201(d) of Regulation S-K has been included in the section titled “Securities Authorized for Issuance Under Equity Compensation Plans” under “Part II, Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.” The information required by this Item with respect to Item 403 of Regulation S-K is omitted from this Annual Report on Form 10-K and, pursuant to Regulation 14A of the Exchange Act, is incorporated herein by reference from the sections entitled “Ownership of Common Stock by Directors and Officers” and “Ownership of More Than Five Percent of Our Common Stock” in the Company’s definitive proxy statement with respect to its 2012 Annual Meeting of Stockholders, which proxy statement will be filed with the SEC within 120 days after the end of the fiscal year covered by this report.

ITEM 13.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE

The information required by this Item is omitted from this Annual Report on Form 10-K and, pursuant to Regulation 14A of the Exchange Act, is incorporated herein by reference from the sections entitled “Corporate Governance – Related Party Transactions” and “Corporate Governance – Director Independence” in the Company’s definitive proxy statement with respect to its 2012 Annual Meeting of Stockholders, which proxy statement will be filed with the SEC within 120 days after the end of the fiscal year covered by this report.

ITEM 14.

PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information required by this Item is omitted from this Annual Report on Form 10-K and, pursuant to Regulation 14A of the Exchange Act, is incorporated herein by reference from the sections entitled “Ratification of Appointment of Independent Registered Public Accounting Firm – Independent Auditors’ Fees” and “Ratification of Appointment of Independent Registered Public Accounting Firm – Audit Committee Pre-Approval Policy” in the Company’s definitive proxy statement with respect to its 2012 Annual Meeting of Stockholders, which proxy statement will be filed with the SEC within 120 days after the end of the fiscal year covered by this report.

PART IV

ITEM 15.

EXHIBITS, FINANCIAL STATEMENT SCHEDULES

The following documents are filed as part of this Form 10-K:

(a) (1) and (a) (2)		The financial statements set forth in the Index to Consolidated Financial Statements and the Consolidated Financial Statement Schedule are filed as a part of this Annual Report on Form 10-K commencing on page F-1.

(a)(3) and (c)		The exhibits listed in the accompanying Exhibit Index are filed as part of this Annual Report on Form 10-K and either filed herewith or incorporated by reference herein, as applicable.

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.

	IDEXX LABORATORIES, INC.

	By: /s/ Jonathan W. Ayers
Date: February 17, 2012	Jonathan W. Ayers
	President and Chief Executive Officer

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:

SIGNATURE	TITLE	DATE


/s/ Jonathan W. Ayers	President, Chief Executive Officer and	February 17, 2012
Jonathan W. Ayers	Chairman of the Board of Directors

/s/ Merilee Raines	Corporate Vice President, Chief Financial	February 17, 2012
Merilee Raines	Officer and Treasurer (Principal Financial and Accounting Officer)

/s/ Thomas Craig	Director	February 17, 2012
Thomas Craig

/s/ William T. End	Director	February 17, 2012
William T. End

/s/ Rebecca M. Henderson, PhD	Director	February 17, 2012
Rebecca M. Henderson, PhD

/s/ Barry C. Johnson, PhD	Director	February 17, 2012
Barry C. Johnson, PhD

/s/ Brian P. McKeon	Director	February 17, 2012
Brian P. McKeon

/s/ Joseph V. Vumbacco	Director	February 17, 2012
Joseph V. Vumbacco

/s/ Robert J. Murray	Director	February 17, 2012
Robert J. Murray

FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

AND

CONSOLIDATED FINANCIAL STATEMENT SCHEDULE

	Page No.

Report of Independent Registered Public Accounting Firm	F-2

Consolidated Balance Sheets as of December 31, 2011 and 2010	F-3

Consolidated Statements of Income for the Years Ended December 31, 2011, 2010 and 2009	F-4

Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2011, 2010 and 2009	F-5

Consolidated Statements of Cash Flows for the Years Ended December 31, 2011, 2010 and 2009	F-7

Notes to Consolidated Financial Statements	F-8

Schedule II
Valuation and Qualifying Accounts	F-39

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of IDEXX Laboratories, Inc.

In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of IDEXX Laboratories, Inc. and its subsidiaries at December 31, 2011 and 2010, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2011 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the accompanying index presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2011, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company's management is responsible for these financial statements and financial statement schedule, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the Report of Management on Internal Control Over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on these financial statements, on the financial statement schedule, and on the Company's internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ PricewaterhouseCoopers LLP

Boston, Massachusetts

February 17, 2012

F-2

IDEXX LABORATORIES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except per share amounts)

	December 31,			December 31,
	2011			2010

ASSETS
Current Assets:
Cash and cash equivalents	$	183,895		$	156,915
Accounts receivable, net of reserves of $3,239 in 2011 and $2,828 in 2010		141,275			120,080
Inventories		133,099			127,885
Deferred income tax assets		25,637			26,203
Other current assets		40,321			29,508
Total current assets		524,227			460,591
Long-Term Assets:
Property and equipment, net		216,777			201,725
Goodwill		172,610			149,112
Intangible assets, net		69,209			55,752
Other long-term assets, net		47,991			29,964
Total long-term assets		506,587			436,553
Total Assets	$	1,030,814		$	897,144

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable	$	36,551		$	22,669
Accrued liabilities		141,383			118,598
Line of credit		243,000			128,999
Current portion of long-term debt		917			863
Current portion of deferred revenue		15,028			13,983
Total current liabilities		436,879			285,112
Long-Term Liabilities:
Deferred income tax liabilities		23,288			18,661
Long-term debt, net of current portion		2,501			3,418
Long-term deferred revenue, net of current portion		10,823			4,627
Other long-term liabilities		17,730			11,045
Total long-term liabilities		54,342			37,751
Total liabilities		491,221			322,863

Commitments and Contingencies (Note 14)

Stockholders’ Equity:
Common stock, $0.10 par value: Authorized: 120,000 shares; Issued: 99,229 and 97,968 shares in 2011 and 2010, respectively		9,923			9,797
Additional paid-in capital		702,575			641,645
Deferred stock units: Outstanding: 119 and 118 units in 2011 and 2010, respectively		4,688			4,433
Retained earnings		1,127,326			965,540
Accumulated other comprehensive income		15,443			13,467
Treasury stock, at cost: 44,128 and 40,657 shares in 2011 and 2010, respectively		(1,320,376	)		(1,060,647	)
Total IDEXX Laboratories, Inc. stockholders’ equity		539,579			574,235
Noncontrolling interest		14			46
Total stockholders’ equity		539,593			574,281
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	1,030,814		$	897,144

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

F-3

IDEXX LABORATORIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share amounts)

	For the Years Ended December 31,
	2011			2010			2009

Revenue:
Product revenue	$	782,654		$	718,107		$	687,010
Service revenue		436,035			385,285			344,623
Total revenue		1,218,689			1,103,392			1,031,633
Cost of revenue:
Cost of product revenue		309,795			285,936			281,043
Cost of service revenue		262,388			238,833			224,309
Total cost of revenue		572,183			524,769			505,352
Gross profit		646,506			578,623			526,281
Expenses:
Sales and marketing		204,850			179,626			167,748
General and administrative		129,389			126,519			117,440
Research and development		76,042			68,597			65,124
Income from operations		236,225			203,881			175,969
Interest expense		(3,547	)		(2,415	)		(1,916	)
Interest income		1,744			663			486
Income before provision for income taxes		234,422			202,129			174,539
Provision for income taxes		72,668			60,809			52,304
Net income		161,754			141,320			122,235
Less: Net (loss) income attributable to noncontrolling interest		(32	)		36			10
Net income attributable to IDEXX Laboratories, Inc. stockholders	$	161,786		$	141,284		$	122,225
Earnings per share:
Basic	$	2.85		$	2.45		$	2.08
Diluted	$	2.78		$	2.37		$	2.01
Weighted average shares outstanding:
Basic		56,790			57,713			58,809
Diluted		58,214			59,559			60,682

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

F-4

IDEXX LABORATORIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands, except per share amounts)

													Accumulated						Total IDEXX
	Common Stock				Additional								Other						Laboratories, Inc.					Total
	Number of		$0.10 Par		Paid-in			Deferred			Retained		Comprehensive			Treasury			Stockholders’			Noncontrolling		Stockholders’
	Shares		Value		Capital			Stock Units			Earnings		Income			Stock			Equity			Interest		Equity
Balance January 1, 2009		95,387	$	9,539	$	547,692		$	3,647		$	702,031	$	5,675		$	(830,390	)	$	438,194		$	-	$	438,194

Comprehensive income (loss):
Net income		-		-		-			-			122,225		-			-			122,225			10		122,235
Unrealized gain on investments, net of tax of $224		-		-		-			-			-		401			-			401			-		401
Unrealized net loss on derivative instruments, net of tax of $4,607		-		-		-			-			-		(10,105	)		-			(10,105	)		-		(10,105	)
Translation adjustment		-		-		-			-			-		14,370			-			14,370			-		14,370
Total comprehensive income																				126,891			10		126,901
Repurchases of common stock, net		-		-		-			-			-		-			(84,369	)		(84,369	)		-		(84,369	)
Common stock issued under stock plans, including excess tax benefit		947		94		22,000			(34	)		-		-			-			22,060			-		22,060
Issuance of deferred stock units		-		-		-			418			-		-			-			418			-		418
Vesting of deferred stock units		-		-		(270	)		270			-		-			-			-			-		-
Share-based compensation cost recognized		-		-		11,375			-			-		-			-			11,375			-		11,375
Balance December 31, 2009		96,334	$	9,633	$	580,797		$	4,301		$	824,256	$	10,341		$	(914,759	)	$	514,569		$	10	$	514,579

Comprehensive income (loss):
Net income		-		-		-			-			141,284		-			-			141,284			36		141,320
Unrealized gain on investments, net of tax of $108		-		-		-			-			-		176			-			176			-		176
Unrealized net gain on derivative instruments, net of tax of $240		-		-		-			-			-		730			-			730			-		730
Translation adjustment		-		-		-			-			-		2,220			-			2,220			-		2,220
Total comprehensive income																				144,410			36		144,446
Repurchases of common stock, net		-		-		-			-			-		-			(145,888	)		(145,888	)		-		(145,888	)
Common stock issued under stock plans, including excess tax benefit		1,634		164		48,004			(455	)										47,713					47,713
Issuance of deferred stock units		-		-		-			362			-		-			-			362			-		362
Vesting of deferred stock units		-		-		(225	)		225			-		-			-			-			-		-
Share-based compensation cost recognized		-		-		13,069			-			-		-			-			13,069			-		13,069
Balance December 31, 2010		97,968	$	9,797	$	641,645		$	4,433		$	965,540	$	13,467		$	(1,060,647	)	$	574,235		$	46	$	574,281

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

F-5

IDEXX LABORATORIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands, except per share amounts)

												Accumulated						Total IDEXX
	Common Stock				Additional							Other						Laboratories Inc.						Total
	Number of		$0.10		Paid-in			Deferred		Retained		Comprehensive			Treasury			Stockholders’			Noncontrolling			Stockholders’
	Shares		Par Value		Capital			Stock Units		Earnings		Income			Stock			Equity			Interest			Equity
Balance December 31, 2010		97,968	$	9,797	$	641,645		$	4,433	$	965,540	$	13,467		$	(1,060,647	)	$	574,235		$	46		$	574,281

Comprehensive income (loss):
Net income (loss)		-		-		-			-		161,786		-			-			161,786			(32	)		161,754
Unrealized loss on investments, net of tax of $64		-		-		-			-		-		(108	)		-			(108	)		-			(108	)
Unrealized net gain on derivative instruments, net of tax of $2,339		-		-		-			-		-		5,763			-			5,763			-			5,763
Translation adjustment		-		-		-			-		-		(3,679	)		-			(3,679	)		-			(3,679	)
Total comprehensive income		-		-		-			-		-		-			-			163,762			(32	)		163,730
Repurchases of common stock, net		-		-		-			-		-		-			(259,729	)		(259,729	)		-			(259,729	)
Common stock issued under stock plans, including excess tax benefit		1,261		126		45,747					-		-			-			45,873			-			45,873
Issuance of deferred stock units		-		-		-			91		-		-			-			91			-			91
Vesting of deferred stock units		-		-		(164	)		164		-					-			-			-			-
Share-based compensation cost recognized		-		-		15,347			-		-		-			-			15,347			-			15,347
Balance December 31, 2011		99,229	$	9,923	$	702,575		$	4,688	$	1,127,326	$	15,443		$	(1,320,376	)	$	539,579		$	14		$	539,593