UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, ~~2017~~2018

[ ]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)



DELAWARE	01-0393723
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)

ONE IDEXX DRIVE, WESTBROOK, MAINE	04092
(Address of principal executive offices)	(ZIP Code)

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

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 ☒ 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 ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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 filer Non-accelerated filer (Do not check if a smaller reporting company)	☒ ☐	Accelerated filer Emerging growth company	☐ ☐
Smaller reporting 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 ~~88,123,451~~86,863,215 on April ~~25, 2017.~~27, 2018.

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

AOCI	Accumulated other comprehensive income or loss
ASU 2014-09	Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (Topic 606); also referred to as the “New Revenue Standard”
ASU 2016-16	ASU 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory
ASU 2018-05	ASU 2018-05, Income Taxes (Topic 740): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118
CAG	Companion 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 Facility	Our $850 million five-year unsecured revolving credit facility under an amended and restated credit agreement that was executed in December 2015, also referred to as line of credit
FASB	U.S. Financial Accounting Standards Board
LPD	Livestock, 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 dairy efficiency
OPTI Medical	OPTI Medical Systems, Inc., a wholly-owned subsidiary of IDEXX Laboratories Inc., located in Roswell, Georgia. This business manufactures and supplies blood gas analyzers and consumables worldwide for the human point-of-care medical diagnostics market. The Roswell facility also manufactures electrolytes slides (instrument consumables) to run Catalyst One® and Catalyst Dx®, and blood gas analyzers and consumables for the veterinary market; also referred to as OPTI.
Organic revenue growth	A 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, business acquisitions and divestitures
R&D	Research and Development
SaaS	Software-as-a-service
SEC	U.S. Securities and Exchange Commission
Senior Note Agreements	Private placement senior notes having an aggregate principal amount of approximately $600 million, referred to as senior notes and long-term debt
2017 Tax Act	The Tax Cuts and Jobs Act enacted on December 22, 2017, which includes significant changes to the U.S. corporate tax system
U.S. GAAP	Accounting principles generally accepted in the United States of America
Water	Water, a reporting segment that provides water microbiology testing products around the world

IDEXX LABORATORIES, INC.

Quarterly Report on Form 10-Q

Table of Contents


Item No.		Page

	PART I—FINANCIAL INFORMATION
Item 1.	Financial Statements (unaudited)
	Condensed Consolidated Balance Sheets as of March 31, ~~2017~~2018 and December 31, ~~2016~~2017	3
	Condensed Consolidated Statements of Operations for the Three Months Ended March 31, ~~2017~~2018 and ~~2016~~2017	4
	Condensed Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, ~~2017~~2018 and ~~2016~~2017	5
	Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, ~~2017~~2018 and ~~2016~~2017	6
	Notes to Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21 26
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	34 41
Item 4.	Controls and Procedures	36 42
	PART II—OTHER INFORMATION
Item 1.	Legal Proceedings	36 42
Item 1A.	Risk Factors	36 42
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	37 43
Item 6.	Exhibits	38 44
Signatures		39 45
~~Exhibit Index~~

~~PART~~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,		December 31,		March 31,		December 31,
	2017		2016		2018		2017

ASSETS
Current Assets:
Cash and cash equivalents	$	160,408	$	154,901	$	159,229	$	187,675
Marketable securities		239,933		236,949		-		284,255
Accounts receivable, net of reserves of $4,909 in 2017 and $4,523 in 2016		225,353		204,494
Accounts receivable, net of reserves of $4,808 in 2018 and $4,576 in 2017						259,865		234,597
Inventories		172,183		158,034		179,039		164,318
Other current assets		80,711		91,206		103,574		101,140
Total current assets		878,588		845,584		701,707		971,985
Long-Term Assets:
Property and equipment, net		361,233		357,422		384,246		379,096
Goodwill		180,601		178,228		201,022		199,873
Intangible assets, net		45,686		46,155		41,893		43,846
Other long-term assets		105,983		103,315		140,624		118,616
Total long-term assets		693,503		685,120		767,785		741,431
TOTAL ASSETS	$	1,572,091	$	1,530,704	$	1,469,492	$	1,713,416

LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current Liabilities:
Accounts payable	$	62,249	$	60,057	$	70,409	$	66,968
Accrued liabilities		174,763		236,131		210,384		253,418
Line of credit		671,000		611,000		407,500		655,000
Current portion of deferred revenue		28,065		27,380		40,545		29,181
Total current liabilities		936,077		934,568		728,838		1,004,567
Long-Term Liabilities:
Deferred income tax liabilities		39,964		39,287		27,529		25,353
Long-term debt		594,868		593,110		609,005		606,075
Long-term deferred revenue, net of current portion		33,074		33,015		68,529		35,545
Other long-term liabilities		42,020		38,937		84,573		95,718
Total long-term liabilities		709,926		704,349		789,636		762,691
Total liabilities		1,646,003		1,638,917		1,518,474		1,767,258

Commitments and Contingencies (Note 13)
Commitments and Contingencies (Note 14)

Stockholders’ Deficit:
Common stock, $0.10 par value: Authorized: 120,000 shares; Issued: 103,740 shares in 2017 and 103,341 shares in 2016		10,374		10,334
Common stock, $0.10 par value: Authorized: 120,000 shares; Issued: 104,676 shares in 2018 and 104,275 shares in 2017; Outstanding: 86,997 shares in 2018 and 87,104 shares in 2017						10,468		10,428
Additional paid-in capital		1,030,147		1,011,895		1,094,159		1,073,931
Deferred stock units: Outstanding: 225 units in 2017 and 231 units in 2016		5,552		5,514
Deferred stock units: Outstanding: 217 units in 2018 and 229 units in 2017						5,772		5,988
Retained earnings		609,420		540,401		880,348		803,545
Accumulated other comprehensive loss		(38,379)		(43,053)		(34,206)		(36,470)
Treasury stock, at cost: 15,807 shares in 2017 and 15,367 shares in 2016		(1,691,204)		(1,633,443)
Treasury stock, at cost: 17,679 shares in 2018 and 17,171 shares in 2017						(2,005,813)		(1,911,528)
Total IDEXX Laboratories, Inc. stockholders’ deficit		(74,090)		(108,352)		(49,272)		(54,106)
Noncontrolling interest		178		139		290		264
Total stockholders’ deficit		(73,912)		(108,213)		(48,982)		(53,842)
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT	$	1,572,091	$	1,530,704	$	1,469,492	$	1,713,416
��

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

IDEXX LABORATORIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share amounts)

(Unaudited)



		For the Three Months Ended					For the Three Months Ended
		March 31,					March 31,
			2017		2016			2018		2017

Revenue:
Product revenue		$	271,965	$	249,065		$	317,440	$	271,965
Service revenue			190,056		168,485			220,216		190,056
Total revenue			462,021		417,550			537,656		462,021
Cost of Revenue:
Cost of product revenue			103,027		97,631			118,246		103,027
Cost of service revenue			100,803		92,382			116,311		100,803
Total cost of revenue			203,830		190,013			234,557		203,830
Gross profit			258,191		227,537			303,099		258,191

Expenses:
Sales and marketing			87,244		79,829			100,101		87,244
General and administrative			52,914		49,295			60,931		52,914
Research and development			25,790		24,620			29,023		25,790
Income from operations			92,243		73,793			113,044		92,243
Interest expense			(8,589)		(8,304)			(9,274)		(8,589)
Interest income			1,083		820			579		1,083
Income before provision for income taxes			84,737		66,309			104,349		84,737
Provision for income taxes			15,679		20,284			14,873		15,679
Net income			69,058		46,025			89,476		69,058
Less: Net income attributable to noncontrolling interest			39		6			25		39
Net income attributable to IDEXX Laboratories, Inc. stockholders		$	69,019	$	46,019		$	89,451	$	69,019

Earnings per Share:
Basic		$	0.78	$	0.51		$	1.02	$	0.78
Diluted		$	0.77	$	0.51		$	1.01	$	0.77
Weighted Average Shares Outstanding:
Basic			88,117		89,924			87,331		88,117
Diluted			89,994		90,838			88,944		89,994

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


		For the Three Months Ended					For the Three Months Ended
		March 31,					March 31,
			2017		2016			2018		2017

Net income		$	69,058	$	46,025		$	89,476	$	69,058
Other comprehensive income, net of tax:
Foreign currency translation adjustments			8,014		6,016			5,165		8,014
Unrealized (loss) gain on net investment hedge			(1,093)		2,224
Unrealized (loss) gain on investments, net of tax (benefit) expense of ($26) in 2017 and $70 in 2016			(39)		205
Unrealized gain (loss) on derivative instruments:
Unrealized loss, net of tax benefit of $912 in 2017 and $1,443 in 2016			(1,534)		(3,266)
Less: reclassification adjustment for gains included in net income, net of tax expense of $401 in 2017 and $170 in 2016			(674)		(429)
Unrealized loss on net investment hedge								(2,216)		(1,093)
Unrealized gain (loss) on investments, net of tax expense (benefit) of $40 in 2018 and $(26) in 2017								118		(39)
Unrealized loss on derivative instruments:
Unrealized loss, net of tax (benefit) of $(377) in 2018 and $(912) in 2017								(2,388)		(1,534)
Reclassification adjustment for losses (gains) included in net income, net of tax (benefit) expense of $(250) in 2018 and $401 in 2017								1,585		(674)
Unrealized loss on derivative instruments			(2,208)		(3,695)			(803)		(2,208)
Other comprehensive gain, net of tax			4,674		4,750			2,264		4,674
Comprehensive income			73,732		50,775			91,740		73,732
Less: comprehensive income attributable to noncontrolling interest			39		6			25		39
Comprehensive income attributable to IDEXX Laboratories, Inc.		$	73,693	$	50,769		$	91,715	$	73,693

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

IDEXX LABORATORIES, ~~INC.~~INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(Unaudited)



		For the Three Months Ended					For the Three Months Ended
		March 31,					March 31,
			2017		2016			2018		2017

Cash Flows from Operating Activities:
Net income		$	69,058	$	46,025		$	89,476	$	69,058
Adjustments to reconcile net income to net cash provided (used) by operating activities:
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			20,307		18,546			20,804		20,307
Impairment charge			-		1,110
Benefit of deferred income taxes			1,941		2,520			3,005		1,941
Share-based compensation expense			5,655		4,922			5,960		5,655
Other			860		586			1,091		860
Tax benefit from share-based compensation arrangements (Note 2)			-		(2,063)
Changes in assets and liabilities:
Accounts receivable			(19,429)		(21,504)			(21,800)		(19,429)
Inventories			(5,369)		1,764			(8,070)		(5,369)
Other assets and liabilities			(38,531)		(23,752)			(52,302)		(38,531)
Accounts payable			(3,687)		(1,801)			(1,939)		(3,687)
Deferred revenue			469		637			(1,327)		469
Net cash provided by operating activities			31,274		26,990			34,898		31,274
Cash Flows from Investing Activities:
Purchases of property and equipment			(23,647)		(21,906)			(23,726)		(23,647)
Purchase of marketable securities			(90,492)		(72,079)			(87)		(90,492)
Proceeds from the sale and maturities of marketable securities			87,476		70,186			284,125		87,476
Acquisitions of a business, net of cash acquired			(2,349)		-			-		(2,349)
Net cash used by investing activities			(29,012)		(23,799)
Net cash provided (used) by investing activities								260,312		(29,012)
Cash Flows from Financing Activities:
Borrowings on revolving credit facilities, net			60,000		49,000
Debt issue costs			-		(57)
(Repayments) borrowings on revolving credit facilities, net								(247,500)		60,000
Repurchases of common stock			(63,910)		(53,480)			(83,487)		(63,910)
Proceeds from exercises of stock options and employee stock purchase plans			12,526		5,760			14,551		12,526
Payment of acquisition-related contingent consideration			-		(2,084)
Shares withheld for statutory tax withholding on restricted stock (Note 2)			(7,303)		(3,764)
Tax benefit from share-based compensation arrangements (Note 2)			-		2,063
Net cash provided (used) by financing activities			1,313		(2,562)
Shares withheld for statutory tax withholding on restricted stock								(8,555)		(7,303)
Net cash (used) provided by financing activities								(324,991)		1,313
Net effect of changes in exchange rates on cash			1,932		3,330			1,335		1,932
Net increase in cash and cash equivalents			5,507		3,959
Net (decrease) increase in cash and cash equivalents								(28,446)		5,507
Cash and cash equivalents at beginning of period			154,901		128,994			187,675		154,901
Cash and cash equivalents at end of period		$	160,408	$	132,953		$	159,229	$	160,408

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

~~In order to aid the reader, we have included certain terms and abbreviations used throughout this Quarterly Report on Form 10-Q below:~~

The accompanying unaudited condensed consolidated financial statements of IDEXX Laboratories, Inc. and its subsidiaries have been prepared in accordance with ~~accounting principles generally accepted in the United States of America (“~~U.S. ~~GAAP”)~~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, ~~2016,~~2017, 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, ~~2017,~~2018, 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, ~~2017,~~2018, and our Annual Report on Form 10-K for the year ended December 31, ~~2016,~~2017, (the ~~“2016~~“2017 Annual Report”) filed with the ~~U.S. Securities and Exchange Commission (“SEC”).~~SEC.

For the three months ended March 31, ~~2017,~~2018, changes in stockholders’ equity included (i) changes in other comprehensive income reflected in the unaudited condensed consolidated statements of comprehensive income; (ii) changes in common stock and additional paid-in capital reflected in the unaudited condensed consolidated statements of cash flows (including share-based compensation expense, proceeds from exercise of stock options and employee stock purchase plans and repurchases of common stock); (iii) changes in noncontrolling interest; ~~and~~ (iv) changes in net ~~income.~~income and (v) adjustments to retained earnings in connection with the adoption of ASU 2014-09 and ASU 2016-16. The cumulative effect of applying these standards was an adjustment of $12.6 million to the opening balance of retained earnings. See “Note 2. Accounting Policies” for the impact of new accounting pronouncements adopted.

The significant accounting policies used in preparation of these unaudited condensed consolidated financial statements for the three months ended March 31, ~~2017~~2018 are consistent with those discussed in Note 2 to the consolidated financial statements in our ~~2016~~2017 Annual Report, except as noted below.

Effective January 1, ~~2017,~~2018, we adopted the ~~Financial Accounting Standards Board (“FASB”) standard update ASU 2016-09, “Compensation – Stock Compensation (Topic 718):Improvements to Employee Share-Based Payment Accounting” (“ASU 2016-09”) which simplifies several aspects~~New Revenue Standard using the modified retrospective method for all contracts not completed as of the date of adoption.

We recognized the cumulative effect of initially applying the New Revenue Standard as an adjustment to the opening balance of retained earnings. The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods presented. As a result of the adoption of ASU 2014-09, we have changed our accounting policy for revenue recognition and the details of the significant changes and quantitative impact of the changes are set out below.

Up-Front Customer Loyalty Programs. Our up-front loyalty programs provide customers with incentives in the form of cash or IDEXX Points upon entering into multi-year agreements to purchase annual minimum amounts of future products or services. Under previous U.S. GAAP, if up-front incentives were subsequently utilized to purchase instruments, we limited instrument revenue to the amount of consideration received from the customer at the time of placement that was not contingent on future purchases and consequently deferred instrument revenue and costs at the time of placement. The New Revenue Standard permits revenue recognition at the time of instrument placement when the consideration is committed, but contingent on the purchase of future goods and services. As a result, we have accelerated our recognition of instrument revenues and costs when up-front incentives are used to purchase instruments. The New Revenue Standard did not change our accounting for ~~share-based payment transactions, including income tax consequences, recognition~~up-front payments to customers, which continue to be capitalized as customer acquisition costs, within other assets, and subsequently recognized as a reduction to revenue over the term of ~~stock compensation award forfeitures, classification of awards as either equity or liabilities,~~ the ~~calculation of diluted shares outstanding~~agreement. We previously reported deferred instrument revenues and ~~classification on~~costs within net customer acquisition cost, and upon transition to the ~~statement of cash flows.~~New Revenue Standard the decrease in deferred revenue and costs resulted in an increase in our reported customer acquisition costs.

~~The following table summarizes~~Volume Commitment Programs. Our volume commitment programs provide customers with a free instrument or system upon entering into multi-year agreements to purchase annual minimum amounts of future products or services and includes our new IDEXX 360 program introduced in the ~~most significant impacts~~first quarter of 2018. Under previous U.S. GAAP, we limited instrument revenue to the amount of consideration received from the customer at the time of placement that was not contingent on future purchases and consequently instrument revenue and cost were recognized over the term of the ~~new accounting guidance~~customer agreement. The New Revenue Standard permits revenue recognition at the time of instrument placement when the consideration is committed, but contingent on the purchase of future goods and services. As a result, we have accelerated recognition on instruments revenues and costs placed through our volume commitment programs. This change resulted in a net increase in current and long-term other assets upon transition to the New Revenue Standard as we recognized contract assets related to instrument revenue recognized in advance of billings, offset by a reduction in previously deferred instrument cost.

Instrument Rebate Programs. Our instrument rebate programs, previously referred to as IDEXX Instrument Marketing 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. Under previous U.S. GAAP, the total consideration in the contract, including an estimate of future optional purchases, was allocated to all products and services based on their standalone selling prices. This resulted in deferring a portion of instrument revenue related to our obligation to provide future rebate incentives, which was included in accrued liabilities. Under the New Revenue Standard, the total consideration in the contract is limited to only goods and services that the customer is presently obligated to purchase and does not include future purchases that are optional. The customer’s right to earn rebates on future purchases is accounted for as a separate performance obligation. The exclusion of optional future purchases resulted in the instrument absorbing a higher relative allocation of future rebates. Therefore, we defer an increased portion of instrument revenue upon placement, which is realized as higher recurring revenue when customers buy future products and services, offsetting future rebates as they are earned. This change resulted in an increase in current and long-term deferred revenue upon transition to the New Revenue Standard and a reduction to accrued and other long-term liabilities for rebate obligations that are now reported as deferred revenues.

Reagent Rental Programs.Our reagent rental programs provide 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 operating lease for the ~~three months ended March 31, 2017~~right to use our instrument and ~~2016, if applicable:~~no instrument revenue is recognized at the time of instrument installation. Under the New Revenue Standard, we continue to recognize a portion of the revenue allocated to the embedded lease concurrent with the future sale of consumables over the term of the agreement. We determine the amount of revenue allocated from the consumable to the embedded lease based on standalone selling prices and determine the rate of lease revenue recognition in proportion to the customer’s minimum volume commitment. There was no impact to our consolidated financial statements upon transition to the New Revenue Standard, as a result of our reagent rental programs.

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. Under the New Revenue Standard, we continue to consider IDEXX Points equivalent to cash and IDEXX Points that have not yet been used by customers are included in accrued liabilities until utilized or

expired. There was no impact to our consolidated financial statements upon transition to the New Revenue Standard, as a result of IDEXX Points.

Shipping and Delivery. Under previous U.S. GAAP, we recognized revenue and cost from the sales of diagnostic products and accessories upon delivery to the customer because our typical business practice is to cover losses incurred while in transit. Under the New Revenue Standard, revenue and costs are recognized when a customer obtains control of the product based on legal title transfer and our right to payment, which generally occurs at the time of shipment. This resulted in an acceleration of revenue and cost recognition and an increase in accounts receivable and a reduction in inventories upon transition to the New Revenue Standard.

Costs to Obtain a Contract. Under previous U.S. GAAP, we recognized sales commissions incurred to obtain long term product and service contracts as sales and marketing expenses as incurred. Under the New Revenue Standard, we defer commissions incurred to obtain long term contracts, when considered incremental and recoverable. Sales commissions are amortized as sales and marketing expenses consistently with the pattern of transfer for the product or service to which the asset relates. If the expected amortization period is one year or less, the sales commission is expensed when incurred. This change resulted in an increase to other current and long-term assets upon transition to the New Revenue Standard.

Income Taxes. The adoption of the New Revenue Standard primarily resulted in an acceleration of revenues under up-front customer loyalty programs and an increase in deferred revenue under instrument rebate programs, which in turn generated additional deferred tax assets within other long-term assets.

The cumulative effects of the changes made to our consolidated balance sheet as of January 1, 2018, in connection with the adoption of the New Revenue Standard were as follows (in thousands):


	Condensed Consolidated Balance Sheet

	Previous U.S. GAAP
	December 31, 2017		New U.S. GAAP		Attributed to the
	(Reported)		January 1, 2018		New Revenue Standard

ASSETS
Cash, cash equivalents and marketable securities	$	471,930	$	471,930	$	-
Accounts receivable		234,597		237,281		2,684
Inventories		164,318		163,184		(1,134)
Property and equipment, net		379,096		379,096		-
Goodwill and intangible assets, net		243,719		243,719		-
Other assets		219,756		246,481		26,725
TOTAL ASSETS	$	1,713,416	$	1,741,691	$	28,275

LIABILITIES AND STOCKHOLDERS’ DEFICIT
Accounts payable	$	66,968	$	66,968	$	-
Accrued liabilities		253,418		254,381		963
Deferred income tax liabilities		25,353		25,087		(266)
Line of credit and long-term debt		1,261,075		1,261,075		-
Deferred revenue		64,726		110,158		45,432
Other long-term liabilities		95,718		82,840		(12,878)
Total liabilities		1,767,258		1,800,509		33,251

Stockholders’ Deficit:
Retained earnings		803,545		798,569		(4,976)
All other stockholders' deficit and noncontrolling interest		(857,387)		(857,387)		-
Total stockholders’ deficit		(53,842)		(58,818)		(4,976)
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT	$	1,713,416	$	1,741,691	$	28,275

The following tables compare the reported unaudited condensed consolidated balance sheet, statement of operations and cash flows, as of and for the three months ended March 31, 2018, to the pro forma amounts had the previous U.S. GAAP guidance been in effect (in thousands):


	Condensed Consolidated Balance Sheet
	As of March 31, 2018

			New U.S. GAAP		Attributed to the
	Previous U.S. GAAP		(As Reported)		New Revenue Standard

ASSETS
Cash and cash equivalents	$	159,229	$	159,229	$	-
Accounts receivable		257,214		259,865		2,651
Inventories		180,328		179,039		(1,289)
Property and equipment, net		384,246		384,246		-
Goodwill and intangible assets, net		242,915		242,915		-
Other assets		212,896		244,198		31,302
TOTAL ASSETS	$	1,436,828	$	1,469,492	$	32,664

LIABILITIES AND STOCKHOLDERS’ DEFICIT
Accounts payable	$	70,409	$	70,409	$	-
Accrued liabilities		209,437		210,384		947
Deferred income tax liabilities		29,786		27,529		(2,257)
Line of credit and long-term debt		1,016,505		1,016,505		-
Deferred revenue		64,813		109,074		44,261
Other long-term liabilities		94,296		84,573		(9,723)
Total liabilities		1,485,246		1,518,474		33,228

Stockholders’ Deficit:
Retained earnings		880,785		880,348		(437)
Accumulated other comprehensive loss		(34,079)		(34,206)		(127)
All other stockholders' deficit and noncontrolling interest		(895,124)		(895,124)		-
Total stockholders’ deficit		(48,418)		(48,982)		(564)
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT	$	1,436,828	$	1,469,492	$	32,664

There were no changes to cash flows from investing and financing activities as a result of the adoption of the New Revenue Standard.

Effective January 1, 2018, we adopted FASB ASU 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory, which requires an entity to recognize the income tax consequences of an intra-entity transfer of an asset, other than inventory, when the transfer occurs, even though the pre-tax effects of that transaction are eliminated in consolidation. We recognized the cumulative effect of applying this standard as an adjustment to the opening balance of retained earnings and a reduction to other long-term assets of $7.7 million.

Effective January 1, 2018, we adopted FASB ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments, which provides guidance on the statement of cash flows presentation of certain transactions where diversity in practice exists on the classification of certain cash receipts and payments. We adopted this amendment on a retrospective basis. This amendment did not have an impact on our financial statements.

Effective January 1, 2018, we adopted FASB ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash, to add guidance on the classification and presentation of restricted cash. These amendments require that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The adoption of this standard did not have an impact on our financial statements.

Effective January 1, 2018, we adopted FASB ASU 2017-04, Intangibles – Goodwill and Other (Topic 350), to simplify the measurement of goodwill by eliminating Step 2 from the goodwill impairment test. Instead, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill. The adoption of this standard did not have an impact on our financial statements.

Effective January 1, 2018, we adopted FASB ASU 2017-09, Compensation-Stock Compensation (Topic 718): Scope of Modification Accounting, which provides clarification on accounting for modifications in share-based payment awards. The adoption of this guidance did not have an impact on our consolidated financial statements or related disclosures as there were no modifications to our share-based payment awards during the three months ended March 31, 2018.

In March 2018, we adopted FASB ASU 2018-05, Income Taxes (Topic 740): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118, which updates the income tax accounting to reflect the SEC’s interpretive guidance released on December 22, 2017, when the 2017 Tax Act was signed into law. See “Note 11. Income Taxes.”

Effective April 1, 2018, we early adopted FASB ASU 2017-12, Derivatives and Hedging (Topic 815), which amends the hedge accounting recognition and presentation requirements. The adoption of this guidance is not expected to have an impact on our consolidated financial statements or related disclosures, however it allows us to simplify our procedures to assess critical terms.

~~In May 2014, the FASB issued Accounting Standard Update (“ASU”) 2014-09,~~ ~~Revenue from Contracts with Customers (Topic 606)~~, which will replace most of the existing revenue recognition guidance within U.S. GAAP. The FASB has also issued several updates to ASU 2014-09. The core principle of ASU 2014-09 is that an entity should recognize revenue for the transfer of goods or services to customers in an amount that it expects to be entitled to receive for those goods or services. In doing so, companies will be required to make certain judgments and estimates, including identifying contract performance obligations, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price among separate performance obligations. Additionally, disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, significant judgments reached in the application of the guidance and assets recognized from the costs to obtain or fulfill a contract will be required. In July 2015, the FASB approved a one-year deferral of the effective date to all annual and interim periods beginning after December 15, 2017. The new guidance permits two methods of adoption: a full retrospective method to each prior reporting period presented or a modified retrospective approach with the cumulative effect of initially applying the guidance recognized at the date of initial application. We are continuing to evaluate the impact of this new standard. While ASU 2014-09 will not impact the overall economics of our products and services sold under customer incentive programs, we do expect the new standard will require us to delay revenue recognition related to certain of our customer incentive programs and to accelerate revenue recognition for certain other customer incentive programs. The volume and mix of future customer incentive programs will affect our assessment of the overall net impact of the new standard on our results and will also influence our choice of adoption method. We plan to determine our method of adoption and provide an estimate of any impacts by October 2017, in connection with our financial reporting for the quarter ending September 30, 2017.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), to increase transparency and comparability among organizations’ leasing arrangements. Since then, the FASB has issued updates to ASU 2016-02. The principal difference from previous guidance is that effective upon adoption, the lease assets and lease liabilities arising from operating leases will be recognized in the balance sheet. For public business entities, the amendments in this update are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal ~~years. Early~~years, with early adoption is permitted. In transition, we are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach, including the option to utilize a number of practical expedients. We are in the process of evaluating our lessee and lessor arrangements to determine the impact of this amendment on ~~the~~our consolidated financial statements. This evaluation includes an extensive review of revenue through leasing arrangements as well as lease expenses, which are primarily through operating lease arrangements for most of our facilities. We currently expect that most of our operating lease commitments will be subject to the new standard and recognized as operating lease liabilities and right-of-use assets upon our adoption, which will increase our total assets and total liabilities that we report relative to such amounts prior to adoption.

In February ~~2017,~~2018, the FASB issued ASU ~~2017-05,~~2018-02, ~~Other Income-Gains and Losses~~Income Statement – Reporting Comprehensive Income (Topic 220), to allow a reclassification from accumulated other comprehensive income to retained earnings related to the ~~Derecognition~~stranded effects of ~~Nonfinancial Assets (Subtopic 610-20): Clarifying~~ the ~~Scope of Asset Derecognition Guidance and Accounting~~2017 Tax Act. The amendments in this update are effective for ~~Partial Sales of Nonfinancial Assets.~~ The ASU clarifies the scope and accounting of a financial asset that meets the definition of an “in-substance nonfinancial asset” and defines the term, “in-substance nonfinancial asset.” The ASU also adds guidance for partial sales of nonfinancial assets. The new guidance is effectiveall entities for fiscal years beginning after December 15, ~~2017 and~~2018, including interim periods within those ~~years. Early~~fiscal years with early adoption ~~is permitted for interim~~permitted. In transition, we are required to apply the

amendments either in the period of adoption or annual reporting periods beginning after December 15, 2016. The guidance may be applied retrospectively for all periods presented or retrospectively with a cumulative-effect adjustment at the date of adoption. The Company isretrospectively. We are currently evaluating the ~~effects of ASU 2017-05~~impact these amendments will have on ~~its~~our consolidated financial statements.

For a discussion of other accounting standards that have been issued by the FASB but are not yet effective, refer to the New Accounting Pronouncements Not Yet Adopted section in our 2017 Annual Report.

Under the New Revenue Standard, 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. Revenue is measured as the amount of consideration we expect to receive in exchange for transferring products or services to a customer. To meet the requirements of the New Revenue Standard and accurately present the consideration received in exchange for promised products or services, we applied the prescribed five-step model outlined below:

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 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 VetLab consumables and accessories, rapid assay, LPD, Water, and OPTI testing products, are 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. Lease revenue on instrument systems under rental agreements and reagent rental programs is recognized on a ratable basis over the term of the agreement. Customers typically pay for rental agreements in equal monthly amounts over the term of the rental agreement. See below for revenue recognition under Reagent Rental Programs.

Extended Warranties and Post-Contract Support. CAG Diagnostics capital instruments and diagnostic imaging systemsextended warranties typically provide customers with continued coverage for a period of 1 to 5 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 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.

Upon adoption of the New Revenue Standard on January 1, 2018, our deferred revenue related to extended warranties and post-contract support was $40.3 million, of which approximately $11.8 million was recognized during the three months ended March 31, 2018. Furthermore, as a result of new agreements, our deferred revenues related to extended warranties and post-contract support were $41.3 million at March 31, 2018. 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, which are practical expedients provided within the New Revenue Standard. Deferred revenue related to extended warranties and post-contract support with an original duration of more than one year was $28.8 million at March 31, 2018, of which approximately 20%, 28%, and 22% are expected to be recognized during the remainder of 2018, the full year 2019, and the full year 2020, 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 Neo, Animana, Pet Health Network Pro, Petly Plans, Web PACS, and rVetLink. 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 2 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 apply a practical expedient provided by the New Revenue Standard and do not disclose information about remaining performance obligations that are part of contracts with an original expected duration of one year or less.

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 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. We have determined these agreements do not include a significant financing component.

Upon adoption of the New Revenue Standard on January 1, 2018, our capitalized customer acquisition costs were $107.5 million, of which approximately $7.2 million was recognized as a reduction of revenue during the three months ended March 31, 2018. Furthermore, as a result of new up-front customer loyalty payments, our capitalized customer acquisition costs were $113.8 million at March 31, 2018. 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, 2018, were not material.

Volume Commitment Programs. Our volume commitment programs provide customers with a free 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 in advance of billing the customer at the time of installation and customer acceptance, 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 receivables 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.

Upon adoption of the New Revenue Standard on January 1, 2018, our volume commitment contract assets were $5.6 million, of which approximately $1.3 million was reclassified to accounts receivable when customers were billed for related products and services during the three months ended March 31, 2018. Furthermore, as a result of new placements under volume commitment programs, our contract assets were $12.3 million at March 31, 2018. 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, 2018, 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 $878.5 million, of which approximately 23%, 24%, and 19% are expected to be recognized during the remainder of 2018, the full year 2019, and the full year 2020, respectively. These future revenues relate to performance obligations not yet satisfied, for which customers have committed to 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.

Upon adoption of the New Revenue Standard on January 1, 2018, our deferred revenue related to instrument rebate programs was $65.9 million, of which approximately $4.6 million was recognized when customers purchased eligible products and services, and earned rebates during the three months ended March 31, 2018. Furthermore, as a result of new instrument purchases under rebate programs, our deferred revenues were $63.7 million at March 31, 2018, of which approximately 22%, 26% and 21% are expected to be recognized during the remainder of 2018, the full year 2019, and the full year 2020, 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 operating lease for the right to use our instrument and no instrument revenue is recognized at the time of instrument installation. We determine the amount of lease revenue allocated to the instrument based on relative standalone selling prices and determine the pattern of instrument revenue recognition in proportion to

the customer’s minimum purchase commitment. The cost of the instrument is capitalized within property and equipment, and is charged to cost of product revenue ratably over the term of the agreement.

We estimate future revenue to be recognized related to these multi-year agreements with customers of approximately $115.9 million, of which approximately 24%, 28%, and 22% are expected to be recognized during the remainder of 2018, the full year 2019, and the full year 2020, respectively. These represent future 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 both the most-likely-amount and expected-value approach, as applicable. Revenue adjustments that relate to performance obligations satisfied in prior periods during the three months ended March 31, 2018, 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.

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 and 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 maintain allowances for doubtful accounts 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. 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. Account balances are charged off against the allowance when we believe it is probable the receivable will not be recovered. We do not have any off-balance sheet credit exposure related to our customers. 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, 2018.

Disaggregated Revenues. We present disaggregated revenue for our CAG segment based on major product and service categories. Although Water and LPD do not meet the quantitative thresholds to be reported as separate segments, we believe it is important to disaggregate these revenues as major product and service categories within our Other reportable segment given their distinct markets, and therefore we have elected to report Water and LPD as reportable segments. The following table presents disaggregated revenue by major product and service categories for the period ending March 31, 2018 (in thousands):

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

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 operations. Deferred commission costs are periodically reviewed for impairment.

Upon adoption of the New Revenue Standard on January 1, 2018, our deferred commissions costs, included within other assets, were $11.8 million, and approximately $1.0 million of commissions expense was recognized during the three months ended March 31, 2018. Furthermore, as a result of commissions related to new extended warranties and SaaS subscriptions, our deferred commission costs were $12.4 million at March 31, 2018. Impairments of deferred commission costs during the three months ended March 31, 2018, were not material.

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. We had no acquisitions during the first quarter of 2018.

During the first quarter of 2017, we acquired a reference laboratory in Austria for approximately €1.3 million, with the majority of the acquisition price valued as an intangible asset. This acquisition was accounted for as an acquisition of a business and the results of operations of this reference laboratory have been included in our CAG segment since the acquisition date. Pro forma information has not been presented for this business acquisition because such information is not material to our financial statements.

The fair value of options, restricted stock units, deferred stock units and employee stock purchase rights awarded during the three months ended March 31, ~~2017,~~2018, totaled ~~$27.9~~$31.1 million as compared to ~~$24.0~~$27.9 million for the three months ended March 31, ~~2016.~~2017. The total unrecognized compensation expense, net of estimated forfeitures, for unvested share-based compensation awards outstanding at March 31, ~~2017,~~2018, was ~~$58.0~~$67.2 million, which will be recognized over a weighted average period of approximately 2.32.3 years. ~~years.~~During the three months ended March 31, 2018, we recognized expense of $5.9 million related to share-based compensation.

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 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						For the Three Months Ended
	March 31,						March 31,
		2017			2016			2018			2017

Share price at grant	$	141.60		$	67.85		$	178.26		$	141.60
Expected stock price volatility		26	%		25	%		24	%		26	%
Expected term, in years		5.8			5.7			5.8			5.8
Risk-free interest rate		2.0	%		1.2	%		2.7	%		2.0	%
Weighted average fair value of options granted	$	40.51		$	17.54		$	52.49		$	40.51

As a result of the passage of the 2017 Tax Act during the fourth quarter of 2017, we liquidated our marketable securities held outside the U.S. during the first quarter of 2018 and recognized a loss of approximately $0.3 million. We repatriated these funds and reduced our revolving debt balance during the first quarter of 2018.

The amortized cost and fair value of marketable securities as of December 31, 2017, were as follows (in thousands):


As of March 31, 2017		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
As of December 31, 2017										Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value

Corporate bonds	$	120,898	$	76	$	(81)	$	120,893	$	140,969	$	96	$	(179)	$	140,886
Certificates of deposit		43,198		-		-		43,198		58,510		-		-		58,510
Commercial paper										29,171		-		-		29,171
Asset backed securities		37,610		6		(16)		37,600		22,206		4		(43)		22,167
Commercial paper		17,013		-		-		17,013
U.S. government bonds		16,644		1		(15)		16,630		15,619		11		(19)		15,611
Agency bonds		4,600		-		(1)		4,599		10,990		9		(52)		10,947
Treasury bills										6,964		-		(1)		6,963
Total marketable securities	$	239,963	$	83	$	(113)	$	239,933	$	284,429	$	120	$	(294)	$	284,255

As of December 31, 2016		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value

Corporate bonds	$	130,833	$	40	$	(102)	$	130,771
Certificates of deposit		40,400		-		-		40,400
Asset backed securities		27,290		25		-		27,315
Commercial paper		20,228		-		-		20,228
U.S. government bonds		12,244		1		(14)		12,231
Agency bonds		4,600		4		-		4,604
Municipal bonds		1,400		-		-		1,400
Total marketable securities	$	236,995	$	70	$	(116)	$	236,949

~~As of March 31, 2017, unrealized losses on~~We held marketable securities ~~that have been in a continuous loss position for more than twelve months were not material. Our portfolio~~with effective maturities of ~~marketable securities~~two years or less that had an average AA- credit rating as of ~~March 31, 2017. There were no marketable securities that we consider to be other-than-temporarily impaired as of March~~December 31, 2017.

~~Remaining effective maturities of marketable securities were as follows (in thousands):~~

Our investment strategy is to buy short-duration marketable securities with a high credit rating. Some of our marketable securities have call features that can effectively shorten the lifespan from the contractual maturity date. We use the effective maturity date to measure the duration of the marketable securities.

Inventories, which are stated at the lower of cost (first-in, first-out) or ~~market, include material, conversion~~net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and ~~inbound freight charges.~~transportation. The components of inventories were as follows (in thousands):


	March 31,		December 31,		March 31,		December 31,
		2017		2016		2018		2017

Raw materials	$	28,232	$	27,561	$	34,958	$	32,994
Work-in-process		18,804		14,998		18,252		17,786
Finished goods		125,147		115,475		125,829		113,538
Inventories	$	172,183	$	158,034
Inventories (Note 2)					$	179,039	$	164,318


	March 31,		December 31,		March 31,		December 31,
		2017		2016		2018		2017

Prepaid expenses	$	25,330	$	25,746	$	28,720	$	28,967
Taxes receivable		20,217		27,672		26,207		35,475
Customer acquisition costs, net		19,364		18,085
Other assets		15,800		19,703
Customer acquisition costs (Notes 2 and 3)						30,354		23,520
Contract assets (Notes 2 and 3)						5,085		-
Deferred sales commissions (Notes 2 and 3)						4,369		-
Other assets (Notes 2 and 3)						8,839		13,178
Other current assets	$	80,711	$	91,206	$	103,574	$	101,140


	March 31,		December 31,		March 31,		December 31,
	2017		2016		2018		2017

Accrued expenses	$	55,545	$	71,984	$	65,835	$	64,430
Accrued employee compensation and related expenses		49,249		91,113		59,080		102,944
Accrued taxes		21,272		23,973		26,452		29,389
Accrued customer programs		48,697		49,061
Accrued liabilities	$	174,763	$	236,131
Accrued customer incentives and refund obligations (Notes 2 and 3)						59,017		56,655
Total accrued liabilities					$	210,384	$	253,418

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, ~~2017~~2018 and ~~2016~~2017 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 for the three months ended March 31, ~~2017~~2018 and ~~2016~~2017 (in thousands, except per share amounts):


	For the Three Months Ended				For the Three Months Ended
	March 31,				March 31,
	2017		2016		2018		2017

Shares repurchased in the open market		390		708		465		390
Shares acquired through employee surrender for statutory tax withholding		52		52		48		52
Total shares repurchased		442		760		513		442

Cost of shares repurchased in the open market	$	50,744	$	49,715	$	86,188	$	50,744
Cost of shares for employee surrenders		7,303		3,529		8,555		7,303
Total cost of shares	$	58,047	$	53,244	$	94,743	$	58,047

Average cost per share - open market repurchase	$	130.12	$	70.21	$	185.23	$	130.12
Average cost per share - employee surrenders	$	141.09	$	67.96	$	178.83	$	141.09
Average cost per share - total	$	131.41	$	70.06	$	184.63	$	131.41

Our effective income tax rate was ~~18.5 percent~~14.3% for the three months ended March 31, ~~2017,~~2018, as compared to ~~30.6 percent~~18.5% for the three months ended March 31, ~~2016.~~2017. The decrease in our effective tax rate ~~for~~was primarily related to the ~~three months ended March 31,~~reduction in our U.S. statutory rate as a result of the 2017 Tax Act, partially offset by lower tax benefits related to share-based compensation, as compared to the same period in the prior year.

As of December 31, 2017, we have accounted for the impacts of the ~~prior year, was primarily~~2017 Tax Act to the extent a reasonable estimate could be made and we recognized provisional amounts related to the ~~adoption~~deemed repatriation tax, offset by the remeasurement of ~~FASB~~our deferred tax assets and liabilities to record the effects of the tax law change in the period of enactment. This treatment is provided for in ASU 2018-05, which allows a company to record a provisional amount when it does not have the necessary information available, prepared, or analyzed in reasonable detail to complete its accounting for the change in the tax law during the measurement period. The measurement period ends when the company has obtained, prepared, and analyzed the information necessary to finalize its accounting, but cannot extend beyond one year. During the first quarter of 2018, the Internal Revenue Service issued ~~amendments~~additional guidance providing clarification on certain aspects of the deemed repatriation tax calculation. The additional guidance did not result in an adjustment to the provisional amounts recorded as of December 31, 2017. We will continue to monitor for new guidance related to share-based compensation discussed further in “Note 2. Accounting Policies”. The change in accounting guidance reduced our effective income tax rate for the three months ended March 31, 2017, by approximately 13 percentage points. provisional amounts recorded.

The changes in ~~accumulated other comprehensive income (“AOCI”),~~AOCI, net of tax, for the three months ended March 31, ~~2017~~2018 consisted of the following (in thousands):

For the Three Months Ended March 31, 2017

Unrealized Gain (Loss) on Investments, Net of Tax

Unrealized Gain (Loss) on Derivative Instruments, Net of Tax

Unrealized Gain (Loss) on Net Investment Hedge, Net of Tax

Cumulative Translation Adjustment

Total

Balance as of December 31, 2016

$
20

$
4,916

$
4,036

$
(52,025)

$
(43,053)

Other comprehensive (loss) income before reclassifications

(39)

(1,534)

(1,093)

8,014

5,348

Gains reclassified from accumulated other comprehensive income

-

(674)

-

-

(674)

Balance as of March 31, 2017

$
(19)

$
2,708

$
2,943

$
(44,011)

$
(38,379)


For the Three Months Ended March 31, 2018		Unrealized (Loss) Gain on Investments, Net of Tax		Unrealized (Loss) Gain on Derivative Instruments, Net of Tax		Unrealized (Loss) on Net Investment Hedge, Net of Tax		Cumulative Translation Adjustment		Total

Balance as of December 31, 2017	$	(22)	$	(5,219)	$	(4,311)	$	(26,918)	$	(36,470)
Other comprehensive income (loss) before reclassifications		118		(2,388)		(2,216)		5,165		679
Gains reclassified from accumulated other comprehensive income		-		1,585		-		-		1,585
Balance as of March 31, 2018	$	96	$	(6,022)	$	(6,527)	$	(21,753)	$	(34,206)

The following is a summary of reclassifications out of AOCI for the three months ended March 31, ~~2017~~2018 and ~~2016~~2017 (in thousands):


Details about AOCI Components	Affected Line Item in the Statement of Operations		Amounts Reclassified from AOCI For the Three Months Ended March 31,			Affected Line Item in the Statement of Operations		Amounts Reclassified from AOCI For the Three Months Ended March 31,
			2017		2016			2018		2017
Gains (losses) on derivative instruments classified as cash flow hedges included in net income:
(Losses) gains on derivative instruments classified as cash flow hedges included in net income:
Foreign currency exchange contracts	Cost of revenue	$	1,075	$	809	Cost of revenue	$	(1,835)	$	1,075
Interest rate swaps	Interest expense		-		(210)
	Total gains before tax		1,075		599	Tax (benefits) expense		(250)		401
	Tax expense		401		170	(Losses) gains, net of tax	$	(1,585)	$	674
	Gains, net of tax	$	674	$	429

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 and, prior to the adoption of new accounting guidance related to share-based compensation on January 1, 2017, the tax benefits resulting from share-based compensation tax deductions in excess of the related expense recognized for financial reporting purposes, would be used to purchase our common stock at the average market price during the period. For further discussion regarding the impact of the new accounting guidance related to share-based compensation, see Note 2 to the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q. 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 4 to the consolidated financial statements in our ~~2016~~2017 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 for the three months ended March 31, ~~2017~~2018 and ~~2016~~2017 (in thousands):


	For the Three Months Ended		For the Three Months Ended
	March 31,		March 31,
	2017	2016	2018	2017

Shares outstanding for basic earnings per share	88,117	89,924	87,331	88,117

Shares outstanding for diluted earnings per share:
Shares outstanding for basic earnings per share	88,117	89,924	87,331	88,117
Dilutive effect of share-based payment awards	1,877	914	1,613	1,877
	89,994	90,838	88,944	89,994

Certain options to acquire shares and restricted stock units 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 options and restricted stock units for the three months ended March 31, ~~2017~~2018 and ~~2016~~2017 (in thousands):


	For the Three Months Ended		For the Three Months Ended
	March 31,		March 31,
	2017	2016	2018	2017

Weighted average number of shares underlying anti-dilutive options	182	1,044	167	182

Weighted average number of shares underlying anti-dilutive restricted stock units	47	-	-	47

Significant commitments, contingencies and guarantees at March 31, ~~2017~~2018, are consistent with those discussed in Note 14 to the consolidated financial statements in our ~~2016~~2017 Annual Report.

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 (“CODM”), or decision-making group, in deciding how to allocate resources and in assessing performance. Our CODM is our Chief Executive Officer. Our reportable segments include 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 diagnostic products and services for livestock and poultry health and to ensure the quality and safety of milk and ~~food,~~improve dairy efficiency, which we refer to as Livestock, Poultry and Dairy (“LPD”). Our Other operating segment combines and presents products for the human point-of-care medical diagnostics market with our pharmaceutical product line and our out-licensing ~~arrangements because they do not meet the quantitative or qualitative thresholds for reportable segments.~~arrangements.

Certain costs are not allocated to our operating segments and are instead reported under the caption “Unallocated ~~Amounts”.~~Amounts.” These costs include costs that do not align with one of our existing operating segments or are cost prohibitive to allocate, which primarily consist of our R&D function, regional or country expenses, certain foreign currency revaluation gains and losses on monetary balances in currencies other than our subsidiaries’ functional currency and unusual items. Corporate support function costs (such as information technology, facilities, human resources, finance and legal), health benefits and incentive compensation are charged to our business segments at pre-determined budgeted amounts or rates. Differences from these pre-determined budgeted amounts or rates are captured within Unallocated Amounts.

The following is a summary of segment performance for the three months ended March 31, ~~2017~~2018 and ~~2016~~2017 (in thousands):


													For the Three Months Ended March 31,
	For the Three Months Ended March 31,													CAG	Water		LPD		Other		Unallocated Amounts		Consolidated Total
2018
Revenue													$	470,833	$	29,143	$	32,240	$	5,440	$	-	$	537,656

Income (loss) from operations													$	100,398	$	12,462	$	2,961	$	498	$	(3,275)	$	113,044
Interest expense, net																								(8,695)
Income before provision for income taxes																								104,349
Provision for income taxes																								14,873
Net income																								89,476
Less: Net income attributable to noncontrolling interest																								25
Net income attributable to IDEXX Laboratories, Inc. stockholders																							$	89,451
		CAG	Water		LPD		Other		Unallocated Amounts		Consolidated Total
2017
Revenue	$	403,227	$	25,077	$	29,317	$	4,400	$	-	$	462,021	$	403,227	$	25,077	$	29,317	$	4,400	$	-	$	462,021

Income (loss) from operations	$	79,855	$	10,263	$	3,802	$	393	$	(2,070)	$	92,243	$	79,855	$	10,263	$	3,802	$	393	$	(2,070)	$	92,243
Interest expense, net												(7,506)												(7,506)
Income before provision for income taxes												84,737												84,737
Provision for income taxes												15,679												15,679
Net income												69,058												69,058
Less: Net income attributable to noncontrolling interest												39												39
Net income attributable to IDEXX Laboratories, Inc. stockholders											$	69,019											$	69,019

2016
Revenue	$	357,639	$	23,552	$	30,856	$	5,503	$	-	$	417,550

Income (loss) from operations	$	61,378	$	9,679	$	4,570	$	(837)	$	(997)	$	73,793
Interest expense, net												(7,484)
Income before provision for income taxes												66,309
Provision for income taxes												20,284
Net income												46,025
Less: Net income attributable to noncontrolling interest												6
Net income attributable to IDEXX Laboratories, Inc. stockholders											$	46,019

~~The following is~~See “Note 3. Revenue Recognition” for a summary of disaggregated revenue by reportable segment and by major product and service category for the three months ended March 31, ~~2017~~2018 and ~~2016 (~~2017.~~in thousands~~):

U.S. GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. U.S. GAAP requires an entity to maximize the use of observable inputs, where available, and minimize the use of unobservable inputs when measuring fair value.

~~The Company has~~We have certain financial assets and liabilities that are measured at fair value on a recurring basis, certain nonfinancial assets and liabilities that may be measured at fair value on a nonrecurring basis and certain financial assets and liabilities that are not measured at fair value in our unaudited condensed consolidated balance sheets but for which we disclose the fair value. The fair value disclosures of these assets and liabilities are based on a three-level hierarchy, which is defined as follows:

Assets and liabilities measured at fair value are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability. We did not have any transfers between Level 1 and Level 2 or transfers in or out of Level 3 of the fair value hierarchy during the three months ended March 31, ~~2017.~~2018.

Our marketable debt securities are initially valued at the transaction price and are subsequently remeasured to fair value as of the balance sheet date utilizing third-party pricing services. The pricing services utilize industry standard valuation models, including both income and market-based approaches and observable market inputs to determine value. Observable market inputs include reportable trades, benchmark yields, credit spreads, broker/dealer quotes, bids, offers and other industry and economic events. We validate the prices provided by our third-party pricing services by obtaining independent market values from other pricing sources and analyzing pricing data in certain instances.

Our foreign currency exchange contracts ~~and interest rate swap agreements~~ are measured at fair value on a recurring basis in our accompanying unaudited condensed consolidated balance sheets. We measure the fair value of our foreign currency exchange contracts classified as derivative instruments using an income approach, based on prevailing market forward rates less the contract rate multiplied by the notional amount. The product of this calculation is then adjusted for counterparty risk.

We measure the fair value of our interest rate swaps classified as derivative instruments using an income approach, utilizing a discounted cash flow analysis based on the terms of the contract and the interest rate curve adjusted for counterparty risk. As of March 31, 2017, and December 31, 2016, we had no outstanding interest rate swap agreements.

The amounts outstanding under our unsecured revolving credit facility (“Credit Facility” or “line of credit”) and senior notes (“long-term debt”) are measured at carrying value in our unaudited condensed consolidated balance sheets though we disclose the fair value of these financial instruments. We determine the fair value of the amount outstanding under our Credit Facility and long-term debt using an income approach, utilizing a discounted cash flow analysis based on current market interest rates for debt issues with similar remaining years to maturity, adjusted for applicable credit risk. Our Credit Facility and long-term debt are valued using Level 2 inputs. The estimated fair value of our Credit Facility approximates its carrying value. The estimated fair value and carrying value of our long-term debt were ~~$611.0~~$619.8 million and ~~$595.4~~$609.5 million, respectively, as of March 31, ~~2017,~~2018, and ~~$609.5~~$632.0 million and ~~$593.7~~$606.6 million, respectively, as of December 31, ~~2016.~~2017.

The following tables set forth our assets and liabilities that were measured at fair value on a recurring basis at March 31, ~~2017~~2018, and at December 31, ~~2016~~2017, by level within the fair value hierarchy (in thousands):

Quoted Prices

Significant

in Active

Other

Significant

Markets for

Observable

Unobservable

Identical Assets

Inputs

Inputs

Balance at

As of March 31, 2017

(Level 1)

(Level 2)

(Level 3)

March 31, 2017

Assets

Money market funds(1)

$
26,523

$
-

$
-

$
26,523

Certificates of deposit(1)

-

2,001

-

2,001

Commercial paper(1)

-

2,998

-

2,998

Marketable Securities

Corporate bonds

-

120,893

-

120,893

Certificates of deposit

-

43,198

-

43,198

Asset backed securities

-

37,600

-

37,600

Commercial paper

-

17,013

-

17,013

U.S. government bonds

-

16,630

-

16,630

Agency bonds

-

4,599

-

4,599

Total marketable securities

-

239,933

-

239,933

Equity mutual funds(2)

2,196

-

-

2,196

Foreign currency exchange contracts(3)

-

5,445

-

5,445

Liabilities

Foreign currency exchange contracts(3)

-

1,344

-

1,344

Deferred compensation(4)

2,196

-

-

2,196


		Quoted Prices		Significant
		in Active		Other		Significant
		Markets for		Observable		Unobservable
		Identical Assets		Inputs		Inputs		Balance at
As of March 31, 2018		(Level 1)		(Level 2)		(Level 3)		March 31, 2018

Assets
Money market funds(1)	$	13,246	$	-	$	-	$	13,246
Equity mutual funds(2)	$	2,069	$	-	$	-	$	2,069
Foreign currency exchange contracts(3)	$	-	$	892	$	-	$	892
Liabilities
Foreign currency exchange contracts(3)	$	-	$	7,741	$	-	$	7,741
Deferred compensation(4)	$	2,069	$	-	$	-	$	2,069


		Quoted Prices		Significant	��					Quoted Prices		Significant
		in Active		Other		Significant				in Active		Other		Significant
		Markets for		Observable		Unobservable				Markets for		Observable		Unobservable
		Identical Assets		Inputs		Inputs		Balance at		Identical Assets		Inputs		Inputs		Balance at
As of December 31, 2016		(Level 1)		(Level 2)		(Level 3)		December 31, 2016
As of December 31, 2017										(Level 1)		(Level 2)		(Level 3)		December 31, 2017

Assets
Money market funds(1)	$	34,208	$	-	$	-	$	34,208	$	32,962	$	-	$	-	$	32,962
Certificates of deposit(1)		-		1,500		-		1,500	$	-	$	1,250	$	-	$	1,250
Commercial paper(1)		-		898		-		898

Marketable Securities
Corporate bonds		-		130,771		-		130,771	$	-	$	140,886	$	-	$	140,886
Certificates of deposit		-		40,400		-		40,400		-		58,510		-		58,510
Commercial paper										-		29,171		-		29,171
Asset backed securities		-		27,315		-		27,315		-		22,167		-		22,167
Commercial paper		-		20,228		-		20,228
U.S. government bonds		-		12,231		-		12,231		-		15,611		-		15,611
Agency bonds		-		4,604		-		4,604		-		10,947		-		10,947
Municipal bonds		-		1,400		-		1,400
Treasury bills										-		6,963		-		6,963
Total marketable securities		-		236,949		-		236,949	$	-	$	284,255	$	-	$	284,255

Equity mutual funds(2)		2,182		-		-		2,182	$	2,162	$	-	$	-	$	2,162
Foreign currency exchange contracts(3)		-		8,926		-		8,926	$	-	$	477	$	-	$	477
Liabilities
Foreign currency exchange contracts(3)		-		1,081		-		1,081	$	-	$	6,468	$	-	$	6,468
Deferred compensation(4)		2,182		-		-		2,182	$	2,162	$	-	$	-	$	2,162

The estimated fair value of certain financial instruments, including cash and cash equivalents, accounts receivable and accounts payable, approximate carrying value due to their short maturity.

Disclosure within this note is presented to provide transparency about how and why we use derivative and non-derivative instruments (collectively “hedging instruments”), how the instruments and related hedged items are accounted for, and how the instruments and related hedged items affect our financial position, results of operations and cash flows.

We are exposed to certain risks related to our ongoing business operations. The primary risks that we manage by using hedging instruments are foreign currency exchange risk and interest rate risk. 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 other foreign currency exchange contracts or foreign-denominated debt issuances to minimize the impact of foreign currency fluctuations associated with specific balance sheet exposures, including net investments in certain foreign subsidiaries. We may also enter into interest rate swaps to minimize the impact of interest rate fluctuations associated with borrowings under our variable-rate Credit Facility.

The primary purpose of our foreign currency hedging activities is to protect against the volatility associated with foreign currency transactions, including transactions denominated in the euro, British pound, Japanese yen, Canadian dollar, Australian dollar and Swiss franc. 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 well-capitalized multinational financial institutions, and we do not hold or engage in transactions involving ~~hedging~~derivative instruments for purposes other than risk management. Our accounting policies for these contracts are based on the designation of such instruments as hedging transactions.

We recognize all hedging instruments on the balance sheet at fair value at the balance sheet date. Instruments that do not qualify for hedge accounting treatment must be recorded at fair value through earnings. To qualify for hedge accounting treatment, cash flow and net investment hedges must be highly effective in offsetting changes to expected future cash flows or fair value on hedged transactions. If the instrument qualifies for hedge accounting, changes in the fair value of the hedging instrument from the effective portion of the hedge are deferred in AOCI, net of tax, and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. We immediately record in earnings the extent to which a hedging instrument is not effective in achieving offsetting changes in fair value. We de-designate hedging instruments from hedge accounting when the likelihood of the hedged transaction occurring becomes less than probable. For de-designated instruments, the gain or loss from the time of de-designation through maturity of the instrument is recognized in earnings. Any gain or loss in AOCI at the time of de-designation is reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. See ~~Note 11 to the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q~~“Note 12. Accumulated Other Comprehensive Income” for further information regarding the effect of hedging instruments on ~~the~~our unaudited condensed consolidated statements of operations for the three months ended March 31, ~~2017~~2018 and ~~2016.~~2017.

We enter into master netting arrangements with the counterparties to our derivative transactions which permit certain outstanding receivables and payables to be offset in the event of default. Our derivative contracts do not require either party to post cash collateral. We elect to present our derivative assets and liabilities in the unaudited condensed consolidated balance sheets on a gross basis. All cash flows related to our foreign currency exchange contracts ~~and interest rate swaps~~ are classified as operating cash flows, which is consistent with the cash flow treatment of the underlying items being hedged.

We have designated our foreign currency exchange contracts ~~and variable-to-fixed interest rate swaps~~ as cash flow hedges as these derivative instruments mitigate the exposure to variability in the cash flows of forecasted transactions attributable to foreign currency ~~exchange and interest rates.~~exchange. Unless noted otherwise, we have also designated our derivative instruments as qualifying for hedge accounting treatment.

We did not de-designate any instruments from hedge accounting treatment during the three months ended March 31, ~~2017~~2018 or ~~2016.~~2017. Gains or losses related to hedge ineffectiveness ~~recognized in earnings~~ during the three months ended March 31, ~~2017~~2018 and ~~2016~~2017 were not material. At March 31, ~~2017,~~2018, the estimated amount of net ~~gains,~~losses, net of income tax ~~expense,~~benefit, which are expected to be reclassified out of AOCI and into earnings within the next 12 months, is ~~$2.5~~$5.8 million if exchange rates do not fluctuate from the levels at March 31, ~~2017.~~

We hedge approximately ~~85 percent~~85% of the estimated exposure from intercompany product purchases and sales denominated in the euro, British pound, Canadian dollar, Japanese yen, Australian dollar and Swiss franc. We have additional unhedged foreign currency exposures related to foreign services and emerging markets where it is not practical to hedge. We primarily utilize foreign currency exchange contracts with durations of less than 24 months. Quarterly, we enter into contracts to hedge incremental portions of anticipated foreign currency transactions for the current and following year. As a result, our risk with respect to foreign

currency exchange rate fluctuations and the notional value of foreign currency exchange contracts may vary throughout the year. The U.S. dollar is the currency purchased or sold in all of our foreign currency exchange contracts. The notional amount of foreign currency exchange contracts to hedge forecasted intercompany inventory purchases and sales totaled ~~$203.5~~$210.4 million and ~~$175.9~~$176.5 million at March 31, ~~2017~~2018 and December 31, ~~2016,~~2017, respectively.

We previously entered into forward fixed interest rate swap agreements to manage the economic effect of variable interest obligations on amounts borrowed under the terms of our Credit Facility. Beginning on March 30, 2012, the variable interest rate associated with $40 million of borrowings outstanding under the Credit Facility was effectively fixed at 1.36 percent plus the range of applicable interest rate fixed credit spreads (“Credit Spread”) through June 30, 2016. Beginning on March 28, 2013, the variable interest rate associated with an additional $40 million of borrowings outstanding under the Credit Facility was effectively fixed at 1.64 percent plus the Credit Spread through June 30, 2016. From July 1, 2016, to March 31, 2017, we had no outstanding interest rate swap agreements.

In June 2015, we issued and sold through a private placement an aggregate principal amount of €88.9 million in euro-denominated ~~1.785 percent~~1.785% Series C Senior Notes due June 18, 2025. We have designated these euro-denominated notes as a hedge of our euro net investment in certain foreign subsidiaries to reduce the volatility in stockholders’ equity caused by changes in foreign currency exchange rates in the euro relative to the U.S. dollar. As a result of this designation, gains and losses from the change in translated U.S. dollar value of these euro-denominated notes are recorded in AOCI rather than to earnings. We recorded ~~a $1.1~~losses of $2.2 million, ~~loss,~~ net of income tax, within AOCI as a result of this net investment hedge for the three months ended March 31, ~~2017.~~2018. The related cumulative unrealized ~~gain~~loss recorded at March 31, ~~2017~~2018 will not be reclassified in earnings until the complete or substantially complete liquidation of the net investment in the hedged foreign operations or a portion of the hedge no longer qualifies for hedge accounting treatment. See Note 11 to the consolidated financial statements included in our ~~2016~~2017 Annual Report for further information regarding the issuance of these euro-denominated notes.

Fair Values of Hedging Instruments Designated as Hedges in Consolidated Balance Sheets

The fair values of hedging instruments and their respective classification on ~~the~~our unaudited condensed consolidated balance sheets and amounts subject to offset under master netting arrangements consisted of the following (in thousands):


			Hedging Assets						Hedging Assets
				March 31,		December 31,				March 31,		December 31,
				2017		2016				2018		2017

Derivatives designated as hedging instruments		Balance Sheet Classification						Balance Sheet Classification
Foreign currency exchange contracts		Other current assets	$	4,937	$	8,926		Other current assets	$	452	$	477
Foreign currency exchange contracts		Other long-term assets		508		-		Other long-term assets		440		-
Total derivative instruments presented as cash flow hedges on the balance sheet	Total derivative instruments presented as cash flow hedges on the balance sheet			5,445		8,926	Total derivative instruments presented as cash flow hedges on the balance sheet			892		477
Gross amounts subject to master netting arrangements not offset on the balance sheet	Gross amounts subject to master netting arrangements not offset on the balance sheet			1,082		679	Gross amounts subject to master netting arrangements not offset on the balance sheet			815		477
Net amount			$	4,363	$	8,247			$	77	$	-


			Hedging Liabilities						Hedging Liabilities
				March 31,		December 31,				March 31,		December 31,
				2017		2016				2018		2017

Derivatives designated as hedging instruments		Balance Sheet Classification						Balance Sheet Classification
Foreign currency exchange contracts		Accrued liabilities	$	1,174	$	1,081		Accrued liabilities	$	7,249	$	6,468
Foreign currency exchange contracts		Other long-term liabilities		170		-		Other long-term liabilities		492		-
Total derivative instruments presented as cash flow hedges on the balance sheet	Total derivative instruments presented as cash flow hedges on the balance sheet			1,344		1,081	Total derivative instruments presented as cash flow hedges on the balance sheet			7,741		6,468
Foreign currency borrowings designated as net investment hedge on the balance sheet		Long-term debt		95,406		93,664		Long-term debt		109,481		106,567
Total hedging instruments presented on the balance sheet	Total hedging instruments presented on the balance sheet			96,750		94,745	Total hedging instruments presented on the balance sheet			117,222		113,035
Gross amounts subject to master netting arrangements not offset on the balance sheet	Gross amounts subject to master netting arrangements not offset on the balance sheet			1,082		679	Gross amounts subject to master netting arrangements not offset on the balance sheet			815		477
Net amount			$	95,668	$	94,066			$	116,407	$	112,558

~~The effect of~~See “Note 12. Accumulated Other Comprehensive Income” for gains and losses recognized in AOCI on derivative instruments ~~designated as cash flow hedges on~~for the ~~condensed consolidated balance sheets consisted of the following~~ ~~(in thousands)~~:

Item 2.Management’s ~~Discussion~~Discussion and Analysis of Financial Condition and Results of Operations.

This Quarterly Report on Form 10-Q 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 (the “Exchange Act”), include statements relating to future revenue growth rates, future tax benefits; business trends, earnings and other measures of financial performance; the effect of economic downturns on our business performance; projected impact of foreign currency exchange rates; 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; the adoption and projected impact of new accounting standards; future commercial efforts; 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,” “project,” 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, including the matters discussed in Item 1A, “Risk Factors” described in our 2017 Annual Report ~~on Form 10-K for the year ended December 31, 2016, (the “2016 Annual Report”)~~ and this Quarterly Report on Form 10-Q, as well as those described from time to time in our other periodic reports filed with the ~~U.S. Securities and Exchange Commission (the “SEC”).~~SEC.

Any forward-looking statements represent our estimates only as of the day this Quarterly Report on Form 10-Q was filed with the 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.

You should read the following discussion and analysis in conjunction with our ~~2016~~2017 Annual Report that includes additional information about us, our results of operations, our financial position, and our cash flows, and with our unaudited condensed consolidated financial statements and related notes included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

We develop, manufacture, and distribute products and provide services primarily for the companion animal veterinary, livestock, poultry and dairy and water testing 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:

Operating Segments. We operate 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 diagnostic products and services for livestock and poultry health and to ensure the quality and safety of milk and ~~food,~~improve dairy reproductive efficiency, which we refer to as Livestock, Poultry and Dairy (“LPD”). Our Other operating segment combines and presents products for the human point-of-care medical diagnostics market (“OPTI Medical”) with our pharmaceutical product line and our out-licensing arrangements because they do not meet the quantitative or qualitative thresholds for reportable segments.

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~~software and performs services that are used to manage the health status of livestock and poultry, to improve bovine reproductive efficiency, and to ensure the quality and safety of milk and food. OPTI

Medical manufactures and distributes point-of-care electrolyte and blood gas analyzers and related consumable products for the human medical diagnostics market.

Currency ~~Impact~~Impact.. See “Part I. Item 3. Quantitative and Qualitative ~~Disclosure~~Disclosures about Market Risk” included in this Quarterly Report on Form 10-Q for additional information regarding the impact of foreign currency exchange rates.

Other Items. See “Part I. Item 1. Business - Patents and Licenses” and “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our ~~2016~~2017 Annual Report for additional information regarding distributor purchasing and inventories, economic conditions and patent expiration.

The discussion and analysis of our financial condition and results of operations is based upon our unaudited condensed consolidated financial statements, which have been prepared in accordance with 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. We evaluate our estimates on an ongoing basis. 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. ~~The~~Excluding the adoption of the New Revenue Standard, the critical accounting policies and the significant judgments and estimates used in the preparation of our unaudited condensed consolidated financial statements for the three months ended March 31, ~~2017,~~2018, are consistent with those discussed in our ~~2016~~2017 Annual Report in the section under the heading “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of ~~Operations—~~Operations - Critical Accounting Policies and Estimates.”

Revenue Recognition. We adopted the New Revenue Standard in the first quarter of 2018 on a modified-retrospective basis. While the New Revenue Standard will not impact the overall economics of our products and services sold under customer marketing and incentive programs, it has changed the timing of revenue recognition. For more information regarding the adoption of the New Revenue Standard and new revenue recognition accounting policies, see Note 2 and Note 3, respectively, to the unaudited condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.

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 predict the number of customers who will participate and earn the incentives. In determining estimated revenue reductions, we utilize data collected directly from end-users. Differences between estimated and actual customer participation in programs may impact the amount and timing of revenue recognition. At March 31, 2018, a 5% change in total transaction price resulting from variable consideration would have increased or reduced revenue by approximately $0.5 million.

~~Share-Based Compensation.~~We ~~estimate~~are evaluating the impact that ~~tax benefits related to share-based payments~~other recent accounting standards and amendments will ~~add approximately $0.22 to $0.26~~have on our consolidated financial statements as described in diluted earnings per share for the full year 2017, primarily through a reduction in our effective income tax rate, partially offset by an increase in diluted shares outstanding resulting from this accounting change. These impacts may vary significantly by quarter based on the timing of actual settlement activity. We do not estimate that the level of share-based payment activity expected in 2017 will continue in future periods. We believe that the historical range of $0.12 to $0.16 per share of annual tax benefits reflects a reasonable estimate for 2018 and beyond, based on current settlement trends and stock price levels.For more information regarding the adoption of the new share-based guidance, ASU 2016-09, see Note 2 to the ~~Unaudited Condensed Consolidated Financial Statements~~unaudited condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.

~~Other Pronouncements.~~ We are evaluating the impact that several recent accounting amendments related to revenue recognition and leases will have on our consolidated financial statements. Other recently issued accounting pronouncements did not have and are not expected to have a significant effect on our financial condition and results of operations.

The following revenue analysis and discussion focuses on organic revenue growth, and references in this analysis and discussion to “revenue,” “revenues” or “revenue growth” are references to “organic revenue growth.” Organic revenue growth is a non-GAAP financial measure and represents the percentage change in revenue during the three months ended March 31, ~~2017,~~2018, as compared to the same period for the prior year, net of the effect of changes in foreign currency exchange rates, 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. Management believes that reporting organic revenue growth provides useful information to investors by facilitating easier comparisons of our revenue performance with prior and future periods and to the performance of our peers.

We exclude from organic revenue growth 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 exclude the effect of acquisitions and divestitures because the nature, size and number of these transactions can vary dramatically from period to period, require or generate cash as an inherent consequence of the transaction, and therefore can also obscure underlying business and operating trends.

~~Organic revenue growth and the percentage changes in revenue from foreign currency exchange rates and acquisitions are non-GAAP financial measures. We~~ calculate the impact on revenue resulting from changes in foreign currency exchange rates by applying the difference between the weighted average exchange rates during the current year period and the comparable ~~previous~~prior year period to foreign currency denominated revenues for the prior year period. ~~The percentage change in~~

We also exclude from organic revenue ~~resulting~~growth the effect of certain business acquisitions and divestitures because the nature, size and number of these transactions can vary dramatically from ~~acquisitions represents incremental revenues attributable~~period to period, and because they either require or generate cash as an inherent consequence of the transaction, and therefore can also obscure underlying business and operating trends. Effective January 1, 2018, we exclude only acquisitions that ~~have occurred since~~are considered to be a business from organic revenue growth. We consider acquisitions to be a business when all three elements of inputs, processes and outputs are present, consistent with ASU 2017-01, “Business Combinations: (Topic 805) Clarifying the ~~beginning~~Definition of a Business”. In a business combination, if substantially all the fair value of the assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets, we do not consider these assets to be a business and effective January 1, 2018, we include these acquisitions in organic revenue growth. A typical acquisition that we do not consider a business is a customer list asset acquisition, which does not have all elements necessary to operate a business, such as employees or infrastructure. We believe the efforts required to convert and retain these acquired customers are similar in nature to our existing customer base and therefore are included in organic revenue growth. This change did not have a material impact on organic revenue growth during the three months ended March 31, 2018. Prior to January 1, 2018, we excluded all acquisitions from organic revenue growth. This change would not have impacted previously reported organic revenue growth for the three months ended March 31, 2018, as all acquisitions were business acquisitions.

We also use Adjusted EBITDA, gross debt, net debt, gross debt to Adjusted EBITDA ratio and net debt to Adjusted EBITDA ratio, in this Quarterly Report on Form 10-Q, all of which are non-GAAP financial measures that should be considered in addition to, and not as a replacement for, financial measures presented according to U.S. GAAP. Management believes that reporting these non-GAAP financial measures provides supplemental analysis to help investors further evaluate our business performance and available borrowing capacity under our Credit Facility.

Comparison to Prior Periods. Our fiscal quarter ended on March 31. Unless otherwise stated, the analysis and discussion of our financial condition, results of operations and liquidity, including references to growth and organic growth and increases and decreases, are being compared to the equivalent prior year period.

Three Months Ended March 31, 2018, Compared to Three Months Ended March 31, 2017

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



	For the Three		For the Three					Percentage	Percentage	Organic	For the Three		For the Three
Net Revenue	Months Ended		Months Ended		Dollar		Percentage	Change from	Change from	Revenue	Months Ended		Months Ended					Percentage	Percentage	Organic
											March 31,		March 31,		Dollar		Percentage	Change from	Change from	Revenue
(dollars in thousands)	March 31, 2017		March 31, 2016		Change		Change	Currency	Acquisitions	Growth	2018		2017		Change		Change	Currency	Acquisitions	Growth (1)

CAG	$	403,227	$	357,639	$	45,588	12.7%	(0.8%)	0.1%	13.4%	$	470,833	$	403,227	$	67,606	16.8%	3.6%	0.1%	13.1%
United States		270,488		241,810		28,678	11.9%	-	0.1%	11.8%		308,286		270,488		37,798	14.0%	-	0.1%	13.9%
International		132,739		115,829		16,910	14.6%	(2.5%)	0.4%	16.7%		162,547		132,739		29,808	22.5%	10.9%	-	11.5%

Water		25,077		23,552		1,525	6.5%	(0.8%)	-	7.3%		29,143		25,077		4,066	16.2%	4.4%	-	11.8%
United States		13,019		12,323		696	5.6%	-	-	5.6%		13,921		13,019		902	6.9%	-	-	6.9%
International		12,058		11,229		829	7.4%	(1.8%)	-	9.2%		15,222		12,058		3,164	26.2%	9.5%	-	16.8%

LPD		29,317		30,856		(1,539)	(5.0%)	(0.4%)	-	(4.6%)		32,240		29,317		2,923	10.0%	8.0%	-	2.0%
United States		3,484		3,169		315	9.9%	-	-	9.9%		3,313		3,484		(171)	(4.9%)	-	-	(4.9%)
International		25,833		27,687		(1,854)	(6.7%)	(0.4%)	-	(6.3%)		28,927		25,833		3,094	12.0%	9.2%	-	2.8%

Other		4,400		5,503		(1,103)	(20.0%)	(0.1%)	-	(19.9%)		5,440		4,400		1,040	23.6%	1.3%	-	22.3%

Total Company	$	462,021	$	417,550	$	44,471	10.7%	(0.7%)	0.2%	11.2%	$	537,656	$	462,021	$	75,635	16.4%	4.0%	0.1%	12.3%
United States		288,613		258,939		29,674	11.5%	-	0.1%	11.4%		327,461		288,613		38,848	13.5%	-	0.1%	13.4%
International		173,408		158,611		14,797	9.3%	(2.0%)	0.3%	11.0%		210,195		173,408		36,787	21.2%	10.4%	-	10.8%

Total Company Revenue. The increase in both U.S. and international organic revenues ~~for the three months ended March 31, 2017, as compared to the same period in the prior year,~~ was driven by strong volume gains in CAG Diagnostics recurring revenue, supported by our differentiated diagnostic technologies that are driving increased volumes from new and existing customers in our reference laboratory business and ~~strong growth in~~the continued expansion of our CAG Diagnostics ~~capital~~ instrument ~~placements, including our Sedivue analyzer, which increased overall revenue by approximately 2 percent.~~installed base. International organic growth was strong in Europe and Asia Pacific, reflecting the aforementioned CAG Diagnostics recurring volume driven ~~growth, and growth in our~~growth. Our Water business ~~primarily due~~also contributed to our international growth, primarily from higher sales volumes of our Colilert ® test products ~~offset by declines in LPD, primarily from lower herd health screening~~and related accessories. Total company revenue included approximately $12 million in the ~~Asia-Pacific region.~~ first quarter that was attributed to the New Revenue Standard.




		For the Three Months Ended March 31,					Increase (Decrease)				For the Three Months Ended March 31,					Change
Results of Operations			Percent of			Percent of
Total Company - Results of Operations												Percent of			Percent of
(dollars in thousands)	2017		Revenue		2016	Revenue	Amount		Percentage	2018		Revenue		2017	Revenue	Amount		Percentage

Revenues	$	462,021		$	417,550		$	44,471	10.7%	$	537,656		$	462,021		$	75,635	16.4%
Cost of revenue		203,830			190,013			13,817	7.3%		234,557			203,830			30,727	15.1%
Gross profit		258,191	55.9%		227,537	54.5%		30,654	13.5%		303,099	56.4%		258,191	55.9%		44,908	17.4%

Operating Expenses:
Sales and marketing		87,244	18.9%		79,829	19.1%		7,415	9.3%		100,101	18.6%		87,244	18.9%		12,857	14.7%
General and administrative		52,914	11.5%		49,295	11.8%		3,619	7.3%		60,931	11.3%		52,914	11.5%		8,017	15.2%
Research and development		25,790	5.6%		24,620	5.9%		1,170	4.8%		29,023	5.4%		25,790	5.6%		3,233	12.5%
Total operating expenses		165,948	35.9%		153,744	36.8%		12,204	7.9%		190,055	35.3%		165,948	35.9%		24,107	14.5%
Income from operations	$	92,243	20.0%	$	73,793	17.7%	$	18,450	25.0%	$	113,044	21.0%	$	92,243	20.0%	$	20,801	22.6%

~~Total Company gross~~Gross Profit. Gross profit increased ~~during the three months ended March 31, 2017, as compared to the same period in the prior year,~~ due to higher ~~sale~~sales volumes and a ~~140-basis~~50 basis point increase in the gross profit percentage. The increase in the gross profit percentage was ~~due primarily to~~supported by the net benefit of price increases ~~and~~in our CAG Diagnostics recurring revenue portfolio, the favorable impact of ~~volume leverage on IDEXX VetLab products cost.~~lower product and manufacturing costs, and favorable mix benefits from high growth in CAG Diagnostic recurring revenues. The ~~gross profit percentage was unfavorably impacted by approximately 10-basis points~~impact from foreign currency movements including the impact of ~~currency impact during~~hedge gains in the ~~three months ended March 31, 2017, as~~prior period compared to hedge losses in the ~~same~~current period, ofdid not have a material impact. Gross profit included approximately $5.7 million in the ~~prior year.~~first quarter attributable to the New Revenue Standard.

Operating Expense. The increase in total Company sales and marketing expense ~~during the three months ended March 31, 2017, as compared to the same period in the prior year,~~ was due primarily to increased personnel-related costs as we continue to invest in and grow our global commercial infrastructure. The increase in general and administrative expense resulted primarily from information technology investments, including ongoing depreciation and maintenance associated with prior year projects, and higher personnel-related ~~costs.~~costs, partially offset by certain information technology costs that are now captured within cost of revenue. Research and development expense increased primarily due to higher personnel-related ~~and consultant~~ costs. The overall change in currency exchange rates resulted in an increase in operating expenses of approximately 4%.


								Percentage	Percentage									Percentage	Percentage
Net Revenue	For the Three		For the Three					Change	Change	Organic	For the Three		For the Three					Change	Change	Organic
	Months Ended		Months Ended		Dollar		Percentage	from	from	Revenue	Months Ended		Months Ended		Dollar		Percentage	from	from	Revenue
(dollars in thousands)	March 31, 2017		March 31, 2016		Change		Change	Currency	Acquisitions	Growth	March 31, 2018		March 31, 2017		Change		Change	Currency	Acquisitions	Growth (1)

CAG Diagnostics
recurring revenue:	$	346,680	$	305,841	$	40,839	13.4%	(0.8%)	0.2%	14.0%

CAG Diagnostics recurring revenue:											$	406,048	$	346,680	$	59,368	17.1%	3.7%	-	13.4%
IDEXX VetLab consumables		123,553		107,969		15,584	14.4%	(0.9%)	-	15.3%		149,513		123,553		25,960	21.0%	4.3%	-	16.7%
Rapid assay products		47,895		43,086		4,809	11.2%	(0.2%)	-	11.4%		52,017		47,895		4,122	8.6%	1.9%	-	6.7%
Reference laboratory diagnostic and
consulting services		159,069		140,708		18,361	13.0%	(0.9%)	0.4%	13.5%
Reference laboratory diagnostic and consulting services												186,937		159,069		27,868	17.5%	3.8%	-	13.7%
CAG diagnostics services and accessories		16,163		14,078		2,085	14.8%	(1.0%)	-	15.8%		17,581		16,163		1,418	8.8%	4.1%	-	4.6%
CAG Diagnostics capital - instruments		26,183		22,643		3,540	15.6%	(1.8%)	-	17.4%		30,895		26,183		4,712	18.0%	6.1%	-	11.9%
Veterinary software, services and diagnostic
imaging systems		30,364		29,155		1,209	4.1%	0.1%	-	4.0%
Veterinary software, services and diagnostic imaging systems												33,890		30,364		3,526	11.6%	0.7%	1.0%	9.9%
Net CAG revenue	$	403,227	$	357,639	$	45,588	12.7%	(0.8%)	0.1%	13.4%	$	470,833	$	403,227	$	67,606	16.8%	3.6%	0.1%	13.1%

CAG ~~Diagnostic~~Diagnostics Recurring ~~Revenue.~~ Revenue. The increase in CAG Diagnostics recurring revenue was due primarily to increased volumes in reference laboratory diagnostic services and IDEXX VetLab consumables and, to a lesser extent, higher realized prices. CAG Diagnostic recurring revenue included approximately $4.3 million in the first quarter that was attributed to the New Revenue Standard.

IDEXX VetLab consumables revenue growth was primarily due to higher sales volumes in the U.S., Europe, and the Asia-Pacific region for our Catalyst consumables, and to a lesser extent ~~ProCyte~~Procyte Dx® consumables and Sedivue Dx® analyzer pay-per-run sales, ~~resulting from~~supported by growth in testing by new and existing customers and anour expanded menu of available tests, as well as benefits from higher average unit sales prices. VetLab consumables revenue included approximately $2.7 million in the first quarter that was attributed to the New Revenue Standard.

~~IDEXX VetLabservice and accessories revenue growth was primarily a result of the increase in our active installed base of instruments.~~

The increase in rapid assay revenue resulted from higher sales ~~volume~~volumes and average unit ~~price~~prices of canine SNAP® 4Dx Plus ~~Tests~~tests and higher sales volumes of single analyte SNAP products and SNAP feline combination products. Rapid assay revenue included approximately $0.2 million in the first quarter that was attributed to the New Revenue Standard.

The increase in reference laboratory diagnostic and consulting services revenue was primarily due to the impact of higher testing volumes throughout our worldwide network of laboratories, most prominently in the U.S., resulting from increased testing from new and existing customers, supported by our differentiated diagnostic technologies, such as IDEXX SDMA™~~. Additionally, the~~ and fecal antigen testing. The increase in revenue was also the result of higher average unit sales prices. Reference laboratory diagnostic and consulting revenue included approximately $1.5 million in the first quarter that was attributed to the New Revenue Standard.

CAG Diagnostics services and accessories revenue growth was primarily a result of the increase in our active installed base of instruments.

CAG ~~Diagnostic~~Diagnostics Capital – Instruments ~~Revenue.~~ Revenue. The increase in ~~CAG Diagnostics capital instruments~~instrument revenue ~~resulted primarily from sales of the~~reflects increased SediVue Dx and Catalyst analyzer ~~launched in North America in April~~placements, supported by the introduction of ~~2016. During~~a new volume commitment program we refer to as IDEXX 360. The success of our new IDEXX 360 program caused a shift away from both our instrument rebate and reagent rental programs during the first quarter, ~~of 2017, we also launched the SediVue Dx analyzer~~which resulted in ~~select international markets. This growth was partly offset by a slight decline in Catalyst placements compared~~increased upfront instrument revenue recognition attributed to the ~~elevated prior year levels driven by the international launch of Catalyst One and relatively higher prior year levels of second Catalyst placements~~New Revenue Standard. CAG Diagnostic capital instrument revenue included approximately $6.9 million in the ~~U.S. as part of customer retention programs.~~first quarter that was attributed to the New Revenue Standard.

Veterinary Software, Services and Diagnostic Imaging Systems ~~Revenue.~~Revenue. The increase in ~~customer information management and diagnostic imaging systems~~ revenue was primarily due to ~~increasing~~increased diagnostic imaging system placements and higher veterinary subscription service revenue, ~~and higher support revenue resulting from an increase in our installed base. These favorable factors were~~ partially offset by ~~fewer licensed-based Cornerstone~~ ® ~~placements as we evolve~~lower relative diagnostic imaging system prices. Veterinary software, services and diagnostic imaging revenue included approximately $0.6 million in the first quarter attributed to ~~a subscription-based model for new practice management customer acquisitions.~~the New Revenue Standard.


	For the Three Months Ended March 31,						Increase (Decrease)			For the Three Months Ended March 31,						Change
Results of Operations			Percent of			Percent of						Percent of			Percent of
(dollars in thousands)	2017		Revenue		2016	Revenue	Amount		Percentage	2018		Revenue		2017	Revenue	Amount		Percentage

Revenues	$	403,227		$	357,639		$	45,588	12.7%	$	470,833		$	403,227		$	67,606	16.8%
Cost of revenue		182,157			166,847			15,310	9.2%		208,900			182,157			26,743	14.7%
Gross profit		221,070	54.8%		190,792	53.3%		30,278	15.9%		261,933	55.6%		221,070	54.8%		40,863	18.5%

Operating Expenses:
Sales and marketing		77,782	19.3%		70,566	19.7%		7,216	10.2%		89,106	18.9%		77,782	19.3%		11,324	14.6%
General and administrative		44,067	10.9%		41,097	11.5%		2,970	7.2%		51,135	10.9%		44,067	10.9%		7,068	16.0%
Research and development		19,366	4.8%		17,751	5.0%		1,615	9.1%		21,294	4.5%		19,366	4.8%		1,928	10.0%
Total operating expenses		141,215	35.0%		129,414	36.2%		11,801	9.1%		161,535	34.3%		141,215	35.0%		20,320	14.4%
Income from operations	$	79,855	19.8%	$	61,378	17.2%	$	18,477	30.1%	$	100,398	21.3%	$	79,855	19.8%	$	20,543	25.7%

~~CAG~~ Gross Profit. Gross profit ~~for CAG~~ increased ~~during the three months ended March 31, 2017, as compared to the same period in the prior year,~~ primarily due to higher sales volume and ~~a 150-basis~~an 80 basis point increase in the gross profit ~~percentage for the three months ended March 31, 2017, as compared to the same period in the prior year.~~percentage. The gross profit percentage was ~~primarily~~ supported by the net benefit of price increases onin our CAG Diagnostics recurring revenue portfolio, ~~and~~partially offset by higher information technology costs that were previously captured within operating expenses. The impact from foreign currency movements increased gross profit margin by less than 10 basis points, including the ~~favorable~~ impact of ~~volume leverage on IDEXX VetLab product costs. These favorable impacts were slightly offset by a reduction of~~hedge gains in the prior period compared to hedge losses in the current period. Gross profit included approximately ~~20-basis points from currency movements.~~$5.4 million in the first quarter attributable to the New Revenue Standard.

~~CAG~~ Operating Expense. The increase in ~~CAG operating~~sales and marketing expense ~~during the three months ended March 31, 2017, as compared to the same period in the prior year,~~ was due primarily to increased personnel-related costs as we continue to invest in our global commercial ~~infrastructure.~~infrastructure, offset by approximately $0.6 million in deferred costs to obtain contracts under the New Revenue Standard. The increase in general and administrative expense resulted primarily from higher personnel-related costs and ~~to a lesser extent,~~ incremental information technology investments. The increase in research and development expense was due primarily to increased personnel-related costs. The overall change in currency exchange rates resulted in an increase in operating expenses of approximately 4%.


	For the Three Months Ended March 31,						Increase (Decrease)			For the Three Months Ended March 31,						Change
Results of Operations			Percent of			Percent of						Percent of			Percent of
(dollars in thousands)	2017		Revenue		2016	Revenue	Amount		Percentage	2018		Revenue		2017	Revenue	Amount		Percentage

Revenues	$	25,077		$	23,552		$	1,525	6.5%	$	29,143		$	25,077		$	4,066	16.2%
Cost of revenue		7,602			7,446			156	2.1%		8,781			7,602			1,179	15.5%
Gross profit		17,475	69.7%		16,106	68.4%		1,369	8.5%		20,362	69.9%		17,475	69.7%		2,887	16.5%

Operating Expenses:
Sales and marketing		3,663	14.6%		3,222	13.7%		441	13.7%		4,065	13.9%		3,663	14.6%		402	11.0%
General and administrative		2,931	11.7%		2,498	10.6%		433	17.3%		3,188	10.9%		2,931	11.7%		257	8.8%
Research and development		618	2.5%		707	3.0%		(89)	(12.6%)		647	2.2%		618	2.5%		29	4.7%
Total operating expenses		7,212	28.8%		6,427	27.3%		785	12.2%		7,900	27.1%		7,212	28.8%		688	9.5%
Income from operations	$	10,263	40.9%	$	9,679	41.1%	$	584	6.0%	$	12,462	42.8%	$	10,263	40.9%	$	2,199	21.4%

~~Revenue.~~Revenue. The increase in ~~Water~~ revenue ~~during the three months ended March 31, 2017, as compared to the same period in the prior year,~~ was attributable to ~~the benefits of price increases and, to a lesser extent,~~ higher sales volumes of our Colilert test products and related accessories, used in coliform and E. coli testing in North America ~~the Asia-Pacific region~~ and Europe, ~~slightly offset by lower volumes~~and the benefit of price increases in Latin America. ~~These overall favorable impacts were offset~~Revenue growth in Latin America was driven by ~~a reduction~~our go-direct initiative in Brazil, which contributed approximately 3% to revenue growth, including the impact of reductions in distributor inventories in the prior year and the benefit of price increases in the current year. Water revenue of approximately ~~80-basis points from~~$0.4 million in the first quarter was attributed to the New Revenue Standard, as a result of accelerated revenue recognition upon shipping to customer instead of delivery to the customer. The favorable impact of currency ~~movements.~~movements increased revenue by approximately 4 percent.

Gross ~~Profit.~~Profit. Gross profit ~~for Water~~ increased ~~during the three months ended March 31, 2017, as compared to the same period in the prior year,~~ due to higher sales volumes as well as a ~~130-basis~~20 basis point increase in the gross profit percentage. The increase in the gross profit percentage was primarily due to the net benefit of price ~~increases.~~increases, as well as decreases in manufacturing costs. The impact from foreign currency movements decreased gross profit margin by approximately 80 basis points, including the impact of hedge gains in the prior period compared to hedge losses in the current period. Gross profit included approximately $0.3 million in the first quarter attributable to the New Revenue Standard.

Operating Expenses. The increase in operating expense was primarily due to higher personnel-related costs in sales and marketing expenses and general and administrative expenses. Research and development expense was relatively unchanged. The overall change in currency exchange rates resulted in ~~a decrease~~an increase in ~~the gross profit percentage~~operating expenses of approximately ~~30-basis points during the three months ended March 31, 2017, as compared to the same period of the prior year.~~

~~Operating Expenses.~~ The increase in Water operating expense during the three months ended March 31, 2017, as compared to the same period in the prior year, was primarily due to higher personnel-related costs related to increased head count in sales and marketing expense and general administrative expenses. Research and development expense for the three months ended March 31, 2017, as compared to the same period in the prior year, was lower due to certain project cost incurred in the first quarter of 2016.4%.


	For the Three Months Ended March 31,						Increase (Decrease)			For the Three Months Ended March 31,						Change
Results of Operations			Percent of			Percent of						Percent of			Percent of
(dollars in thousands)	2017		Revenue		2016	Revenue	Amount		Percentage	2018		Revenue		2017	Revenue	Amount		Percentage

Revenues	$	29,317		$	30,856		$	(1,539)	(5.0%)	$	32,240		$	29,317		$	2,923	10.0%
Cost of revenue		12,472			12,879			(407)	(3.2%)		14,593			12,472			2,121	17.0%
Gross profit		16,845	57.5%		17,977	58.3%		(1,132)	(6.3%)		17,647	54.7%		16,845	57.5%		802	4.8%

Operating Expenses:
Sales and marketing		5,535	18.9%		5,579	18.1%		(44)	(0.8%)		6,614	20.5%		5,535	18.9%		1,079	19.5%
General and administrative		4,409	15.0%		4,836	15.7%		(427)	(8.8%)		4,910	15.2%		4,409	15.0%		501	11.4%
Research and development		3,099	10.6%		2,992	9.7%		107	3.6%		3,162	9.8%		3,099	10.6%		63	2.0%
Total operating expenses		13,043	44.5%		13,407	43.5%		(364)	(2.7%)		14,686	45.6%		13,043	44.5%		1,643	12.6%
Income from operations	$	3,802	13.0%	$	4,570	14.8%	$	(768)	(16.8%)	$	2,961	9.2%	$	3,802	13.0%	$	(841)	(22.1%)

~~Revenue.~~Revenue. The ~~decrease~~increase in ~~LPD~~ revenue ~~for the three months ended March 31, 2017, as compared~~was primarily due to the same period in the prior year, resulted from lower herd health screening in the Asia-Pacific region, as well as lower dairy testing volumes in China and Brazil. These decreases were partially offset by an increase in swine and poultry testing ~~primarily in China,~~and expanded pregnancy testing across most regions, as well as ~~expanded pregnancy testing worldwide.~~higher herd health screening in the Asia-Pacific region. These increases were partially offset by continued pressure in our dairy business. The ~~overall change in exchange rates contributed~~favorable impact of currency movements increased revenue by approximately ~~40-basis points to the overall decline.~~8%.

Gross ~~Profit.~~Profit. The ~~decrease~~increase in ~~LPD~~ gross profit ~~for the three months ended March 31, 2017, as compared to the same period in the prior year,~~ was ~~primarily~~ due to ~~an 80-basis~~higher sales volume partially offset by a 280 basis point reduction in the gross profit ~~percentage reflecting higher royalty expense, and unfavorable product mix, primarily related to lower levels of herd health screening. Royalty expense was lower~~percentage. The decrease in the ~~first quarter of 2016, due to the receipt of a royalty credit. These unfavorable factors were offset~~gross profit percentage reflected higher product costs. The impact from foreign currency movements increased gross profit margin by approximately ~~80-basis~~10 basis points, including the impact of ~~currency impact, due to hedging~~hedge gains ~~during~~in the ~~three months ended March 31, 2017, as~~prior period compared to ~~hedging~~hedge losses in the ~~same period of the prior year.~~current period.

Operating ~~Expenses.~~Expenses. The ~~decrease~~increase in ~~LPD operating expenses for the three months ended March 31, 2017, as compared~~sales and marketing expense was due primarily to ~~the same period in the prior year, was primarily due to lower~~increased personnel-related costs ~~in part due to a lower LPD allocation of overall overhead costs reflecting the higher relative growth~~as we invest in our ~~CAG business as compared~~global commercial infrastructure. The increase in general and administrative expense resulted primarily from higher personnel-related costs. The increase in research and development expense was due primarily to ~~LPD. This decrease was~~increased personnel-related costs, partially offset by ~~increases~~lower third-party costs. The overall change in ~~commercial infrastructure investments within emerging markets. Research and development expense for the three months ended March 31, 2017, was generally consistent with the same period~~currency exchange rates resulted in an increase in operating expenses of ~~the prior year.~~ approximately 6%.


	For the Three Months Ended March 31,						Increase (Decrease)			For the Three Months Ended March 31,						Change
Results of Operations			Percent of			Percent of						Percent of			Percent of
(dollars in thousands)	2017		Revenue		2016	Revenue	Amount		Percentage	2018		Revenue		2017	Revenue	Amount		Percentage

Revenues	$	4,400		$	5,503		$	(1,103)	(20.0%)	$	5,440		$	4,400		$	1,040	23.6%
Cost of revenue		2,289			2,580			(291)	(11.3%)		3,366			2,289			1,077	47.1%
Gross profit		2,111	48.0%		2,923	53.1%		(812)	(27.8%)		2,074	38.1%		2,111	48.0%		(37)	(1.8%)

Operating Expenses:
Sales and marketing		619	14.1%		805	14.6%		(186)	(23.1%)		520	9.6%		619	14.1%		(99)	(16.0%)
General and administrative		791	18.0%		1,956	35.5%		(1,165)	(59.6%)		804	14.8%		791	18.0%		13	1.6%
Research and development		308	7.0%		999	18.2%		(691)	(69.2%)		252	4.6%		308	7.0%		(56)	(18.2%)
Total operating expenses		1,718	39.0%		3,760	68.3%		(2,042)	(54.3%)		1,576	29.0%		1,718	39.0%		(142)	(8.3%)
Income (loss) from operations	$	393	8.9%	$	(837)	-15.2%	$	1,230	(147.0%)
Income from operations										$	498	9.2%	$	393	8.9%	$	105	26.7%

~~Revenue.~~Revenue. The ~~decrease~~increase in ~~Other~~ revenue ~~during the three months ended March 31, 2017, as compared to the same period in the prior year,~~ was ~~primarily~~ due to ~~lower sales~~higher volumes and realized prices of our OPTI Medical ~~blood gas analyzers~~products and ~~related consumables as a result~~services. The favorable impact of ~~temporary product availability constraints, partially offset~~currency movements increased revenue by ~~price increases.~~approximately 130 basis points.

Gross ~~Profit.~~Profit~~Gross~~. The decrease in gross profit ~~for Other decreased~~was due to ~~lower sales volumes and~~ a ~~510-basis points~~9.9% reduction toin the gross profit percentage ~~related~~due primarily to higher ~~overall~~ OPTI Medical product costs and product mix, partially offset by ~~the net benefit of price increases.~~higher realized prices. The overall change in currency exchange rates ~~resulted in a decrease in~~had no impact on the gross profit ~~percentage of approximately 20-basis points.~~percentage.

Operating ~~Expenses.~~Expenses. The decrease in operating expense ~~for the three months ended March 31, 2017,~~was due primarily to lower personnel costs in sales and marketing and research and development. General and administrative costs were consistent as compared to the ~~same period in the~~ prior year, was due primarily to an intangible asset impairment within our OPTI Medical business during the first quarter of 2016 and lower personnel cost in research and development as a result of discontinuing our product development activities in the human point-of-care medical diagnostics market. As a result of this change in strategy, we assessed the realizability of the related tangible and intangible assets and determined the expected future cash flows were less than the carrying value of the asset group and recorded a non-cash intangible asset impairment of $1.1 million during the three months ended March 31, 2016.period.

For the Three Months Ended March 31,

Increase (Decrease)
Results of Operations

(dollars in thousands)

2017

2016

Amount

Percentage

Revenues

$
-

$
-

$
-

N/A

Cost of revenue

(690)

261

(951)

(364.4%)

Gross profit

690

(261)

951

(364.4%)

Operating Expenses:

Sales and marketing

(355)

(343)

(12)

3.5%

General and administrative

716

(1,092)

1,808

(165.6%)

Research and development

2,399

2,171

228

10.5%

Total operating expenses

2,760

736

2,024

275.0%

Loss from operations

$
(2,070)

$
(997)

$
(1,073)

107.6%

We estimate certain personnel-related costs and allocate these budgeted expenses to the operating segments. This allocation differs from actual expense and consequently yields a difference that is reported under the caption “Unallocated Amounts.”


	For the Three Months Ended March 31,				Change
Results of Operations
(dollars in thousands)	2018			2017	Amount		Percentage

Revenues	$	-	$	-	$	-	N/A
Cost of revenue		(1,083)		(690)		(393)	57.0%
Gross profit		1,083		690		393	57.0%

Operating Expenses:
Sales and marketing		(204)		(355)		151	(42.5%)
General and administrative		894		716		178	24.9%
Research and development		3,668		2,399		1,269	52.9%
Total operating expenses		4,358		2,760		1,598	57.9%
Loss from operations	$	(3,275)	$	(2,070)	$	(1,205)	58.2%

Gross ~~Profit.~~Profit. Costs of revenues impacts that were not allocated to segments were relatively consistent.

Operating Expenses. The overall increase in ~~gross profit during the three months ended March 31, 2017,~~operating expenses was primarily due to corporate function spending in research and development and higher than budgeted employee health costs. The overall increase in operating expenses was partially offset by increased allocations to our segments for certain employee incentive costs, as well as foreign exchange gains on monetary assets, as compared to ~~the same period~~losses in the prior year ~~was primarily due to lower than budgeted personnel-related costs, including self-insured health claims.~~

~~Operating Expenses.~~ The increase in operating expenses during the three months ended March 31, 2017, as compared to the same period in the prior year, was primarily due to higher than budgeted costs in information technology and human resources infrastructure spending, employee incentives and workers’ compensation claims, partially offset by lower than budgeted self-insured health claims. period.

Interest ~~Income.~~Income. Interest income was $0.6 million for the three months ended March 31, 2018, as compared to $1.1 million for the three months ended March 31, ~~2017, as compared~~2017. The decrease in interest income was due primarily to ~~$0.8~~the liquidation of our portfolio of marketable securities during the first quarter of 2018. We do not anticipate any material interest income for the remaining of 2018. The adoption of the New Revenue Standard decreased interest income by approximately $0.3 million.

Interest Expense. Interest expense was $9.3 million for the three months ended March 31, ~~2016. The increase in interest income was due primarily to a relatively larger portfolio of marketable securities during the three months ended March 31, 2017,~~2018, as compared to ~~the same period of the prior year.~~

~~Interest Expense.~~ ~~Interest expense was~~ $8.6 ~~million for the three months ended March 31, 2017, as compared to $8.3~~ million for the same period ofin the prior year. The increase in interest expense was due to higher ~~floating~~variable interest rates on our Credit Facility, ~~and senior notes.~~partially offset by lower average balances on our Credit Facility.

Provision for Income ~~Taxes.~~Taxes. Our effective income tax rate was ~~18.5 percent~~14.3% for the three months ended March 31, ~~2017, and 30.6 percent for the three months ended March 31, 2016. The decrease in our effective tax rate for the three months ended March 31, 2017,~~2018, as compared to the same period of the prior year, was primarily related to the adoption of FASB issued ASU 2016-09 related to share-based compensation discussed further in “Note 2: Accounting Policies”. The change in accounting guidance reduced tax expense by $11.2 million and our effective income tax rate by approximately 13 percentage points,18.5% for the three months ended March 31, 2017. The decrease in our effective tax rate was primarily related to the reduction in our U.S. statutory rate as a result of the 2017 Tax Act, partially offset by lower tax benefits related to share-based compensation.

We fund the capital needs of our business through cash on hand, funds generated from operations, proceeds from long-term senior note financings, and amounts available onunder our ~~$850 million five-year unsecured revolving credit facility under an amended and restated credit agreement that we executed in December 2015 (the “Credit Facility”).~~Credit Facility. At March 31, ~~2017,~~2018, we had ~~$400.3~~$159.2 million of cash, cash equivalents and short-duration marketable securities, as compared to ~~$391.8~~$471.9 million on December 31, ~~2016.~~2017. Working capital, including our Credit Facility, totaled negative ~~$57.5~~$27.1 million at March 31, ~~2017,~~2018, as compared to negative ~~$89.0~~$32.6 million at December 31, ~~2016.~~2017. Additionally, at March 31, ~~2017,~~2018, we had remaining borrowing availability of ~~$178.0~~$441.5 million under our $850 million Credit Facility. We believe that, if necessary, we could obtain additional borrowings at similar rates to our existing borrowings to fund our growth objectives. We further believe that current cash and cash equivalents, our portfolio of short-duration marketable securities, funds generated from operations, and committed borrowing availability will be sufficient to fund our operations, capital purchase requirements, and anticipated growth needs for the next twelve months. We believe that these resources, coupled with our ability, as needed, to obtain additional financing on favorable terms will also be sufficient for the foreseeable future to fund our business as currently conducted. We may enter into new financing arrangements or refinance or retire existing debt in the future depending on market conditions. Should we require more capital in the U.S. than is generated by our operations, for example to fund significant discretionary activities, we could elect to raise capital in the U.S. through debt or equity issuances. These alternatives could result in increased interest expense or other dilution of our earnings.

~~We consider the majority of the operating earnings of certainof ournon-U.S. subsidiaries to be indefinitely invested outside the U.S.No provision has been made for the payment of U.S. federal and state or international taxes that may result from future remittances of these undistributed earnings ofournon-U.S. subsidiaries.Changes to this position could have adverse tax consequences.~~A determination of the related tax liability that would be paid on these undistributed earnings if repatriated, is not practicable for several reasons including the complexity of laws and regulations in the various jurisdictions where we operate, the varying tax treatment of potential repatriation scenarios, and~~thetiming of any future repatriation.~~We manage our worldwide cash requirements considering available funds among all of our subsidiaries. Our foreign cash and marketable securities are generally available without restrictions to fund ordinary business operations outside the U.S.

The following table presents cash, cash equivalents and marketable securities held domestically and by our foreign subsidiaries at March 31, ~~2017,~~2018, and December 31, ~~2016:~~2017:



Cash, cash equivalents and marketable securities		March 31,		December 31,		March 31,		December 31,
(dollars in thousands)		2017		2016		2018		2017

U.S.	$	3,342	$	4,833	$	3,143	$	5,902
Foreign		396,999		387,017		156,086		466,028
Total	$	400,341		391,850	$	159,229		471,930

Total cash, cash equivalents and marketable securities held in U.S. dollars	$	280,509	$	285,756	$	32,242	$	334,339

Percentage of total cash, cash equivalents and marketable securities held in U.S. dollars		70.1%		72.9%		20.2%		70.8%

~~The following table presents~~As a result of the passage of the 2017 Tax Act during the fourth quarter of 2017, we liquidated our marketable securities ~~at fair value as~~held outside the U.S. during the first quarter of ~~March 31, 2017,~~2018 and ~~December 31, 2016:~~recognized a loss of approximately $0.3 million. We repatriated these funds and reduced our revolving debt balance during the first quarter of 2018.

Of the ~~$160.4~~$159.2 million of cash and cash equivalents held as of March 31, ~~2017, 80 percent~~2018, approximately 92% was held as bank deposits ~~17 percent~~and approximately 8% was invested in money market funds restricted to U.S. government and agency ~~securities, and the remainder consisted of commercial paper and other securities with original maturities of less than ninety days.~~

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 or increased interest expense and other dilution of our earnings. We have borrowed funds domestically and believe we will continue to have the ability to borrow funds domestically at reasonable interest rates. securities.

The following table presents additional key information concerning working capital:


	For the Three Months Ended										For the Three Months Ended
	March 31,		December 31,		September 30,		June 30,		March 31,		March 31,		December 31,		September 30,		June 30,		March 31,
		2017		2016		2016		2016		2016		2018		2017		2017		2017		2017

Days sales outstanding (1)		42.4		42.1		42.4		41.5		43.7		42.0		41.7		43.4		41.7		42.4
Inventory turns (2)		1.9		2.0		1.8		1.7		1.6		2.0		2.2		1.9		2.0		1.9

(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 represent 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.


	For the Three Months Ended March 31,						For the Three Months Ended March 31,
(dollars in thousands)	2017		2016		Dollar Change		2018		2017		Dollar Change

Net cash provided by operating activities	$	31,274	$	26,990	$	4,284	$	34,898	$	31,274	$	3,624
Net cash used by investing activities		(29,012)		(23,799)		(5,213)
Net cash provided (used) by financing activities		1,313		(2,562)		3,875
Net cash provided (used) by investing activities								260,312		(29,012)		289,324
Net cash (used) provided by financing activities								(324,991)		1,313		(326,304)
Net effect of changes in exchange rates on cash		1,932		3,330		(1,398)		1,335		1,932		(597)
Net increase in cash and cash equivalents	$	5,507	$	3,959	$	1,548
Net change in cash and cash equivalents							$	(28,446)	$	5,507	$	(33,953)

Operating Activities. The increase in cash provided by operating activities of ~~$4.3~~$3.6 million was driven primarily by the increase in net income, ~~including the impact of adopting the new accounting guidance to share-based compensation,~~ offset by the changes in operating assets and liabilities. The following table presents cash flows from changes in operating assets and ~~liabilities and the tax benefit from share-based compensation arrangements:~~liabilities:


	For the Three Months Ended March 31,						For the Three Months Ended March 31,
(dollars in thousands)	2017		2016		Dollar Change		2018		2017		Dollar Change

Accounts receivable	$	(19,429)	$	(21,504)	$	2,075	$	(21,800)	$	(19,429)	$	(2,371)
Inventories		(5,369)		1,764		(7,133)		(8,070)		(5,369)		(2,701)
Accounts payable		(3,687)		(1,801)		(1,886)		(1,939)		(3,687)		1,748
Deferred revenue		469		637		(168)		(1,327)		469		(1,796)
Other assets and liabilities		(38,531)		(23,752)		(14,779)		(52,302)		(38,531)		(13,771)
Tax benefit from share-based compensation arrangements		-		(2,063)		2,063
Total change in cash due to changes in operating assets and liabilities and the tax benefit from share-based compensation arrangements	$	(66,547)	$	(46,719)	$	(19,828)
Total change in cash due to changes in operating assets and liabilities							$	(85,438)	$	(66,547)	$	(18,891)

Cash used by accounts receivable during the three months ended March 31, 2018, as compared to the same period in the prior year, increased approximately $2.4 million as a result of higher revenues. Cash used by inventory during thethree months endedMarch 31, ~~2017,~~2018, as compared to ~~cash provided during~~ the same period in the prior year, increased by ~~$7.1~~$2.7 million, ~~primarily as a result of~~driven by timing of inventory ~~shipments between the fourth quarter of 2016 and the first quarter of 2017. Cash~~receipts. The change in cash used by other assets and liabilities during the three months endedMarch 31, ~~2017, was primarily the result of higher relative employee incentive compensation payments during the first quarter of 2017,~~2018, as compared to the same period in the prior ~~year.~~year is primarily due to instrument placements under a new volume commitment program.

We have historically 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 payments related to annual employee incentive programs in the first quarter following the year for which the bonuses were earned and the seasonality of vector-borne disease testing, which has historically resulted in significant increases in accounts receivable balances during the first quarter of the year.

Investing Activities. Cash ~~used~~provided by investing activities was ~~$29.0~~$260.3 million for the three months ended March 31, 2017, as compared to $23.8 million for the same period of the prior year. The increase in cash used by investing activities was primarily due to acquisitions of businesses, as well as higher relative purchases of property, equipment and marketable securities during the three months ended March 31, 2017, as compared to the same period of the prior year.

~~Financing Activities.Cash provided by financing activities was $1.3 million for the three months ended March 31, 2017,~~2018, as compared to cash used by ~~financing~~investing activities of ~~$2.6~~$29.0 million for the same period in the prior year. The ~~increase in~~change from cash used by investing activities to cash provided by investing activities was primarily due to the sale of marketable securities as a result of our repatriation of cash and investments held by our foreign subsidiaries.

Financing Activities.Cash used by financing activities was $325.0 million for the three months ended March 31, 2018, as compared to cash provided by financing activities ~~was primarily due to an increase in proceeds from the exercises~~ of ~~stock options and under the employee stock purchase plan primarily due to the increase in share price, as compared to~~$1.3 million for the same period in the prior year. ~~This increase~~The change from cash provided by financing activities to cash used by financing activities was due to a partial repayment on our revolving Credit Facility from repatriated foreign cash, partially offset by ~~the impacts~~an increase in repurchases of ~~adopting the new accounting guidance related to share-based compensation, which resulted in reclassification to operating activities, as compared to the same period in the prior year.~~our common stock.

Cash used to repurchase shares of our common stock increased ~~$10.4~~$19.6 million during the three months ended March 31, ~~2017,~~2018, as compared to the same period ~~of the prior year. From the inception of our share repurchase program~~ in August 1999 to March 31, 2017, we have repurchased 61.7 million shares. During the three months ended March 31, 2017, we purchased 0.4 million shares for a cash outflow of $58.0 million, as compared to purchases of 0.7 million shares for a cash outflow of $49.7 million during the same period of the prior year. We believe that the repurchase of our common stock is a favorable means of returning value to our shareholders and we also repurchase our stock 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 910 to the unaudited condensed consolidated financial statements ~~included~~ in Part I, Item I of this Quarterly Report on Form 10-Q for additional information about our share repurchases.

Net borrowing and repayment activity under the Credit Facility resulted in ~~incremental~~ cash ~~provided~~used of ~~$11.0~~$247.5 million during the three months ended March 31, ~~2017,~~2018, as compared to cash provided by of $60.0 million in the same period of the prior year. At March 31, ~~2017,~~2018, we had ~~$671.0~~$407.5 million outstanding under the Credit Facility. The general availability of funds under the Credit Facility was further reduced by $1.0 million for a letter of credit that was issued in connection with claims under our workers’ compensation policy. 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, certain restrictive agreements and violations of laws and regulations. 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 payment defaults, defaults in the performance of the affirmative, negative and financial 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, cross-acceleration to specified indebtedness and a change of control default.

Since December 2013, we have issued and sold through private placements senior notes having an aggregate principal amount of approximately $600 million pursuant to certain note purchase agreements (collectively, the “Senior Note Agreements”). The Senior Note Agreements contain affirmative, negative, and financial covenants customary for agreements of this type. The negative covenants include restrictions on liens, indebtedness of our subsidiaries, priority indebtedness, fundamental changes, investments, transactions with affiliates, certain restrictive agreements and violations of laws and regulations. See Note 11 to the consolidated financial statements in our ~~2016~~2017 Annual Report for additional information regarding our senior notes.

Should we elect to prepay the senior notes, such aggregate prepayment will include the applicable make-whole amount(s), as defined within the applicable Senior Note Agreements. Additionally, in the event of a change in control of the Company or upon the disposition of certain assets of the Company the proceeds of which are not reinvested (as defined in the Senior Note Agreements), we may be required to prepay all or a portion of the ~~Senior Notes.~~senior notes. The obligations under the ~~Senior Notes~~senior notes may be accelerated upon the occurrence of an event of default under the applicable Senior Note ~~Agreement,~~Agreements, each of which includes customary events of default including payment defaults, defaults in the performance of the affirmative, negative and financial 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 cross-acceleration to specified indebtedness.

Effect of currency translation on cash. The net effect of changes in foreign currency exchange rates are related to changes in exchange rates between the U.S. dollar and the functional currencies of our foreign subsidiaries. These changes will fluctuate for each period presented as the value of the U.S. dollar relative to the value of the foreign currencies changes. A currency’s value depends on many factors, including interest rates and the country’s debt levels and strength of economy.

Off Balance Sheet Arrangements. We have no off-balance sheet arrangements or variable interest entities, except for letters of credit and third party guarantees.

Financial Covenant. The sole financial covenant of our Credit Facility and Senior Note Agreements is a consolidated leverage ratio test that requires our ratio of debt to earnings before interest, taxes, depreciation and amortization and certain other non-cash charges (“Adjusted EBITDA”) not to exceed 3.5-to-1. At March 31, ~~2017,~~2018, we were in compliance with the covenants of the Credit Facility and Senior Note Agreements. The following details our consolidated leverage ratio calculation as of March 31, ~~2017:~~2018:


	Twelve months ended
	March 31,
Trailing 12 Months Adjusted EBITDA:		2018

Net income attributable to stockholders (as reported)	$	283,576
Interest expense		37,910
Provision for income taxes		116,982
Depreciation and amortization		83,637
Share-based compensation expense		23,822
Adjusted EBITDA	$	545,927

	March 31,
~~Trailing 12 Months Adjusted EBITDA:~~		~~2017~~

~~Net income attributable to stockholders~~	$	~~245,045~~
~~Interest expense~~		~~32,334~~
~~Provision for income taxes~~		~~95,187~~
~~Depreciation and amortization~~		~~79,979~~
~~Share-based compensation expense~~		~~20,624~~
~~Extraordinary and other non-recurring non-cash charges~~		~~1,118~~
~~Adjusted EBITDA~~	$	~~474,287~~

	~~March 31,~~
Debt to Adjusted EBITDA Ratio:		~~2017~~	2018

Line of credit	$	~~671,000~~	407,500
Long-term debt		~~594,868~~	609,005
Total debt		~~1,265,868~~	1,016,505
Acquisition-related contingent consideration payable		~~1,667~~	3,537
Capitalized leases		~~560~~	392
U.S. GAAP change - deferred financing costs		~~538~~	476
Gross debt		~~1,268,633~~	1,020,910
Gross debt to Adjusted EBITDA ratio		~~2.67~~	1.87

Less: Cash and cash equivalents		~~(160,408)~~
~~Less: Marketable securities~~		~~(239,933)~~	(159,229)
Net debt	$	~~868,292~~	861,681
Net debt to Adjusted EBITDA ratio		~~1.83~~	1.58

Adjusted EBITDA, gross debt, net debt, gross debt to Adjusted EBITDA ratio and net debt to Adjusted EBITDA ratio are non-GAAP financial measures which should be considered in addition to, and not as a replacement for, financial measures presented according to U.S. GAAP. Management believes that reporting these non-GAAP financial measures provides supplemental analysis to help investors further evaluate our business performance and available borrowing capacity under our Credit Facility.

Significant commitments, contingencies and guarantees at March 31, ~~2017,~~2018, are consistent with those discussed in the section under the heading “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of ~~Operations—~~Operations—Liquidity and Capital Resources,” and in Note 14 to the consolidated financial statements contained in our ~~2016~~2017 Annual Report.

Item 3. ~~Quantitative~~Quantitative and Qualitative Disclosures About Market Risk

For quantitative and qualitative disclosures about market risk affecting us, see the section under the heading “Part II, Item 7A. Quantitative and Qualitative ~~Disclosures~~Disclosure About Market Risk” of our ~~2016~~2017 Annual Report. As of the date of this Quarterly Report on Form 10-Q, there have been no material changes to the market risks described in our ~~2016~~2017 Annual Report, except for the impact of foreign exchange rates, as discussed below.

Foreign ~~currency exchange impacts.~~Currency Exchange Impacts. For the three months ended March 31, ~~2017,~~2018, approximately ~~21 percent~~22% of our consolidated revenue was derived from products manufactured in the U.S. and sold internationally in local currencies, as compared to ~~20 percent~~21% for the three months ended March 31, ~~2016.~~2017. Strengthening of the U.S. dollar exchange rate 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 offsets this exposure. Additionally, our designated hedges of intercompany inventory purchases and sales help delay the impact of certain exchange rate fluctuations on non-U.S. dollar denominated revenues.

Our foreign currency exchange impacts are comprised of three components: 1) local currency revenues and expenses; 2) the impact of hedge contracts; and 3) intercompany ~~and trade receivables and payables balances,~~ 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 the remainder of ~~2017,~~2018, excluding the impact of intercompany and trade balances denominated in currencies other than the functional subsidiary currencies, we project a 1~~percent~~1% strengthening of the U.S. dollar would reduce revenue by approximately $5$6 million and operating income by approximately $2$3 million. Additionally, we project our foreign currency hedge contracts in place as of March 31, ~~2017~~2018, would ~~provide~~result in incremental offsetting gains of~~less than~~$1 approximately $1.3 million. The impact of the intercompany and trade balances, 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 on such balances.

~~The following table presents the~~At our current foreign currency exchange rate assumptions, we anticipate the effect of a weaker U.S. dollar for the remainder of the year will have a favorable impact on our operating results by increasing our revenues, operating profit, and diluted earnings per share for the ~~three months ended March 31, 2017 and 2016:~~

At our current foreign exchange rate assumptions, we anticipate that a stronger U.S. dollar will have an adverse effect on our operating results by decreasing our revenues, operating profit and diluted earnings per share in the year ending December 31, ~~2017,~~2018, by approximately ~~$21~~$31 million, $6$8 million, and ~~$0.05~~$0.07 per share, respectively. This ~~unfavorable~~favorable impact ~~is net of projected 2017 benefits from previously established~~includes foreign currency hedging ~~contracts,~~activity, which is expected to ~~increase~~decrease total company operating profit by approximately $6$5 million and diluted earnings per share by ~~$0.05 in~~approximately $0.04 for the year ending December 31, ~~2017.~~2018. The actual impact of changes in the value of the U.S. dollar against foreign currencies in which we transact may materially differ from our expectations described above. The above ~~estimate assumes~~estimates assume that the value of the U.S. dollar relative to other currencies will reflect the euro at ~~$1.06,~~$1.20, the British pound at ~~$1.24,~~$1.37, the Canadian dollar at ~~$0.74,~~$0.77, the Australian dollar at ~~$0.75,~~$0.74; the Japanese yen at ¥111, the Chinese renminbi at RMB ~~6.89~~6.40 and the Brazilian real at R$~~3.20~~3.55 to the U.S. dollar for the remainder of ~~2017.~~2018.

The following table presents the foreign currency exchange impact on our revenues, operating profit, and diluted earnings per share for the three months ended March 31, 2018 and 2017, as compared to the respective prior periods:

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 March 31, ~~2017,~~2018, our Chief Executive Officer and Chief Financial Officer have concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.

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 March 31, ~~2017,~~2018, that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Due to the nature of our activities, we are at times subject to pending and threatened legal actions that arise out of the ordinary course of business. In the opinion of management, based in part upon advice of legal counsel, the disposition of any such currently pending matters is not expected to have a material effect on our results of operations, financial condition, or cash flows. However, the results of legal actions cannot be predicted with certainty. Therefore, it is possible that our results of operations, financial condition or cash flows could be materially adversely affected in any particular period by the unfavorable resolution of one or more legal actions.

In addition to the other information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the factors discussed in “Part I, Item 1A. Risk Factors" in our ~~2016~~2017 Annual Report, which could materially affect our business, financial condition, or future results. There have been no material changes from the risk factors previously disclosed in the ~~2016~~2017 Annual Report. The risks described in our ~~2016~~2017 Annual Report are not the only risks facing our Company and additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition, or future results.

During the three months ended March 31, ~~2017,~~2018, we repurchased shares of common stock as described below:

The total shares repurchased include shares purchased in the open market and shares surrendered for employee statutory tax withholding. See Note 10 to the unaudited condensed consolidated financial statements in Part 1,I, Item ~~1, “Note 9 – Repurchases~~I of ~~Common Stock”~~this Quarterly Report on Form 10-Q for ~~discussion on shares repurchased.~~additional information about our share repurchases.

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



~~Term/ Abbreviation~~	~~Definition~~

~~AOCI~~	~~Accumulated other comprehensive income or loss~~
~~ASU 2016-09~~	~~ASU 2016-09, “Compensation – Stock Compensation (Topic 781):Improvements to Employee Share-Based Payment Accounting~~”
~~CAG~~	~~Companion Animal Group, a reporting segment that provides to veterinarians diagnostic capabilities and information management solutions that enhance the health and well-being of pets~~
~~Credit Facility~~	~~Our $850 million five-year unsecured revolving credit facility under an amended and restated credit agreement that was executed in December 2015~~
~~EPS~~	~~Earnings per share, if not specifically stated, EPS refers to earnings per share on a diluted basis~~
EU	~~European Union~~
~~FASB~~	~~Financial Accounting Standards Board~~
~~LPD~~	~~Livestock, Poultry and Dairy, a reporting segment that provides diagnostic productsand servicesfor livestock and poultry health and to ensure the quality and safety of milk~~
~~OCI~~	~~Other comprehensive income or loss~~
~~OPTI Medical~~	OPTI Medical Systems, Inc., a wholly-owned subsidiary of IDEXX Laboratories Inc., supplies dry slide electrolyte consumables and instruments for the human point-of-care medical diagnostics market, also referred to as OPTI
~~Organic revenue growth~~	A 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, 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. Management believes that reporting organic revenue growth provides useful information to investors by facilitating easier comparisons of our revenue performance with prior and future periods and to the performance of our peers.
~~R&D~~	~~Research and Development~~
~~SEC~~	~~U.S. Securities and Exchange Commission~~
~~Senior Notes Agreement~~	~~Private placement senior notes having an aggregate principal amount of approximately $600 million, referred to as senior notes~~
~~U.S. GAAP~~	~~Accounting principles generally accepted in the United States of America~~
~~Water~~	~~Water, a reporting segment that provides water quality products around the world~~


~~Description of Change:~~	~~Impact of Change for the~~ ~~Three Months Ended March 31, 2017 and 2016 if applicable:~~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 threshold of goods and services. Under the New Revenue Standard, we continue to record revenue reductions related to these customer incentive programs and record the related refund obligations in accrued liabilities based on the actual issuance of incentives, incentives earned but not yet issued and estimates of incentives to be earned in the future. There was no impact to our consolidated financial statements upon transition to the New Revenue Standard, as a result of our other customer incentive programs.	~~Adoption Method:~~
~~Tax benefits related to share-based payments at settlement are recorded through the income statement instead of equity~~	~~Decrease in income tax expense by approximately $11.2 million for the three months ended March 31, 2017~~	~~Prospective (elected)~~

~~Calculation of diluted shares outstanding under the treasury method will no longer assume that tax benefits related to share-based payments are used to repurchase common stock~~	~~Increase in the weighted average diluted shares outstanding by approximately 450,000 shares for the three months ended March 31, 2017~~	~~Prospective (required)~~

~~An election can be made to reduce share-based compensation expense for forfeitures as they occur instead of estimating forfeitures that are expected to occur~~	~~No change to share-based compensation expense, as we have elected to continue to estimate forfeitures that are expected to occur~~	~~N/A~~

~~Tax benefits related to share-based payments at settlement are classified as operating cash flows instead of financing cash flows~~	~~Increase in cash flow from operating activities and decrease in cash flow from financing activities by approximately $11.2 million for the three months ended March 31, 2017~~	~~Prospective (elected)~~

~~Cash payments to tax authorities for shares withheld to meet employee tax withholding requirements on restricted stock units are classified as financing cash flow instead of operating cash flow~~	Increase in cash flow from operating activities and decrease in cash flow from financing activities for the three months ended March 31, 2017 and 2016 by approximately $7.3 million and $3.8 million, respectively	~~Retrospective (required)~~


		For the Three Months Ended March 31,
		2018		2017
United States	$	327,461	$	288,613
Europe, the Middle East and Africa		120,574		96,428
Asia Pacific Region		56,039		48,952
Canada		22,544		18,748
Latin America		11,038		9,280
Total	$	537,656	$	462,021


As of March 31, 2017		Amortized Cost		Fair Value

Due in one year or less	$	144,581	$	144,547
Due after one year through three years		95,382		95,386
	$	239,963	$	239,933


	March 31,		December 31,
		2017		2016

Investment in long-term product supply arrangements	$	10,170	$	10,978
Customer acquisition costs, net		54,602		50,309
Other assets		35,344		36,321
Deferred income taxes		5,867		5,707
Other long-term assets	$	105,983	$	103,315


	Condensed Consolidated Statement of Operations
	For the Three Months Ended March 31, 2018

			New U.S. GAAP		Attributed to the
	Previous U.S. GAAP		(As Reported)		New Revenue Standard

Total revenue	$	525,369	$	537,656	$	12,287
Total cost of revenue		227,965		234,557		6,592
Gross profit		297,404		303,099		5,695

Total operating expense		190,626		190,055		(571)
Income from operations		106,778		113,044		6,266
Interest expense		(9,274)		(9,274)		-
Interest income		862		579		(283)
Income before provision for income taxes		98,366		104,349		5,983
Provision for income taxes		13,429		14,873		1,444
Net income	$	84,937	$	89,476	$	4,539


	Condensed Consolidated Statement of Cash Flows
	For the Three Months Ended March 31, 2018

			New U.S. GAAP		Attributed to the
	Previous U.S. GAAP		(As Reported)		New Revenue Standard
Cash Flows from Operating Activities:
Net income	$	84,937	$	89,476	$	4,539
Adjustments to reconcile net income to net cash provided by operating activities:
Benefit of deferred income taxes		1,088		3,005		1,917
All other adjustments to reconcile net income to net cash provided by operating activities		27,855		27,855		-
Changes in assets and liabilities, net		(78,982)		(85,438)		(6,456)
Net cash provided by operating activities	$	34,898	$	34,898	$	-

Level 1	Quoted prices in active markets for identical assets or liabilities that the entity can access at the measurement date.
Level 2	Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3	Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.


	Gain (Loss) Recognized in AOCI on Derivative Instruments (Effective Portion)
	For the Three Months Ended
	March 31,
Derivative instruments		2017		2016

Cash flow hedging derivatives:
Foreign currency exchange contracts, net of tax	$	(2,208)	$	(3,806)
Interest rate swaps, net of tax		-		111
Total cash flow hedges	$	(2,208)	$	(3,695)


Period	Total Number of Shares Purchased			Average Price Paid per Share	Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1)	Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
	(a)			(b)	(c)	(d)

January 1 to January 31, 2017	221,716		$	119.19	220,611	3,514,897
February 1 to February 28, 2017	146,291		$	140.97	95,700	3,419,197
March 1 to March 31, 2017	73,732		$	149.16	73,668	3,345,529
Total	441,739	(2)	$	131.41	389,979	3,345,529


Exhibit No.	Description
31.1	Certification of Principal Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of Principal Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS	XBRL Instance Document.
101.SCH	XBRL Taxonomy Extension Schema Document.
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB	XBRL Taxonomy Extension Label Linkbase Document.
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document.



	IDEXX LABORATORIES, INC.


	/s/ Brian P. McKeon
Date: ~~April 28, 2017~~May 4, 2018	Brian P. McKeon
	Executive Vice President, Chief Financial Officer and Treasurer
	(Principal Financial Officer)


~~Exhibit No.~~	~~Description~~
~~31.1~~	~~Certification of Principal Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.~~
~~31.2~~	~~Certification of Principal Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.~~
~~32.1~~	~~Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.~~
~~32.2~~	~~Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.~~
~~101.INS~~	~~XBRL Instance Document.~~
~~101.SCH~~	~~XBRL Taxonomy Extension Schema Document.~~
~~101.CAL~~	~~XBRL Taxonomy Extension Calculation Linkbase Document.~~
~~101.DEF~~	~~XBRL Taxonomy Extension Definition Linkbase Document.~~
~~101.LAB~~	~~XBRL Taxonomy Extension Label Linkbase Document.~~
~~101.PRE~~	~~XBRL Taxonomy Extension Presentation Linkbase Document.~~