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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION 
WASHINGTON, D.C. 20549 
FORM 10-Q 
 
(Mark One) 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
For the quarterly period ended March 31, 2021
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: 000-19271 

  IDEXX LABORATORIES, INC. 
(Exact name of registrant as specified in its charter) 
Delaware01-0393723
(State or other jurisdiction of incorporation 
or organization)
(IRS Employer Identification No.)
One IDEXX Drive WestbrookMaine04092
(Address of principal executive offices)(ZIP Code)
207-556-0300
(Registrant’s telephone number, including area code)

Securities Registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $0.10 par value per shareIDXXNASDAQ Global Select Market
    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 ý No ¨


    Indicate by check mark whether the registrant has submitted electronically 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 such files). Yes ý No  ¨

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

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. The number of shares outstanding of the registrant’s Common Stock, $0.10 par value per share, was 85,280,654, on April 29, 2021.



GLOSSARY OF TERMS AND SELECTED ABBREVIATIONS

    In order to aid the reader, we have included certain terms and abbreviations used throughout this Quarterly Report on Form 10-Q below:
Term/ Abbreviation
 
Definition
 
AOCIAccumulated other comprehensive income or loss
CAGCompanion Animal Group, a reporting segment that provides veterinarians diagnostic products and services and information management solutions that enhance the health and well-being of pets.
Credit FacilityOur $1 billion unsecured revolving credit facility, also referred to as line of credit.
Clinical visitsThe reason for the visit involves an interaction between a clinician and a pet, including wellness and non-wellness visit types.
FASBU.S. Financial Accounting Standards Board
LPDLivestock, Poultry and Dairy, a reporting segment that provides diagnostic products and services for livestock and poultry health and to ensure the quality and safety of milk and improve producer efficiency.
Non-wellness visitsPatient visits where the reason for the visit is sickness, procedure, or monitoring.
OPTI Medical
OPTI Medical Systems, Inc., a wholly-owned subsidiary of IDEXX Laboratories Inc., located in Roswell, Georgia. This business provides point-of-care and laboratory diagnostics (including electrolyte and blood gas analyzers and related consumable products) for the human medical diagnostics market, as well as COVID-19 testing products and services. The Roswell facility also manufactures electrolytes slides (instrument consumables) to run Catalyst One®, Catalyst Dx®, and blood gas analyzers and consumables for the veterinary market; also referred to as OPTI.
Organic revenue growthA non-GAAP financial measure and represents the percentage change in revenue, as compared to the same period for the prior year, net of the effect of changes in foreign currency exchange rates, certain business acquisitions and divestitures. Organic revenue growth should be considered in addition to, and not as a replacement for or as a superior measure to, revenues reported in accordance with U.S. GAAP, and may not be comparable to similarly titled measures reported by other companies.
PCRPolymerase chain reaction, a technique used to amplify small segments of DNA
R&DResearch and Development
Reported revenue growthRepresents the percentage change in revenue reported in accordance with U.S. GAAP, as compared to the same period in the prior year.
SaaSSoftware-as-a-service
SECU.S. Securities and Exchange Commission
Senior Note AgreementsNote purchase agreements for the private placement of senior notes, referred to as senior notes or long-term debt.
U.S. GAAPAccounting principles generally accepted in the United States of America
WaterWater, a reporting segment that provides water microbiology testing products.
Wellness visitsPatient visits where the reason for the visit is an annual exam, vaccination, or routine check-up.




IDEXX LABORATORIES, INC. 
Quarterly Report on Form 10-Q 
Table of Contents 

  
Item No. Page
  
PART I—FINANCIAL INFORMATION 
 
PART II—OTHER INFORMATION
 






PART I— FINANCIAL INFORMATION 
Item 1.  Financial Statements.  
IDEXX LABORATORIES, INC. AND SUBSIDIARIES 

CONDENSED CONSOLIDATED BALANCE SHEETS 
(in thousands, except per share amounts) 
(Unaudited)

March 31, 2021December 31, 2020
ASSETS  
Current Assets:  
Cash and cash equivalents$351,163 $383,928 
Accounts receivable, net381,792 331,429 
Inventories225,559 209,873 
Other current assets139,284 137,508 
Total current assets1,097,798 1,062,738 
Long-Term Assets:
Property and equipment, net543,963 555,167 
Operating lease right-of-use assets93,565 91,171 
Goodwill242,586 243,347 
Intangible assets, net53,969 52,543 
Other long-term assets295,504 289,595 
Total long-term assets1,229,587 1,231,823 
TOTAL ASSETS$2,327,385 $2,294,561 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable$87,175 $74,558 
Accrued liabilities366,877 415,648 
Current portion of long-term debt124,971 49,988 
Current portion of deferred revenue41,639 42,567 
Total current liabilities620,662 582,761 
Long-Term Liabilities:
Deferred income tax liabilities18,566 11,707 
Long-term debt, net of current portion778,747 858,492 
Long-term deferred revenue, net of current portion44,233 46,163 
Long-term operating lease liabilities 78,193 77,039 
Other long-term liabilities83,549 85,604 
Total long-term liabilities1,003,288 1,079,005 
Total liabilities1,623,950 1,661,766 
Commitments and Contingencies (Note 15)
Stockholders’ Equity:
Common stock, $0.10 par value: Authorized: 120,000 shares; Issued:106,676 shares in 2021 and 106,457 shares in 2020; Outstanding: 85,365 shares in 2021 and 85,449 shares in 2020
10,668 10,646 
Additional paid-in capital1,321,086 1,294,849 
Deferred stock units: Outstanding: 87 units in 2021 and 87 units in 2020
4,549 4,503 
Retained earnings2,379,852 2,175,595 
Accumulated other comprehensive loss(59,536)(53,615)
Treasury stock, at cost: 21,311 shares in 2021 and 21,008 shares in 2020
(2,953,923)(2,799,890)
Total IDEXX Laboratories, Inc. stockholders’ equity702,696 632,088 
Noncontrolling interest739 707 
Total stockholders’ equity703,435 632,795 
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY$2,327,385 $2,294,561 
The accompanying notes are an integral part of these condensed consolidated financial statements.
3


IDEXX LABORATORIES, INC. AND SUBSIDIARIES 
 
CONDENSED CONSOLIDATED STATEMENTS OF INCOME 
(in thousands, except per share amounts) 
(Unaudited)  

For the Three Months Ended
March 31,
20212020
Revenue:
Product revenue$454,348 $364,773 
Service revenue323,359 261,563 
Total revenue777,707 626,336 
Cost of Revenue:
Cost of product revenue147,270 125,454 
Cost of service revenue159,655 141,292 
Total cost of revenue306,925 266,746 
Gross profit470,782 359,590 
Expenses:
Sales and marketing114,811 116,143 
General and administrative70,770 65,812 
Research and development37,579 33,310 
Income from operations247,622 144,325 
Interest expense(7,584)(7,692)
Interest income52 140 
Income before provision for income taxes240,090 136,773 
Provision for income taxes35,801 24,917 
Net income204,289 111,856 
Less: Net income attributable to noncontrolling interest32 29 
Net income attributable to IDEXX Laboratories, Inc. stockholders$204,257 $111,827 
Earnings per Share:
Basic$2.39 $1.31 
Diluted$2.35 $1.29 
Weighted Average Shares Outstanding:
Basic85,530 85,427 
Diluted86,917 86,705 
The accompanying notes are an integral part of these condensed consolidated financial statements.

4


IDEXX LABORATORIES, INC. AND SUBSIDIARIES 
 
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME 
(in thousands) 
(Unaudited) 
For the Three Months Ended
March 31,
20212020
Net income$204,289 $111,856 
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments(19,333)(22,206)
Unrealized gain on Euro-denominated notes, net of tax expense of $1,150 in 2021 and $330 in 2020
3,648 1,047 
Unrealized gain (loss) on investments, net of tax expense (benefit) of $46 in 2021 and $(89) in 2020
147 (279)
Unrealized gain (loss) on derivative instruments:
Unrealized gain on foreign currency exchange contracts, net of tax expense of $1,249 in 2021 and $2,052 in 2020
4,415 9,426 
Unrealized gain on cross currency swaps, net of tax expense of $1,043 in 2021 and $869 in 2020
3,308 4,049 
Reclassification adjustment for loss (gain) included in net income, net of tax benefit (expense) of $536 in 2021 and $(240) in 2020
1,894 (1,101)
Unrealized gain on derivative instruments9,617 12,374 
Other comprehensive (loss), net of tax(5,921)(9,064)
Comprehensive income198,368 102,792 
Less: Comprehensive income attributable to noncontrolling interest32 29 
Comprehensive income attributable to IDEXX Laboratories, Inc.$198,336 $102,763 
The accompanying notes are an integral part of these condensed consolidated financial statements.

5


IDEXX LABORATORIES, INC.  AND SUBSIDIARIES 
 
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands, except per share amounts) 
(Unaudited)  


Common Stock
Number of Shares
$0.10 Par Value
Additional Paid-in CapitalDeferred Stock UnitsRetained EarningsAccumulated Other Comprehensive (Loss) IncomeTreasury StockNoncontrolling InterestTotal Stockholders’ Equity
Balance December 31, 2020106,457 $10,646 $1,294,849 $4,503 $2,175,595 $(53,615)$(2,799,890)$707 $632,795 
Net income— — — — 204,257 — — 32 204,289 
Other comprehensive loss, net— — — — — (5,921)— — (5,921)
Repurchases of common stock, net— — — — — — (154,033)— (154,033)
Common stock issued under stock plans219 22 17,408 — — — — — 17,430 
Share-based compensation cost— — 8,829 46 — — — — 8,875 
Balance March 31, 2021106,676 $10,668 $1,321,086 $4,549 $2,379,852 $(59,536)$(2,953,923)$739 $703,435 

Balance December 31, 2019105,711 $10,571 $1,213,517 $4,462 $1,595,648 $(46,182)$(2,600,543)$352 $177,825 
Cumulative effect of accounting changes— — — — (1,829)— — — (1,829)
Net income— — — — 111,827 — — 29 111,856 
Other comprehensive loss, net— — — — — (9,064)— — (9,064)
Repurchases of common stock— — — — — — (187,767)— (187,767)
Common stock issued under stock plans203 20 9,730 — — — — — 9,750 
Share-based compensation cost— — 7,238 46 — — — — 7,284 
Balance March 31, 2020105,914 $10,591 $1,230,485 $4,508 $1,705,646 $(55,246)$(2,788,310)$381 $108,055 
The accompanying notes are an integral part of these condensed consolidated financial statements.

6


IDEXX LABORATORIES, INC.  AND SUBSIDIARIES 
 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands) 
(Unaudited) 

For the Three Months Ended
March 31,
20212020
  
Cash Flows from Operating Activities:  
Net income$204,289 $111,856 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization25,057 23,204 
Provision for credit losses186 4,229 
Deferred income taxes5,244 2,853 
Share-based compensation expense8,875 7,284 
Other333 (13)
Changes in assets and liabilities:
Accounts receivable(54,735)(38,062)
Inventories(7,919)(14,434)
Other assets and liabilities(57,081)(64,881)
Accounts payable2,460 (1,755)
Deferred revenue(2,287)(2,410)
Net cash provided by operating activities124,422 27,871 
Cash Flows from Investing Activities:
Purchases of property and equipment(20,163)(49,002)
Acquisition of intangible assets and equity investment (668)
Acquisitions of a business, net of cash acquired(4,424) 
Net cash used by investing activities(24,587)(49,670)
Cash Flows from Financing Activities:
Borrowings on revolving credit facilities, net 198,110 
Repurchases of common stock, net(132,262)(182,815)
Proceeds from exercises of stock options and employee stock purchase plans17,594 10,210 
Shares withheld for statutory tax withholding on restricted stock(14,983)(8,604)
Net cash (used) provided by financing activities(129,651)16,901 
Net effect of changes in exchange rates on cash(2,949)(4,033)
Net decrease in cash and cash equivalents(32,765)(8,931)
Cash and cash equivalents at beginning of period383,928 90,326 
Cash and cash equivalents at end of period$351,163 $81,395 
  
Supplemental Cash Flow Information:
Cash paid for income taxes$12,171 $12,020 
Unpaid property and equipment, reflected in accounts payable and accrued liabilities$6,592 $14,123 
The accompanying notes are an integral part of these condensed consolidated financial statements.

7


IDEXX LABORATORIES, INC. AND SUBSIDIARIES 
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 
(Unaudited)

NOTE 1. BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION 

The accompanying unaudited condensed consolidated financial statements of IDEXX Laboratories, Inc. and its subsidiaries have been prepared in accordance with U.S. GAAP for interim financial information and with the requirements of Regulation S-X, Rule 10-01 for financial statements required to be filed as a part of this Quarterly Report on Form 10-Q. Unless the context requires otherwise, references in this Quarterly Report on Form 10-Q to IDEXX,the Company,” “we, our, or us refer to IDEXX Laboratories, Inc. and its subsidiaries.

The accompanying unaudited condensed consolidated financial statements include the accounts of IDEXX Laboratories, Inc. and our wholly-owned and majority-owned subsidiaries. We do not have any variable interest entities for which we are the primary beneficiary. All intercompany transactions and balances have been eliminated in consolidation.

The accompanying unaudited condensed consolidated financial statements reflect, in the opinion of our management, all adjustments necessary for a fair statement of our financial position and results of operations. All such adjustments are of a recurring nature. The consolidated balance sheet data at December 31, 2020, was derived from audited financial statements, but does not include all disclosures required by U.S. GAAP. The results of operations for the three months ended March 31, 2021, are not necessarily indicative of the results to be expected for the full year or any future period. These unaudited condensed consolidated financial statements should be read in conjunction with this Quarterly Report on Form 10-Q for the quarter ended March 31, 2021, and our Annual Report on Form 10-K for the year ended December 31, 2020, (the “2020 Annual Report”) filed with the SEC.

The preparation of our condensed consolidated financial statements requires us to make estimates, judgments, and assumptions that may affect the reported amounts of assets, liabilities, equity, revenues, and expenses and related disclosure of contingent assets and liabilities. On an ongoing basis we evaluate our estimates, judgments, and methodologies. We base our estimates on historical experience and on various other assumptions that we believe are reasonable, the results of which form the basis for making judgments about the carrying values of assets, liabilities and equity, and the amount of revenues and expenses.

We have included certain terms and abbreviations used throughout this Quarterly Report on Form 10-Q in the “Glossary of Terms and Selected Abbreviations.”

NOTE 2. ACCOUNTING POLICIES  

Significant Accounting Policies

The significant accounting policies used in preparation of these unaudited condensed consolidated financial statements as of and for the three months ended March 31, 2021, are consistent with those discussed in Note 2. Summary of Significant Accounting Policies to the consolidated financial statements in our 2020 Annual Report, except as noted below.

New Accounting Pronouncements Adopted

Effective January 1, 2021, we adopted ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes.” The new guidance is intended to simplify the accounting for income taxes by removing certain exceptions and by updating accounting requirements around goodwill recognized for tax purposes and the allocation of current and deferred tax expense among legal entities, among other minor changes. The adoption of ASU 2019-12 did not have a material impact on our consolidated financial statements.

New Accounting Pronouncements Not Yet Adopted

In March 2020, the FASB issued ASU 2020-04, "Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” ASU 2020-04 is intended to provide optional expedients and exceptions to the U.S. GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens related to the discontinuation of the London Interbank Offered Rate (“LIBOR”) or by another reference rate expected to be discontinued. The relief offered by this
8


guidance, if adopted, is available to companies for the period March 12, 2020 through December 31, 2022. We do not expect the discontinuation of LIBOR to have a material impact on our consolidated financial statements.
NOTE 3. REVENUE RECOGNITION

Our revenue is recognized when, or as, performance obligations under the terms of a contract are satisfied, which occurs when control of the promised products or services is transferred to a customer. We exclude sales, use, value-added, and other taxes we collect on behalf of third parties from revenue. Revenue is measured as the amount of consideration we expect to receive in exchange for transferring products or services to a customer. To accurately present the consideration received in exchange for promised products or services, we apply the five-step model outlined below:

1.Identification of a contract or agreement with a customer
2.Identification of our performance obligations in the contract or agreement
3.Determination of the transaction price
4.Allocation of the transaction price to the performance obligations
5.Recognition of revenue when, or as, we satisfy a performance obligation        

We enter into contracts that can include various combinations of products and services, which are generally capable of being distinct and accounted for as separate performance obligations. The timing of revenue recognition, billings, and cash collections results in accounts receivable, contract assets and lease receivables as a result of revenue recognized in advance of billings (included within other assets), and contract liabilities or deferred revenue as a result of receiving consideration in advance of revenue recognition within our unaudited condensed consolidated balance sheet. Our general payment terms range from 30 to 60 days, with exceptions in certain geographies. Below is a listing of our major categories of revenue for our products and services:

Diagnostic Products and Accessories.  Diagnostic products and accessories revenues, including IDEXX VetLab® consumables and accessories, rapid assay, LPD, Water, and OPTI testing products, are predominantly recognized and invoiced at the time of shipment, which is when the customer obtains control of the product based on legal title transfer and we have the right to payment. Shipping costs reimbursed by the customer are included in revenue and cost of sales. As a practical expedient, we do not account for shipping activities as a separate performance obligation.

Reference Laboratory Diagnostic and Consulting Services. Reference laboratory revenues are recognized and invoiced when the laboratory diagnostic service is performed.

Instruments, Software and Systems. CAG Diagnostics capital instruments, veterinary software and diagnostic imaging systems revenues are recognized and invoiced when the customer obtains control of the products based on legal title transfer and we have the right to payment, which generally occurs at the time of installation and customer acceptance. Our instruments, software, and systems are often included in one of our significant customer programs, as further described below. For veterinary software systems that include multiple performance obligations, such as perpetual software licenses and computer hardware, we allocate revenue to each performance obligation based on estimates of the price that we would charge the customer for each promised product or service if it were sold on a standalone basis.

Lease Revenue. Revenues from instrument rental agreements and reagent rental programs are recognized either as operating leases on a ratable basis over the term of the agreement or as sales-type leases at the time of installation and customer acceptance. Customers typically pay for the right to use instruments under rental agreements in equal monthly amounts over the term of the rental agreement. Our reagent rental programs provide our customers the right to use our instruments upon entering into agreements to purchase specified amounts of consumables, which are considered embedded leases. For some agreements, the customers are provided with the right to purchase the instrument at the end of the lease term. Lease revenues from these agreements are presented in product revenue on our unaudited condensed consolidated income statement. Lease revenue was approximately $4.8 million for the three months ended March 31, 2021, as compared to $4.2 million for the three months ended March 31, 2020, including both operating leases and sales-type leases under ASC 842, Leases, for leases entered into after January 1, 2019, and ASC 840, Leases, for leases entered into prior to 2019. See below for revenue recognition under our reagent rental programs.

Extended Warranties and Post-Contract Support.  CAG Diagnostics capital instruments and diagnostic imaging systems extended warranties typically provide customers with continued coverage for a period of one to five years beyond the first-year standard warranty. Customers can either pay in full for the extended warranty at the time of instrument or system purchase or can be billed on a quarterly basis over the term of the contract. We recognize revenue associated with extended
9


warranties over time on a ratable basis using a time elapsed measure of performance over the contract term, which approximates the expected timing in which applicable services are performed.

Veterinary software post-contract support provides customers with access to technical support when and as needed through access to call centers and online customer assistance. Post-contract support contracts typically have a term of 12 months and customers are billed for post-contract support in equal quarterly amounts over the term. We recognize revenue for post-contract support services over time on a ratable basis using a time elapsed measure of performance over the contract term, which approximates the expected timing in which applicable services are performed.

On December 31, 2020, our deferred revenue related to extended warranties and post-contract support was $35.1 million, of which approximately $14.9 million was recognized during the three months ended March 31, 2021. Furthermore, as a result of new agreements, our deferred revenue related to extended warranties and post-contract support was $33.8 million at March 31, 2021. We do not disclose information about remaining performance obligations that are part of contracts with an original expected duration of one year or less and do not adjust for the effect of the financing components when the period between customer payment and revenue recognition is one year or less. Deferred revenue related to extended warranties and post-contract support with an original duration of more than one year was $19.3 million at March 31, 2021, of which approximately 36%, 35%, 19%, 7%, and 3% are expected to be recognized during the remainder of 2021, the full years 2022, 2023, 2024, and thereafter, respectively. Additionally, we have determined these agreements do not include a significant financing component.

SaaS Subscriptions. We offer a variety of veterinary software and diagnostic imaging SaaS subscriptions including IDEXX Neo®, Animana®, Pet Health Network® Pro, Petly® Plans, Web PACS, rVetLink®, and Smart Flow. We recognize revenue for our SaaS subscriptions over time on a ratable basis over the contract term, beginning on the date our service is made available to the customer. Our subscription contracts vary in term from monthly to two years. Customers typically pay for our subscription contracts in equal monthly amounts over the term of the agreement. Deferred revenue related to our SaaS subscriptions is not material.

Contracts with Multiple Performance Obligations.  We enter into contracts where customers purchase a combination of IDEXX products and services. Determining whether products and services are considered distinct performance obligations that should be accounted for separately requires significant judgment. We determine the transaction price for a contract based on the consideration we expect to receive in exchange for the transferred goods or services. To the extent the transaction price includes variable consideration, such as volume rebates or expected price adjustments, we apply judgment in constraining the estimated variable consideration due to factors that may cause reversal of revenue recognized. We evaluate constraints based on our historical and projected experience with similar customer contracts.

We allocate revenue to each performance obligation in proportion to the relative standalone selling prices and recognize revenue when transfer of the related goods or services has occurred for each obligation. We utilize the observable standalone selling price when available, which represents the price charged for the performance obligation when sold separately. When standalone selling prices for our products or services are not directly observable, we determine the standalone selling prices using relevant information available and apply suitable estimation methods including, but not limited to, the cost plus a margin approach. We recognize revenue as each performance obligation is satisfied, either at a point in time or over time, as described in the revenue categories above. We do not disclose information about remaining performance obligations that are part of contracts with an original expected duration of one year or less.


10


The following customer programs represent our most significant customer contracts which contain multiple performance obligations:

Customer Commitment Programs. We offer customer incentives upon entering into multi-year agreements to purchase annual minimum amounts of products and services.

Up-Front Customer Loyalty Programs. Our up-front loyalty programs provide customers with incentives in the form of cash payments or IDEXX Points upon entering into multi-year agreements to purchase annual minimum amounts of future products or services. If a customer breaches its agreement, they are required to refund all or a portion of the up-front cash or IDEXX Points, or make other repayments, remedial actions, or both. Up-front incentives to customers in the form of cash or IDEXX Points are not made in exchange for distinct goods or services and are capitalized as customer acquisition costs within other current and long-term assets, which are subsequently recognized as a reduction to revenue over the term of the customer agreement. If these up-front incentives are subsequently utilized to purchase instruments, we allocate total consideration, including future committed purchases less up-front incentives and estimates of expected price adjustments, based on relative standalone selling prices to identified performance obligations and recognize instrument revenue and cost at the time of installation and customer acceptance. To the extent invoiced instrument revenue exceeds recognized instrument revenue, we record deferred revenue as a contract liability, which is subsequently recognized upon the purchase of future products and services. We have determined these agreements do not include a significant financing component. Differences between estimated and actual customer purchases may impact the amount and timing of revenue recognition.

On December 31, 2020, our capitalized customer acquisition costs were $148.1 million, of which approximately $11.5 million was recognized as a reduction of revenue during the three months ended March 31, 2021. Furthermore, as a result of new up-front customer loyalty payments, net of subsequent recognition, our capitalized customer acquisition costs were $152.6 million at March 31, 2021. We monitor customer purchases over the term of their agreement to assess the realizability of our capitalized customer acquisition costs and review estimates of variable consideration. Impairments, revenue adjustments that relate to performance obligations satisfied in prior periods, and contract modifications during the three months ended March 31, 2021, were not material.

Volume Commitment Programs. Our volume commitment programs, such as our IDEXX 360 program, provide customers with a free or discounted instrument or system upon entering into multi-year agreements to purchase annual minimum amounts of products and services. We allocate total consideration, including future committed purchases and expected price adjustments, based on relative standalone selling prices to identified performance obligations and recognize instrument revenue and cost at the time of installation and customer acceptance in advance of billing the customer, which is also when the customer obtains control of the instrument based on legal title transfer. Our right to future consideration related to instrument revenue is recorded as a contract asset within other current and long-term assets. The contract asset is transferred to accounts receivable when customers are billed for future products and services over the term of the contract. We have determined these agreements do not include a significant financing component. Differences between estimated and actual customer purchases may impact the amount and timing of revenue recognition.

On December 31, 2020, our volume commitment contract assets were $115.5 million, of which approximately $6.9 million was reclassified to accounts receivable when customers were billed for related products and services during the three months ended March 31, 2021. Furthermore, as a result of new placements under volume commitment programs, net of subsequent amounts reclassified to accounts receivable, and allowances established for credit losses, our contract assets were $122.6 million at March 31, 2021. We monitor customer purchases over the term of their agreement to assess the realizability of our contract assets and review estimates of variable consideration. Impairments, revenue adjustments that relate to performance obligations satisfied in prior periods, and contract modifications during the three months ended March 31, 2021, were not material.

For our up-front customer loyalty and volume commitment programs, we estimate future revenues related to multi-year agreements to be approximately $2.3 billion, of which approximately 20%, 24%, 22%, 17%, and 17% are expected to be recognized during the remainder of 2021, the full years 2022, 2023, 2024, and thereafter, respectively. These future revenues relate to performance obligations not yet satisfied, for which customers have committed to
11


purchase goods and services, net of the expected revenue reductions from customer acquisition costs and expected price adjustments, and as a result, are lower than stated contractual commitments by our customers.

Instrument Rebate Programs. Our instrument rebate programs require an instrument purchase and provide customers the opportunity to earn future rebates based on the volume of products and services they purchase over the term of the program. We account for the customer’s right to earn rebates on future purchases as a separate performance obligation and determine the standalone selling price based on an estimate of rebates the customer will earn over the term of the program. Total consideration allocated to identified performance obligations is limited to goods and services that the customer is presently obligated to purchase and does not include estimates of future purchases that are optional. We allocate total consideration to identified performance obligations, including the customer’s right to earn rebates on future purchases, which is deferred and recognized upon the purchase of future products and services, offsetting future rebates as they are earned.

On December 31, 2020, our deferred revenue related to instrument rebate programs was $39.3 million, of which approximately $3.9 million was recognized when customers purchased eligible products and services and earned rebates during the three months ended March 31, 2021. Furthermore, as a result of new instrument purchases under rebate programs, net of subsequent recognition, our deferred revenue was $37.4 million at March 31, 2021, of which approximately 29%, 29%, 19%, 12%, and 11% are expected to be recognized during the remainder of 2021, the full years 2022, 2023, 2024, and thereafter, respectively.

Reagent Rental Programs. Our reagent rental programs provide our customers the right to use our instruments upon entering into multi-year agreements to purchase annual minimum amounts of consumables. These types of agreements include an embedded lease for the right to use our instrument, and we determine the amount of lease revenue allocated to the instrument based on relative standalone selling prices. We evaluate the terms of these embedded leases to determine classification as either a sales-type lease or an operating lease.

Sales-type Reagent Rental Programs. Our reagent rental programs that effectively transfer control of instruments to our customers are classified as sales-type leases, and we recognize instrument revenue and cost in advance of billing the customer, at the time of installation and customer acceptance. Our right to future consideration related to instrument revenue is recorded as a lease receivable within other current and long-term assets, and is transferred to accounts receivable when customers are billed for future products and services over the term of the contract. On December 31, 2020, our lease receivable assets were $11.1 million, of which approximately $0.5 million was reclassified to accounts receivable when customers were billed for related products and services during the three months ended March 31, 2021. Furthermore, as a result of new placements under sales-type reagent rental programs, net of subsequent amounts reclassified to accounts receivable, and allowances established for credit losses, our lease receivable assets were $11.8 million at March 31, 2021. The impacts of discounting and unearned income at March 31, 2021, were not material. Profit and loss recognized at the commencement date and interest income during the three months ended March 31, 2021, were not material. We monitor customer purchases over the term of their agreement to assess the realizability of our lease receivable assets. Impairments, during the three months ended March 31, 2021, were not material.

Operating-type Reagent Rental Programs. Our reagent rental programs that do not effectively transfer control of instruments to our customers are classified as operating leases, and we recognize instrument revenue and costs ratably over the term of the agreement. The cost of the instrument is capitalized within property and equipment. During the three months ended March 31, 2021, we transferred instruments of $2.5 million as compared to $2.3 million for the three months ended March 31, 2020, from inventory to property and equipment.

We estimate future revenue to be recognized related to our reagent rental programs of approximately $37.9 million, of which approximately 27%, 28%, 21%, 14%, and 10% are expected to be recognized during the remainder of 2021, the full years 2022, 2023, 2024, and thereafter, respectively. These future revenues relate to performance obligations not yet satisfied for which customers have committed to future purchases, net of any expected price adjustments, and as a result, may be lower than stated contractual commitments by our customers.

Other Customer Incentive Programs. Certain agreements with customers include discounts or rebates on the sale of products and services applied retrospectively, such as volume rebates achieved by purchasing a specified purchase threshold of goods and services. We account for these discounts as variable consideration and estimate the likelihood of a customer meeting the threshold in order to determine the transaction price using the most predictive
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approach. We typically use the most-likely-amount method for incentives that are offered to individual customers and the expected-value method for programs that are offered to a broad group of customers. Revenue adjustments that relate to performance obligations satisfied in prior periods during the three months ended March 31, 2021, were not material. Refund obligations related to customer incentive programs are recorded in accrued liabilities for the actual issuance of incentives, incentives earned but not yet issued and estimates of incentives to be earned in the future.

Program Combinations. At times, we combine elements of our significant customer programs within a single customer contract. We separate each significant program element and include the contract assets, customer acquisition costs, deferred revenues and estimated future revenues within the most relevant program disclosures above. Each customer contract is presented as a net contract asset or net contract liability on our unaudited condensed consolidated balance sheet.

IDEXX Points. IDEXX Points may be applied to trade receivables due to us, converted to cash, or applied against the purchase price of IDEXX products and services. We consider IDEXX Points equivalent to cash. IDEXX Points that have not yet been used by customers are included in accrued liabilities until utilized or expired. Breakage is not material because customers can apply IDEXX Points to trade receivables at any time.

Accounts Receivable. We recognize revenue when it is probable that we will collect substantially all of the consideration to which we will be entitled, based on the customer’s intent and ability to pay the promised consideration. We apply judgment in determining the customer’s ability and intention to pay, which is based on a variety of factors including the customer’s historical payment experience or, in the case of a new customer, published credit and financial information pertaining to the customer. We have no significant customers that accounted for greater than 10% of our consolidated revenues, and we have no concentration of credit risk as of March 31, 2021.

Disaggregated Revenues. We present disaggregated revenue for our CAG segment based on major product and service categories. Our Water segment is comprised of a single major product category. Although our LPD segment does not meet the quantitative thresholds to be reported as a separate segment, we believe it is important to disaggregate these revenues as a major product and service category within our Other reportable segment given its distinct markets, and therefore we have elected to report LPD as a reportable segment.

The following table presents disaggregated revenue by major product and service categories:
(in thousands)For the Three Months Ended
March 31,
20212020
CAG segment revenue:
CAG Diagnostics recurring revenue:$617,280 $487,925 
IDEXX VetLab consumables246,092 188,713 
Rapid assay products69,611 57,430 
Reference laboratory diagnostic and consulting services275,781 220,261 
CAG Diagnostics services and accessories25,796 21,521 
CAG Diagnostics capital - instruments31,190 23,833 
Veterinary software, services and diagnostic imaging systems44,297 40,238 
CAG segment revenue692,767 551,996 
Water segment revenue34,040 34,149 
LPD segment revenue39,270 34,154 
Other segment revenue11,630 6,037 
Total revenue$777,707 $626,336 

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Revenue by principal geographic area, based on customers’ domiciles, was as follows:
(in thousands)For the Three Months Ended
March 31,
20212020
United States$472,638 $396,783 
Europe, the Middle East and Africa171,250 129,766 
Asia Pacific Region84,782 63,512 
Canada33,458 24,247 
Latin America15,579 12,028 
Total$777,707 $626,336 

Costs to Obtain a Contract. We capitalize sales commissions and the related fringe benefits earned by our sales force when considered incremental and recoverable costs of obtaining a contract. Our contracts include performance obligations related to various goods and services, some of which are satisfied at a point in time and others over time. Commission costs related to performance obligations satisfied at a point in time are expensed at the time of sale, which is when revenue is recognized. Commission costs related to long-term service contracts and performance obligations satisfied over time, including extended warranties and SaaS subscriptions, are deferred and recognized on a systematic basis that is consistent with the transfer of the goods or services to which the asset relates. We apply judgment in estimating the amortization period, which ranges from 3 to 7 years, by taking into consideration our customer contract terms, history of renewals, expected length of customer relationship, as well as the useful life of the underlying technology and products. Amortization expense is included in sales and marketing expenses in the accompanying unaudited condensed consolidated statements of income. Deferred commission costs are periodically reviewed for impairment.

On December 31, 2020, our deferred commission costs, included within other assets, were $17.5 million, of which approximately $1.5 million of commission expense was recognized during the three months ended March 31, 2021. Furthermore, as a result of commissions related to new extended warranties and SaaS subscriptions, net of subsequent recognition, our deferred commission costs were $17.9 million at March 31, 2021. Impairments of deferred commission costs, during the three months ended March 31, 2021, were not material.

NOTE 4. ACQUISITIONS

We believe that our acquisitions of businesses and other assets enhance our existing businesses by either expanding our geographic range and customer base or expanding our existing product lines. From time to time we may acquire the assets of small reference labs that we account for as an asset purchase.

During the first quarter of 2021, we acquired the shares of a reference laboratory located in Switzerland for approximately $5.5 million in cash, including hold back and contingent payments of approximately $1.1 million. This acquisition expands our international reference laboratory presence and was accounted for as a business combination. The preliminary fair value of the assets acquired consists of approximately $4.3 million in intangible assets, primarily for customer relationships, which will be amortized over 9 years, approximately $1.8 million for goodwill, representing synergies within our broader CAG portfolio, and approximately $0.6 million of liabilities, including deferred taxes associated with the acquired intangible assets. The purchase price allocation is subject to revision as additional information becomes available from third-parties regarding tax related matters, contingencies, and certain assets and liabilities. Goodwill related to this acquisition is not deductible for tax purposes. Pro forma information has not been presented for this acquisition because such information is not material to the financial statements. The results of operations have been included in our CAG segment since the acquisition date. The acquisition expenses were not material.
NOTE 5. SHARE-BASED COMPENSATION 

The fair value of options, restricted stock units, deferred stock units, and employee stock purchase rights awarded during the three months ended March 31, 2021, totaled $44.3 million as compared to $36.3 million for the three months ended March 31, 2020. The total unrecognized compensation expense, net of estimated forfeitures, for unvested share-based compensation awards outstanding at March 31, 2021, was $88.5 million, which will be recognized over a weighted average period of approximately 2.0 years. During the three months ended March 31, 2021, we recognized expenses of $8.9 million as compared to $7.3 million for the three months ended March 31, 2020, related to share-based compensation.

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We determine the assumptions used in the valuation of option awards as of the date of grant. Differences in the expected stock price volatility, expected term or risk-free interest rate may necessitate distinct valuation assumptions at each grant date. As such, we may use different assumptions for options granted throughout the year. Option awards are granted with an exercise price equal to or greater than the closing market price of our common stock at the date of grant. We have never paid any cash dividends on our common stock, and we have no intention to pay such a dividend at this time; therefore, we assume that no dividends will be paid over the expected terms of option awards.

The weighted averages of the valuation assumptions used to determine the fair value of each option award on the date of grant and the weighted average estimated fair values were as follows:
For the Three Months Ended
March 31,
20212020
  
Share price at grant$544.08 $288.78 
Share price at exercise$548.15 $288.78 
Expected stock price volatility31 %27 %
Expected term, in years6.26.0
Risk-free interest rate0.7 %1.5 %
Weighted average fair value of options granted$168.35 $84.21 

NOTE 6. CREDIT LOSSES  

We are exposed to credit losses primarily through our sales of products and services to our customers. We maintain allowances for credit losses for potentially uncollectible receivables. We base our estimates on a detailed analysis of specific customer situations and a percentage of our accounts receivable by aging category. Historical credit loss experience provides the basis for the estimation of expected credit losses. Adjustments to historical loss information are made for differences in current economic conditions.

Additional allowances may be required if either the financial condition of our customers were to deteriorate, or a strengthening U.S. dollar impacts the ability of foreign customers to make payments to us on their U.S. dollar-denominated purchases. We monitor our ongoing credit exposure through active review of counterparty balances against contract terms and due dates. Our activities include timely account reconciliations, dispute resolution and payment confirmations. We may employ collection agencies and legal counsel to pursue recovery of defaulted receivables.

Account balances are charged off against the allowance when we believe it is probable the receivable will not be recovered. We may require collateralized asset support or a prepayment to mitigate credit risk. We do not have any off-balance sheet credit exposure related to our customers.

Accounts Receivable

The allowance for credit losses associated with accounts receivable was $6.7 million and $6.8 million at March 31, 2021 and December 31, 2020, respectively. Accounts receivable reflected on the balance sheet is net of this reserve. Based on an aging analysis, at March 31, 2021, approximately 91% of our accounts receivable had not yet reached the invoice due date and approximately 9% was considered past due, of which approximately 1% was greater than 60 days past due. At December 31, 2020, approximately 88% of our accounts receivable had not yet reached the invoice due date and approximately 12% was considered past due, of which approximately 1.5% was greater than 60 days past due.

Contract assets and lease receivables

The allowance for credit losses associated with the contract assets and lease receivables was $3.8 million and $3.7 million at March 31, 2021 and December 31, 2020, respectively. The assets reflected on the balance sheet are net of these reserves. Historically, we have experienced low credit loss rates on our customer commitment programs and lease receivables. We apply judgment in determining the customer’s ability and intention to pay, which is based on a variety of factors including the customer’s historical payment experience or, in the case of a new customer, published credit and financial information pertaining to the customer.
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NOTE 7. INVENTORIES

Inventories are stated at the lower of cost (first-in, first-out) or net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The components of inventories were as follows:
(in thousands)March 31, 2021December 31, 2020
  
Raw materials$54,197 $45,986 
Work-in-process24,889 20,374 
Finished goods146,473 143,513 
Inventories$225,559 $209,873 

NOTE 8. LEASES

Maturities of operating lease liabilities were as follows:
(in thousands, except lease term and discount rate)March 31, 2021
 
2021 (remainder of year)$14,913 
202220,465 
202316,096 
202411,367 
20258,453 
Thereafter39,756 
Total lease payments111,050 
Less imputed interest(14,950)
Total$96,100 

Total minimum future lease payments of approximately $7.2 million for leases that have not commenced as of March 31, 2021, are not included in the condensed consolidated financial statements, as we do not yet control the underlying assets. These leases are expected to commence in 2021 with lease terms of approximately 2 to 13 years.

Supplemental cash flow information for leases was as follows:
(in thousands)For the Three Months Ended
March 31, 2021
For the Three Months Ended March 31, 2020
 
Cash paid for amounts included in the measurement of operating leases liabilities$5,434 $5,015 
Right-of-use assets obtained in exchange for operating lease obligations, net of early lease terminations$8,180 $2,796 

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NOTE 9. OTHER CURRENT AND LONG-TERM ASSETS

Other current assets consisted of the following:
(in thousands)March 31, 2021December 31, 2020
  
Customer acquisition costs$45,260 $43,751 
Prepaid expenses34,762 34,556 
Contract assets, net26,601 23,837 
Taxes receivable14,708 19,476 
Deferred sales commissions5,910 5,738 
Other assets12,043 10,150 
Other current assets$139,284 $137,508 

Other long-term assets consisted of the following:
(in thousands)March 31, 2021December 31, 2020
Customer acquisition costs$107,345 $104,369 
Contract assets, net95,962 91,681 
Deferred income taxes28,340 31,549 
Deferred sales commissions11,968 11,719 
Investment in long-term product supply arrangements11,185 12,065 
Taxes receivable6,329 6,329 
Other assets34,375 31,883 
Other long-term assets$295,504 $289,595 

NOTE 10. ACCRUED LIABILITIES

Accrued liabilities consisted of the following:
(in thousands)March 31, 2021December 31, 2020
  
Accrued expenses$108,576 $112,526 
Accrued employee compensation and related expenses100,156 167,649 
Accrued customer incentives and refund obligations80,755 75,064 
Accrued taxes59,483 42,676 
Current lease liabilities17,907 17,733 
Accrued liabilities$366,877 $415,648 

Other long-term liabilities consisted of the following:
(in thousands)March 31, 2021December 31, 2020
Accrued taxes$60,898 $60,313 
Other accrued long-term expenses22,651 25,291 
Other long-term liabilities$83,549 $85,604 

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NOTE 11. REPURCHASES OF COMMON STOCK

We primarily acquire shares by repurchases in the open market. However, we also acquire shares that are surrendered by employees in payment for the minimum required statutory withholding taxes due on the vesting of restricted stock units and the settlement of deferred stock units, otherwise referred to herein as employee surrenders. We issue shares of treasury stock upon the vesting of certain restricted stock units and upon the exercise of certain stock options. The number of shares of treasury stock issued during the three months ended March 31, 2021 and 2020 was not material.

The following is a summary of our open market common stock repurchases, reported on a trade date basis, and shares acquired through employee surrender:
(in thousands, except per share amounts)
For the Three Months Ended
March 31,
20212020
Shares repurchased in the open market277 721 
Shares acquired through employee surrender for statutory tax withholding28 30 
Total shares repurchased305 751 
Cost of shares repurchased in the open market$139,213 $179,623 
Cost of shares for employee surrenders14,983 8,604 
Total cost of shares$154,196 $188,227 
Average cost per share - open market repurchases$501.62 $249.20 
Average cost per share - employee surrenders$544.08 $288.78 
Average cost per share - total$505.45 $250.77 

NOTE 12. INCOME TAXES 

Our effective income tax rate was 14.9% for the three months ended March 31, 2021, as compared to 18.2% for the three months ended March 31, 2020, The decrease in our effective tax rate for the three months ended March 31, 2021, as compared to the same period in the prior year, was primarily driven by higher tax benefits from share-based compensation and regional earnings mix.

The effective tax rate for the three months ended March 31, 2021, differed from the U.S. statutory tax rate of 21% primarily due to tax benefits from share-based compensation.
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NOTE 13. ACCUMULATED OTHER COMPREHENSIVE INCOME

The changes in AOCI, net of tax, consisted of the following:
For the Three Months Ended March 31, 2021
Unrealized Gain (Loss) on Cash Flow Hedges, Net of TaxUnrealized (Loss) Gain on
Net Investment Hedges, Net of Tax
(in thousands)Unrealized Gain (Loss) on Investments,
Net of Tax
Foreign Currency Exchange ContractsEuro-Denominated NotesCross Currency SwapsCumulative Translation
Adjustment
Total
     
Balance as of December 31, 2020$(272)$(9,934)$(5,982)$(2,159)$(35,268)$(53,615)
Other comprehensive (loss) income before reclassifications147 4,415 3,648 3,308 (19,333)(7,815)
Loss reclassified from accumulated other comprehensive income 1,894    1,894 
Balance as of March 31, 2021$(125)$(3,625)$(2,334)$1,149 $(54,601)$(59,536)

For the Three Months Ended March 31, 2020
Unrealized Gain (Loss) on Cash Flow Hedges,
Net of Tax
Unrealized Gain on
Net Investment Hedges, Net of Tax
(in thousands)Unrealized (Loss) Gain on Investments,
Net of Tax
Foreign Currency Exchange ContractsEuro-Denominated NotesCross Currency SwapsCumulative Translation
Adjustment
Total
     
Balance as of December 31, 2019$110 $(736)$1,396 $3,467 $(50,419)$(46,182)
Other comprehensive (loss) income before reclassifications(279)9,426 1,047 4,049 (22,206)(7,963)
Gain reclassified from accumulated other comprehensive income (1,101)   (1,101)
Balance as of March 31, 2020$(169)$7,589 $2,443 $7,516 $(72,625)$(55,246)
The following tables present components and amounts reclassified out of AOCI to net income:
(in thousands)Affected Line Item in the Statements of IncomeAmounts Reclassified from AOCI For the Three Months Ended March 31,
 20212020
Gain (loss) on derivative instruments classified as cash flow hedges included in net income:   
Foreign currency exchange contractsCost of revenue$(2,430)$1,341 
Tax expense (benefit)(536)240 
Gain (loss), net of tax$(1,894)$1,101 
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NOTE 14. EARNINGS PER SHARE

Basic earnings per share is computed by dividing net income attributable to our stockholders by the weighted average number of shares of common stock and vested deferred stock units outstanding during the year. The computation of diluted earnings per share is similar to the computation of basic earnings per share, except that the denominator is increased for the assumed exercise of dilutive options and assumed issuance of unvested restricted stock units and unvested deferred stock units using the treasury stock method unless the effect is anti-dilutive. The treasury stock method assumes that proceeds, including cash received from the exercise of employee stock options and the total unrecognized compensation expense for unvested share-based compensation awards, would be used to purchase our common stock at the average market price during the period. Vested deferred stock units outstanding are included in shares outstanding for basic and diluted earnings per share because the associated shares of our common stock are issuable for no cash consideration, the number of shares of our common stock to be issued is fixed and issuance is not contingent. See Note 5 to the consolidated financial statements in our 2020 Annual Report for additional information regarding deferred stock units.

The following is a reconciliation of weighted average shares outstanding for basic and diluted earnings per share:
(in thousands)For the Three Months Ended
March 31,
20212020
Shares outstanding for basic earnings per share85,530 85,427 
Shares outstanding for diluted earnings per share:
Shares outstanding for basic earnings per share85,530 85,427 
Dilutive effect of share-based payment awards1,387 1,278 
86,917 86,705 

Certain awards and options to acquire shares have been excluded from the calculation of shares outstanding for diluted earnings per share because they were anti-dilutive. The following table presents information concerning those anti-dilutive awards and options:
(in thousands)For the Three Months Ended
March 31,
20212020
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