NOTE 15. SEGMENT REPORTING

Prior to January 1, 2013, we operated primarily through three business segments: diagnostic and information technology-based products and services for the veterinary market, which we continue to refer to as CAG; water quality products (“Water”); and diagnostic products for livestock and poultry health, which we referred to as Livestock and Poultry Diagnostics. We also operated two smaller operating segments that comprised products for milk quality and safety (“Dairy”) and products for the human point-of-care medical diagnostics market (“OPTI Medical”). Financial information about our Dairy and OPTI Medical operating segments was combined and presented with our remaining pharmaceutical product line and our out-licensing arrangements in an “Other” category because they did not meet the quantitative or qualitative thresholds for reportable segments.

In 2013, we combined the management of our Livestock and Poultry Diagnostics and Dairy lines of business into our LPD segment to more effectively realize the market synergies between the product lines and to achieve operational efficiencies. Our OPTI Medical operating segment remains combined and presented with our remaining pharmaceutical product line and our out-licensing arrangements in an “Other” category because they do not meet the quantitative or qualitative thresholds for reportable segments. The segment income (loss) from operations discussed within this report for the years ended December 31, 2012 and 2011 has been retrospectively revised to reflect this change in the composition of our reportable segments.

Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision-maker, or decision-making group, in deciding how to allocate resources and in assessing performance. Our chief operating decision-maker is our Chief Executive Officer. Our operating segments include: CAG, Water, LPD, and Other. Assets are not allocated to segments for internal reporting purposes.

CAG develops, designs, manufactures and distributes products and performs services for veterinarians and the bioresearch market, primarily related to diagnostics and information management. Water develops, designs, manufactures and distributes a range of products used in the detection of various microbiological parameters in water. LPD develops, designs, manufactures and distributes diagnostic tests and related instrumentation that are used to detect a wide range of diseases and monitor the health status in livestock and poultry, as well as products that ensure the quality and safety of milk and food. OPTI Medical develops, designs, manufactures and distributes point-of-care electrolyte and blood gas analyzers and related consumable products for the human medical diagnostics market.

The accounting policies of our segments are the same as those described in the summary of significant accounting policies in Note 2 except for inventories, as discussed below. Intersegment revenues, which are not included in the table below, were not material for the years ended December 31, 2013, 2012 and 2011.

Items that are not allocated to our operating segments are as follows: a portion of corporate support function and personnel-related expenses; certain manufacturing costs; corporate research and development expenses that do not align with one of our existing business or service categories; the difference between estimated and actual share-based compensation expense; and certain foreign currency exchange gains and losses. These amounts are shown under the caption “Unallocated Amounts.”

We estimate our share-based compensation expense, corporate support function expenses and certain personnel-related costs and allocate the estimated expense to the operating segments. This allocation differs from the actual expense and consequently yields a difference that is reported under the caption “Unallocated Amounts.”

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.”

Additionally, in certain geographies where we maintain inventories in currencies other than the U.S. dollar, the product costs reported in our operating segments include our standard cost for products sold, which is stated at the budgeted currency exchange rate from the beginning of the fiscal year. In these geographies, the variances from standard cost for products sold related to changes in currency exchange rates are reported within the caption “Unallocated Amounts.”

Below is our segment information (in thousands):



For the Years Ended December 31,
	CAG		Water		LPD		Other		Unallocated Amounts		Consolidated Total
2013
Revenue	$	1,150,169	$	87,959	$	113,811	$	25,119	$	-	$	1,377,058

Income (loss) from operations	$	218,645	$	37,321	$	14,159	$	2,405	$	(5,768)	$	266,762
Interest expense, net												(3,501)
Income before provision for income taxes												263,261
Provision for income taxes												75,467
Net income												187,794
Less: Net income attributable to noncontrolling interest												(6)
Net income attributable to IDEXX Laboratories, Inc. stockholders											$	187,800

Depreciation and amortization	$	45,079	$	2,470	$	4,906	$	2,141	$	-	$	54,596
Expenditures for long-lived assets (1)	$	66,134	$	3,254	$	5,569	$	2,655	$	-	$	77,612

2012
Revenue	$	1,072,211	$	84,680	$	111,308	$	25,139	$	-	$	1,293,338

Income (loss) from operations	$	203,236	$	37,687	$	20,808	$	2,902	$	(2,070)	$	262,563
Interest expense, net												(1,946)
Income before provision for income taxes												260,617
Provision for income taxes												82,330
Net income												178,287
Less: Net loss attributable to noncontrolling interest												20
Net income attributable to IDEXX Laboratories, Inc. stockholders											$	178,267

Depreciation and amortization	$	43,042	$	2,358	$	4,943	$	2,065	$	-	$	52,408
Expenditures for long-lived assets (1)	$	47,531	$	2,099	$	5,767	$	2,221	$	-	$	57,618

2011
Revenue	$	999,722	$	82,125	$	113,589	$	23,253	$	-	$	1,218,689

Income (loss) from operations	$	189,834	$	33,844	$	22,344	$	3,951	$	(13,748)	$	236,225
Interest expense, net												(1,803)
Income before provision for income taxes												234,422
Provision for income taxes												72,668
Net income												161,754
Less: Net income attributable to noncontrolling interest												(32)
Net income attributable to IDEXX Laboratories, Inc. stockholders											$	161,786

Depreciation and amortization	$	39,293	$	1,929	$	4,876	$	2,104	$	-	$	48,202
Expenditures for long-lived assets (1)	$	39,912	$	2,298	$	6,009	$	1,458	$	-	$	49,677

__________

(1) Expenditures for long-lived assets exclude expenditures for intangible assets. See Note 3 for information regarding acquisitions of intangible assets during the years ended December 31, 2013, 2012 and 2011.

Revenue by product and service categories was as follows (in thousands):



	For the Years Ended December 31,
		2013		2012		2011
CAG segment revenue:
CAG Diagnostics recurring revenue:	$	974,004	$	896,449	$	829,192
VetLab consumables		311,359		278,818		255,848
VetLab service and accessories		51,891		48,056		45,083
Rapid assay products		169,547		162,232		154,342
Reference laboratory diagnostic and consulting services		441,207		407,343		373,919
CAG Diagnostics capital - VetLab instruments		83,374		90,177		93,655
Customer information management and digital imaging systems		92,791		85,585		76,875
CAG segment revenue		1,150,169		1,072,211		999,722

Water segment revenue		87,959		84,680		82,125
LPD segment revenue		113,811		111,308		113,589
Other segment revenue		25,119		25,139		23,253

Total revenue	$	1,377,058	$	1,293,338	$	1,218,689

Revenue by principal geographic area, based on customers’ domiciles, was as follows (in thousands):



	For the Years Ended December 31,
		2013		2012		2011
Americas
United States	$	802,345	$	759,419	$	700,090
Canada		69,947		66,405		65,318
Latin America		26,893		22,901		20,431
		899,185		848,725		785,839

Europe, the Middle East and Africa
Germany		78,109		72,983		78,806
United Kingdom		65,027		64,412		61,016
France		49,093		45,927		48,164
Italy		26,443		24,625		26,320
Spain		20,194		19,776		22,622
Other		87,819		72,915		74,709
		326,685		300,638		311,637
Asia Pacific Region
Australia		53,063		50,658		44,023
Japan		44,869		49,204		43,445
China		29,044		24,628		17,288
Other		24,212		19,485		16,457
		151,188		143,975		121,213
Total	$	1,377,058	$	1,293,338	$	1,218,689

Net long-lived assets, consisting of net property and equipment, are subject to geographic risks because they are generally difficult to move and to effectively utilize in another geographic area in a reasonable time period and because they are relatively illiquid. Net long-lived assets by principal geographic areas were as follows (in thousands):


	December 31,		December 31,
		2013		2012
Americas
United States	$	245,511	$	208,725
Canada		2,114		2,487
Brazil		869		-
		248,494		211,212
Europe, the Middle East and Africa
United Kingdom		12,959		12,440
Germany		5,733		6,144
France		3,127		3,079
Switzerland		3,076		3,411
Netherlands		2,956		3,034
Other		1,190		1,265
		29,041		29,373
Asia Pacific Region
Australia		1,801		2,484
Japan		690		1,016
Other		1,188		1,092
		3,679		4,592
Total	$	281,214	$	245,177