~~The following table summarizes the most significant impacts of the new accounting guidance for the three and nine months ended September 30, 2017 and 2016, as applicable:~~

Effective July 1, 2017, we adopted ASU 2017-01, “Business Combinations (Topic 805): Clarify the Definition of a Business” which amended the definition of a business to be an integrated set of activities and assets that is capable of being conducted and managed for the purpose of providing a return in the form of dividends, lower costs, or other economic benefits directly to investors or other owners, members or participants. In order to be considered a business, the three elements of inputs, processes and outputs must be present. In a business acquisition, if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets, the integrated set of assets and activities acquired is not considered a business. We began using this guidance in analyzing acquisitions and disposals in the third quarter of 2017. This amendment may impact the allocation of purchase price in future acquisitions that are determined to be asset acquisitions as opposed to business combinations, however during the third quarter of 2017 there was no material impact on our consolidated financial statements.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606) (the “New Revenue Standard”), 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~~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.

~~Note 5.~~

NOTE 6. MARKETABLE SECURITIES

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 September 30, 2017

Amortized Cost

Gross Unrealized Gains

Gross Unrealized Losses

Fair Value

Corporate bonds

$
139,533

$
129

$
(31)

$
139,631

Certificates of deposit

60,473

-

-

60,473

Commercial paper

24,234

-

-

24,234

Asset backed securities

22,476

11

(6)

22,481

U.S. government bonds

16,282

11

(7)

16,286

Treasury bills

10,992

1

-

10,993

Agency bonds

10,989

11

(13)

10,987

Total marketable securities

$
284,979

$
163

$
(57)

$
285,085

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 September 30, 2017, unrealized losses on~~



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

Corporate bonds	$	140,969	$	96	$	(179	)	$	140,886
Certificates of deposit	58,510		—		—			58,510
Commercial paper	29,171		—		—			29,171
Asset backed securities	22,206		4		(43		)	22,167
U.S. government bonds	15,619		11		(19		)	15,611
Agency bonds	10,990		9		(52		)	10,947
Treasury bills	6,964		—		(1		)	6,963
Total marketable securities	$	284,429	$	120	$	(294	)	$	284,255

We held marketable securities with effective maturities of two years or less that ~~have been in a continuous loss position for more than twelve months were not material. Our portfolio of marketable securities~~ had an average AA- credit rating as of ~~September 30, 2017. There were no marketable securities that we consider to be other-than-temporarily impaired as of September 30, 2017.~~

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

December 31, 2017.

As of September 30, 2017

Amortized Cost

Fair Value

Due in one year or less

$
180,221

$
180,236

Due after one year through three years

104,758

104,849

$
284,979

$
285,085

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.

~~Note 6. Inventories~~

NOTE 7. INVENTORIES

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):

September 30,

December 31,

2017

2016

Raw materials

$
32,254

$
27,561

Work-in-process

18,200

14,998

Finished goods

126,295

115,475

Inventories

$
176,749

$
158,034

~~NOTE 7. GOODWILL AND INTANGIBLE ASSETS, NET~~

We believe that our acquisitions of businesses and intangible assets enhance our existing businesses by either expanding our geographic range and customer base or expanding our existing product lines. See “Note 3. Acquisitions,” for further information regarding goodwill and intangible assets.

During the first half of 2016, management reviewed our OPTI Medical product offering, which resulted in the discontinuance of our product development activities in the human point-of-care medical diagnostics market and a decision to focus our commercial efforts to support our latest generation OPTI CCA-TS2 Blood Gas and Electrolyte Analyzer. During the first half of 2016, management identified unfavorable trends in our OPTI Medical business resulting from this change in strategy. We revised our forecasts downward, causing us to assess the realizability of the related tangible and intangible assets and determined the expected future cash flows were less than the carrying value of the OPTI Medical asset group. Non-cash intangible asset impairments of $2.2 million were recorded within our condensed ~~consolidated statement of operations for the six months ended June 30, 2016.~~



	June 30, 2018		December 31, 2017

Raw materials	$	34,336	$	32,994
Work-in-process	16,982		17,786
Finished goods	125,169		113,538
Inventories (Note 2)	$	176,487	$	164,318

໿

NOTE 8. ~~Other current and long-term~~OTHER CURRENT AND LONG-TERM ASSETS

Other current assets consisted of the following (in thousands):

September 30,

December 31,

2017

2016

Prepaid expenses

$
28,233

$
25,746

Taxes receivable

20,438

27,672

Customer acquisition costs, net

22,158

18,085

Other assets

12,881

19,703

Other current assets

$
83,710

$
91,206

໿



	June 30, 2018		December 31, 2017

Prepaid expenses	$	27,250	$	28,967
Taxes receivable	41,315		35,475
Customer acquisition costs (Notes 2 and 3)	32,303		23,520
Contract assets (Notes 2 and 3)	6,558		—
Deferred sales commissions (Notes 2 and 3)	4,440		—
Other assets (Notes 2 and 3)	11,908		13,178
Other current assets	$	123,774	$	101,140

Other long-term assets consisted of the following (in thousands):

September 30,

December 31,

2017

2016

Investment in long-term product supply arrangements

$
9,060

$
10,978

Customer acquisition costs, net

62,242

50,309

Other assets

35,111

36,321

Deferred income taxes

7,914

5,707

Other long-term assets

$
114,327

$
103,315



	June 30, 2018		December 31, 2017

Investment in long-term product supply arrangements	$	11,344	$	9,949
Customer acquisition costs (Notes 2 and 3)	86,147		64,670
Contract assets (Notes 2 and 3)	14,903		—
Deferred sales commissions (Notes 2 and 3)	8,349		—
Deferred income taxes (Note 2)	8,723		7,698
Other assets (Notes 2 and 3)	22,356		36,299
Other long-term assets	$	151,822	$	118,616

໿

~~Note~~

NOTE 9. ~~Accrued liabilities~~

ACCRUED LIABILITIES

Accrued liabilities consisted of the following (in thousands):

September 30,

December 31,

2017

2016

Accrued expenses

$
60,774

$
71,984

Accrued employee compensation and related expenses

79,687

91,113

Accrued taxes

24,859

23,973

Accrued customer programs

55,187

49,061

Accrued liabilities

$
220,507

$
236,131



	June 30, 2018		December 31, 2017

Accrued expenses	$	61,302	$	64,430
Accrued employee compensation and related expenses	79,394		102,944
Accrued taxes	25,109		29,389
Accrued customer incentives and refund obligations (Notes 2 and 3)	62,575		56,655
Total accrued liabilities	$	228,380	$	253,418

໿

Other long-term liabilities consisted of the following (in thousands):

໿



	June 30, 2018		December 31, 2017
Accrued taxes	$	67,886	$	66,506
Accrued customer incentives (Note 2)	—		12,956
Other accrued long-term expenses	15,381		16,256
Total other long-term liabilities	$	83,267	$	95,718

໿

~~Note~~

NOTE 10. ~~Repurchases of common~~REPURCHASES OF COMMON STOCK

໿

We primarily acquire shares by repurchases in the open market. However, we also acquire shares that are surrendered by employees in payment for the minimum required statutory withholding taxes due on the vesting of restricted stock units and the settlement of deferred stock units, otherwise referred to herein as employee surrenders.

We issue shares of treasury stock upon the vesting of certain restricted stock units and upon the exercise of certain stock options. The number of shares of treasury stock issued during the three and ~~nine~~six months ended ~~September~~June 30, ~~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 and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 and ~~2016~~2017 (in thousands, except per share amounts):

For the Three Months Ended

For the Nine Months Ended

September 30,

September 30,

2017

2016

2017

2016

Shares repurchased in the open market

312

142

1,398

1,119

Shares acquired through employee surrender for statutory tax withholding

2

2

55

56

Total shares repurchased

314

144

1,453

1,175

Cost of shares repurchased in the open market

$
50,413

$
15,260

$
215,320

$
88,235

Cost of shares for employee surrenders

370

218

7,829

3,950

Total cost of shares

$
50,783

$
15,478

$
223,149

$
92,185

Average cost per share - open market repurchase

$
161.57

$
107.38

$
153.99

$
78.84

Average cost per share - employee surrenders

$
155.14

$
112.91

$
142.15

$
70.33

Average cost per share - total

$
161.52

$
107.46

$
153.54

$
78.43

~~Note~~



	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2018		2017		2018		2017

Shares repurchased in the open market	517		696		982		1,086
Shares acquired through employee surrender for statutory tax withholding	1		1		49		53
Total shares repurchased	518		697		1,031		1,139

Cost of shares repurchased in the open market	$	105,774	$	114,163	$	191,962	$	164,907
Cost of shares for employee surrenders	165		156		8,720		7,459
Total cost of shares	$	105,939	$	114,319	$	200,682	$	172,366

Average cost per share - open market repurchases	$	204.69	$	163.96	$	195.47	$	151.81
Average cost per share - employee surrenders	$	215.36	$	168.25	$	179.41	$	141.56
Average cost per share - total	$	204.71	$	163.97	$	194.71	$	151.34

໿

NOTE 11. ~~Income Taxes~~

INCOME TAXES

Our effective income tax rate was ~~23.4 percent~~20.9% for the three months ended ~~September~~June 30, ~~2017,~~2018, as compared to ~~30.8 percent~~25.5% for the three months ended ~~September~~June 30, ~~2016,~~2017, and ~~22.8 percent~~18.0% for the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2018, as compared to ~~30.7 percent~~22.5% for the ~~nine~~six months ended ~~September~~June 30, ~~2016.~~

2017. The decrease in our effective tax rate for ~~the three months ended September 30, 2017,~~each period, as compared to the same ~~period~~periods in the prior year, was primarily related to the ~~adoption of ASU 2016-09 related to share-based compensation, which reduced~~reduction in our ~~effective~~U.S. statutory tax rate ~~by approximately 4 percent, and~~as a result of the ~~expected utilization of foreign tax credits, which reduced our effective tax rate by approximately 3 percent.~~

~~The decrease in our effective tax rate~~2017 Tax Act.

We have accounted for the ~~nine months ended September 30,~~impacts of the 2017 Tax Act as ~~compared~~of December 31, 2017, to the ~~same period in the prior year, was primarily~~extent a reasonable estimate could be made, and we recognized provisional amounts related to the ~~adoption~~deemed repatriation tax, offset by the remeasurement of 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 ~~2016-09~~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 half of 2018, the Internal Revenue Service issued additional guidance providing clarification on certain aspects of the deemed repatriation tax calculation. The additional guidance did not result in any measurement period adjustments to the provisional amounts recorded as of December 31, 2017. We will continue to monitor for new guidance related to share-based compensation, which reduced our effective tax rate by approximately 8 percent, and the expected utilization of foreign tax credits, which reduced our effective tax rate by approximately 1 percent. See “Note 2. Accounting Policies”, for more information regarding the adoption of ASU 2016-09.provisional amounts recorded.

~~Note~~

NOTE 12. ACCUMULATED OTHER ~~Comprehensive Income~~

COMPREHENSIVE INCOME

The changes in AOCI, net of tax, for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 consisted of the following (in thousands):

For the Nine Months Ended September 30, 2017

Unrealized Gain 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 income (loss) before reclassifications

109

(8,472)

(6,895)

24,250

8,992

Gains reclassified from accumulated other comprehensive income

-

(587)

-

-

(587)

Balance as of September 30, 2017

$
129

$
(4,143)

$
(2,859)

$
(27,775)

$
(34,648)



For the Six Months Ended June 30, 2018	Unrealized (Loss) Gain on Investments, Net of Tax			Unrealized (Loss) Gain on Derivative Instruments, Net of Tax			Unrealized (Loss) Gain 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	150			5,786			2,263			(16,327		)	(8,128		)
Gains reclassified from accumulated other comprehensive income	—			2,039			—			—			2,039
Balance as of June 30, 2018	$	128		$	2,606		$	(2,048	)	$	(43,245	)	$	(42,559	)

໿

The following is a summary of reclassifications out of AOCI for the three and ~~nine~~six months ended ~~September~~June 30, ~~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 June 30,
		2018			2017
(Losses) gains on derivative instruments classified as cash flow hedges included in net income:
Foreign currency exchange contracts	Cost of revenue	$	(833	)	$	753
	Tax (benefits) expense	(379		)	280
	(Losses) gains, net of tax	$	(454	)	$	473



Details about AOCI Components	Affected Line Item in the Statement of Operations	Amounts Reclassified from AOCI For the Six Months Ended June 30,
		2018			2017
(Losses) gains on derivative instruments classified as cash flow hedges included in net income:
Foreign currency exchange contracts	Cost of revenue	$	(2,668	)	$	1,828
	Tax (benefits) expense	(629		)	681
	(Losses) gains, net of tax	$	(2,039	)	$	1,147

໿

Details about AOCI Components

Affected Line Item in the Statement of Operations

Amounts Reclassified from AOCI For the Three Months Ended September 30,

2017

2016

(Losses) gains on derivative instruments classified as cash flow hedges included in net income:

Foreign currency exchange contracts

Cost of revenue

$
(893)

$
648

Total (losses) gains before tax

(893)

648

Tax (benefits) expense

(333)

197

(Losses) gains, net of tax

$
(560)

$
451

Details about AOCI Components

Affected Line Item in the Statement of Operations

Amounts Reclassified from AOCI For the Nine Months Ended September 30,

2017

2016

Gains (losses) on derivative instruments classified as cash flow hedges included in net income:

Foreign currency exchange contracts

Cost of revenue

$
935

$
1,538

Interest rate swaps

Interest expense

-

(421)

Total gains before tax

935

1,117

Tax expense

348

313

Gains, net of tax

$
587

$
804

໿

~~Note~~

NOTE 13. ~~Earnings per Share~~

EARNINGS PER SHARE

Basic earnings per share is computed by dividing net income attributable to our stockholders by the weighted average number of shares of common stock and vested deferred stock units outstanding during the year. The computation of diluted earnings per share is similar to the computation of basic earnings per share, except that the denominator is increased for the assumed exercise of dilutive options and assumed issuance of unvested restricted stock units and unvested deferred stock units using the treasury stock method unless the effect is anti-dilutive. The treasury stock method assumes that proceeds, including cash received from the exercise of employee stock options and the total unrecognized compensation expense for unvested share-based compensation awards 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. Accounting Policies.”~~ 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 and ~~nine~~six months ended ~~September~~June 30, 2018 and 2017 ~~and 2016~~ ~~(in~~(in thousands):

For the Three Months Ended

For the Nine Months Ended

September 30,

September 30,

2017

2016

2017

2016

Shares outstanding for basic earnings per share

87,537

89,894

87,884

89,881

Shares outstanding for diluted earnings per share:

Shares outstanding for basic earnings per share

87,537

89,894

87,884

89,881

Dilutive effect of share-based payment awards

1,719

1,244

1,851

1,079

89,256

91,138

89,735

90,960



	For the Three Months Ended June 30,		For the Six Months Ended June 30,
	2018	2017	2018	2017

Shares outstanding for basic earnings per share	87,004	88,004	87,166	88,060

Shares outstanding for diluted earnings per share:
Shares outstanding for basic earnings per share	87,004	88,004	87,166	88,060
Dilutive effect of share-based payment awards	1,592	1,874	1,620	1,902
	88,596	89,878	88,786	89,962

໿

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. There were no anti-dilutive restricted stock units for the three and six months ended June 30, 2018 and 2017. The following table presents information concerning those anti-dilutive options ~~and restricted stock units~~ for the three and ~~nine~~six months ended ~~September~~June 30, 2018 and 2017 ~~and 2016~~ ~~(in~~(in thousands):

For the Three Months Ended

For the Nine Months Ended

September 30,

September 30,

2017

2016

2017

2016

Weighted average number of shares underlying anti-dilutive options

377

-

310

520

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

-

-

-

-



	For the Three Months Ended June 30,		For the Six Months Ended June 30,
	2018	2017	2018	2017

Weighted average number of shares underlying anti-dilutive options	326	368	245	275

໿

~~Note~~

NOTE 14. ~~Commitments, Contingencies~~ COMMITMENTS, CONTINGENCIES AND GUARANTEES

We are subject to claims that may arise in the ordinary course of business, including with respect to actual and ~~Guarantees~~

threatened litigation and other matters. We accrue for loss contingencies when it is probable that future expenditures will be made and such expenditures can be reasonably estimated. However, our actual losses with respect to these contingencies could exceed our accruals. At June 30, 2018, our accruals with respect to actual and threatened litigation were not material.

From time to time, we have received notices alleging that our products infringe third-party proprietary rights, although we are not aware of any pending litigation with respect to such claims. Patent litigation frequently is complex and expensive, and the outcome of patent litigation can be difficult to predict. There can be no assurance that we will prevail in any infringement proceedings that may be commenced against us. If we lose any such litigation, we may be stopped from selling certain products and/or we may be required to pay damages as a result of the litigation.

Significant commitments, contingencies and guarantees at ~~September~~June 30, ~~2017,~~2018, are consistent with those discussed in Note 14 to the consolidated financial statements in our ~~2016~~2017 Annual Report.

~~Note~~

NOTE 15. ~~Segment Reporting~~

SEGMENT REPORTING

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 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.” 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 and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 and ~~2016~~2017 (in thousands):

For the Three Months Ended September 30,

CAG

Water

LPD

Other

Unallocated Amounts

Consolidated Total

2017

Revenue

$
426,686

$
31,030

$
28,396

$
5,864

$
-

$
491,976

Income (loss) from operations

$
89,271

$
14,505

$
902

$
2,114

$
(6,379)

$
100,413

Interest expense, net

(8,364)

Income before provision for income taxes

92,049

Provision for income taxes

21,535

Net income

70,514

Less: Net income attributable to noncontrolling interest

3

Net income attributable to IDEXX Laboratories, Inc. stockholders

$
70,511

2016

Revenue

$
385,288

$
27,862

$
29,799

$
5,359

$
-

$
448,308

Income (loss) from operations

$
77,493

$
12,442

$
3,026

$
1,008

$
(5,510)

$
88,459

Interest expense, net

(6,935)

Income before provision for income taxes

81,524

Provision for income taxes

25,072

Net income

56,452

Less: Net income attributable to noncontrolling interest

(3)

Net income attributable to IDEXX Laboratories, Inc. stockholders

$
56,455

໿

For the Nine Months Ended September 30,

CAG

Water

LPD

Other

Unallocated Amounts

Consolidated Total

2017

Revenue

$
1,269,861

$
85,531

$
91,266

$
16,279

$
-

$
1,462,937

Income (loss) from operations

$
277,857

$
38,421

$
9,880

$
3,275

$
(14,213)

$
315,220

Interest expense, net

(23,849)

Income before provision for income taxes

291,371

Provision for income taxes

66,392

Net income

224,979

Less: Net income attributable to noncontrolling interest

92

Net income attributable to IDEXX Laboratories, Inc. stockholders

$
224,887

2016

Revenue

$
1,143,150

$
79,243

$
93,511

$
16,523

$
-

$
1,332,427

Income (loss) from operations

$
229,858

$
34,864

$
12,665

$
(749)

$
(10,224)

$
266,414

Interest expense, net

(21,695)

Income before provision for income taxes

244,719

Provision for income taxes

75,036

Net income

169,683

Less: Net income attributable to noncontrolling interest

7

Net income attributable to IDEXX Laboratories, Inc. stockholders

$
169,676

໿

16໿

~~The following is~~



	For the Three Months Ended June 30,
	CAG		Water		LPD		Other		Unallocated Amounts			Consolidated Total
2018
Revenue	$	507,487	$	32,658	$	34,998	$	5,609	$	—		$	580,752

Income (loss) from operations	$	129,796	$	15,122	$	6,471	$	1,130	$	(6,925	)	$	145,594
Interest expense, net												(8,285		)
Income before provision for income taxes												137,309
Provision for income taxes												28,629
Net income												108,680
Less: Net loss attributable to noncontrolling interest												(11		)
Net income attributable to IDEXX Laboratories, Inc. stockholders												$	108,691

2017
Revenue	$	439,948	$	29,424	$	33,553	$	6,015	$	—		$	508,940

Income (loss) from operations	$	108,731	$	13,653	$	5,176	$	768	$	(5,764	)	$	122,564
Interest expense, net												(7,979		)
Income before provision for income taxes												114,585
Provision for income taxes												29,178
Net income												85,407
Less: Net income attributable to noncontrolling interest												50
Net income attributable to IDEXX Laboratories, Inc. stockholders												$	85,357

໿



	For the Six Months Ended June 30,
	CAG		Water		LPD		Other		Unallocated Amounts			Consolidated Total
2018
Revenue	$	978,320	$	61,801	$	67,238	$	11,049	$	—		$	1,118,408

Income (loss) from operations	$	230,194	$	27,584	$	9,432	$	1,628	$	(10,200	)	$	258,638
Interest expense, net												(16,980		)
Income before provision for income taxes												241,658
Provision for income taxes												43,502
Net income												198,156
Less: Net income attributable to noncontrolling interest												14
Net income attributable to IDEXX Laboratories, Inc. stockholders												$	198,142

2017
Revenue	$	843,175	$	54,501	$	62,870	$	10,415	$	—		$	970,961

Income (loss) from operations	$	188,586	$	23,916	$	8,978	$	1,161	$	(7,834	)	$	214,807
Interest expense, net												(15,485		)
Income before provision for income taxes												199,322
Provision for income taxes												44,857
Net income												154,465
Less: Net income attributable to noncontrolling interest												89
Net income attributable to IDEXX Laboratories, Inc. stockholders												$	154,376

See “Note 3. Revenue Recognition” for a summary of disaggregated revenue by reportable segment and by major product and service category for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 and ~~2016 (in thousands~~):

2017.

For the Three Months Ended

For the Nine Months Ended

September 30,

September 30,

2017

2016

2017

2016

CAG segment revenue:

CAG Diagnostics recurring revenue:

$
364,937

$
324,603

$
1,091,936

$
969,097

IDEXX VetLab consumables

129,434

113,964

385,081

336,493

Rapid assay products

50,924

48,720

159,085

147,583

Reference laboratory diagnostic and consulting services

167,851

146,672

498,218

440,514

CAG Diagnostics service and accessories

16,728

15,247

49,552

44,507

CAG Diagnostics capital - instruments

29,119

31,255

83,018

86,063

Veterinary software, services and diagnostic imaging systems

32,630

29,430

94,907

87,990

CAG segment revenue

426,686

385,288

1,269,861

1,143,150

Water segment revenue

31,030

27,862

85,531

79,243

LPD segment revenue

28,396

29,799

91,266

93,511

Other segment revenue

5,864

5,359

16,279

16,523

Total revenue

$
491,976

$
448,308

$
1,462,937

$
1,332,427

During the fourth quarter of 2016, we modified our management reporting and reclassified the location of SNAP Pro service plans previously located in CAG Diagnostics capital - instruments to CAG Diagnostics service and accessories. The amount of revenue reclassified was $0.4 million during the three months ended September 30, 2016 and $1.1 million for the nine months ended September 30, 2016.

~~Note~~

NOTE 16. FAIR VALUE MEASUREMENTS

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.

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~~:

follows:



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.

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 and ~~nine~~six months ended ~~September~~June 30, ~~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 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.

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 ~~$631.0~~$608.1 million and ~~$604.7~~$603.6 million, respectively, as of ~~September~~June 30, ~~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 ~~September~~June 30, ~~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 September 30, 2017

(Level 1)

(Level 2)

(Level 3)

September 30, 2017

Assets

Money market funds(1)

$
20,924

$
-

$
-

$
20,924

Commercial paper(1)

-

3,089

-

3,089

Corporate bonds(1)

-

2,500

-

2,500

Certificates of deposit(1)

-

750

-

750

Marketable Securities

Corporate bonds

-

139,631

-

139,631

Certificates of deposit

-

60,473

-

60,473

Commercial paper

-

24,234

-

24,234

Asset backed securities

-

22,481

-

22,481

U.S. government bonds

-

16,286

-

16,286

Treasury bills

10,993

10,993

Agency bonds

-

10,987

-

10,987

Total marketable securities

$
-

$
285,085

$
-

$
285,085

Equity mutual funds(2)

$
2,119

$
-

$
-

$
2,119

Foreign currency exchange contracts(3)

$
-

$
971

$
-

$
971

Liabilities

Foreign currency exchange contracts(3)

$
-

$
7,004

$
-

$
7,004

Deferred compensation(4)

$
2,119

$
-

$
-

$
2,119

Quoted Prices

Significant

in Active

Other

Significant

Markets for

Observable

Unobservable

Identical Assets

Inputs

Inputs

Balance at

As of December 31, 2016

(Level 1)

(Level 2)

(Level 3)

December 31, 2016

Assets

Money market funds(1)

$
34,208

$
-

$
-

$
34,208

Certificates of deposit(1)

-

1,500

-

1,500

Commercial paper(1)

-

898

-

898

Marketable Securities

Corporate bonds

-

130,771

-

130,771

Certificates of deposit

-

40,400

-

40,400

Asset backed securities

-

27,315

-

27,315

Commercial paper

-

20,228

-

20,228

U.S. government bonds

-

12,231

-

12,231

Agency bonds

-

4,604

-

4,604

Municipal bonds

-

1,400

-

1,400

Total marketable securities

$
-

$
236,949

$
-

$
236,949

Equity mutual funds(2)

$
2,182

$
-

$
-

$
2,182

Foreign currency exchange contracts(3)

$
-

$
8,926

$
-

$
8,926

Liabilities

Foreign currency exchange contracts(3)

$
-

$
1,081

$
-

$
1,081

Deferred compensation(4)

$
2,182

$
-

$
-

$
2,182



As of June 30, 2018	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Balance at June 30, 2018

Assets
Money market funds⁽¹⁾	$	12,677	$	—	$	—	$	12,677
Equity mutual funds⁽²⁾	$	2,026	$	—	$	—	$	2,026
Cross currency swaps ⁽³⁾	—		$	314	—		$	314
Foreign currency exchange contracts⁽³⁾	$	—	$	4,459	$	—	$	4,459
Liabilities
Foreign currency exchange contracts⁽³⁾	$	—	$	1,360	$	—	$	1,360
Deferred compensation⁽⁴⁾	$	2,026	$	—	$	—	$	2,026

~~_____________~~



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

Assets
Money market funds⁽¹⁾	$	32,962	$	—	$	—	$	32,962
Certificates of deposit⁽¹⁾	$	—	$	1,250	$	—	$	1,250

Marketable Securities
Corporate bonds	$	—	$	140,886	$	—	$	140,886
Certificates of deposit	—		58,510		—		58,510
Commercial paper	—		29,171		—		29,171
Asset backed securities	—		22,167		—		22,167
U.S. government bonds	—		15,611		—		15,611
Agency bonds	—		10,947		—		10,947
Treasury bills	—		6,963		—		6,963
Total marketable securities	$	—	$	284,255	$	—	$	284,255

Equity mutual funds⁽²⁾	$	2,162	$	—	$	—	$	2,162
Foreign currency exchange contracts⁽³⁾	$	—	$	477	$	—	$	477
Liabilities
Foreign currency exchange contracts⁽³⁾	$	—	$	6,468	$	—	$	6,468
Deferred compensation⁽⁴⁾	$	2,162	$	—	$	—	$	2,162


(1)		Money market funds and certificates of deposit ~~and commercial paper~~ with an original maturity of less than ninety days are included within cash and cash equivalents. The remaining balance of cash and cash equivalents as of ~~September~~June 30, ~~2017,~~2018 and December 31, ~~2016,~~2017, consisted of demand deposits. ~~Commercial paper and certificates~~Certificates of deposit with an original maturity of over ninety days are included within marketable securities.


(2)		Equity mutual funds relate to a deferred compensation plan that was assumed as part of a previous business combination. This amount is included within other long-term assets. See footnote (4) below for a discussion of the related deferred compensation liability.


(3)		~~Foreign~~Cross currency swaps and foreign currency exchange contracts are included within other current assets; other long-term assets; accrued liabilities; or other long-term liabilities depending on the gain (loss) position and anticipated settlement date.


(4)		A deferred compensation plan assumed as part of a previous business combination is included within accrued liabilities and other long-term liabilities. The fair value of our deferred compensation plan is indexed to the performance of the underlying equity mutual funds discussed in footnote (2) above.

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.

~~Note~~

NOTE 17. HEDGING ~~Instruments~~

INSTRUMENTS

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, cross currency swaps 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 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 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 and ~~nine~~six months ended ~~September~~June 30, ~~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.

Cash Flow Hedges

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 either the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 or ~~2016. Gains or losses related to hedge ineffectiveness recognized in earnings during the three and nine months ended September~~2017. At June 30, ~~2017 and 2016 were not material. At September 30, 2017,~~2018, the estimated amount of net ~~losses,~~gains, net of income tax benefit, which are expected to be reclassified out of AOCI and into earnings within the next 12 months, is ~~$3.2~~$1.0 million if exchange rates do not fluctuate from the levels at ~~September~~June 30, ~~2017.~~

2018.

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 ~~$184.5~~$202.7 million and ~~$175.9~~$176.5 million at ~~September~~June 30, ~~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 September 30, 2017, we had no outstanding interest rate swap agreements.

Net Investment ~~Hedge~~

Hedges

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 ~~losses~~gains of ~~$2.0~~$4.5 million and ~~$6.9~~$2.3 million, net of income tax, within AOCI as a result of this net investment hedge for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2018, respectively. The related cumulative unrealized ~~loss~~gain recorded at ~~September~~June 30, ~~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.

In May 2018, we entered into two cross currency swap contracts as a hedge of our net investment in foreign operations to offset foreign currency translation gains and losses on the net investment. The cross currency swaps have a maturity date of June 30, 2023. At maturity of the cross currency swap contract, we will deliver the notional amount of €50.0 million and will receive approximately $59.4 million from the counterparties. The change in fair value of the cross currency swap contracts are recorded in AOCI and will be reclassified to earnings when the foreign subsidiaries are sold or substantially liquidated. During the three month period ended June 30, 2018, we recorded a gain of $0.2 million, net of income tax, within AOCI as a result of these net investment hedges. The Company will receive quarterly interest payments from the counterparties based on a fixed interest rate until maturity of the cross currency swap. This interest rate component is excluded from the assessment of hedge effectiveness, thus will be recognized as a reduction to interest expense over the life of the hedge instrument. During the second quarter, we recognized approximately $0.2 million related to the excluded component as a reduction of interest expense.

The following tables presents the effect of cash flow hedge accounting on our unaudited condensed consolidated statement of operations and comprehensive income and provides information regarding the location and amounts of pretax gains or losses of derivatives (in thousands):



	Three Months Ended June 30,
	2018			2017
	Costs of revenue			Costs of revenue

Financial statement line items in which effects of cash flow hedges are recorded	$	248,313		$	216,225
Foreign exchange contracts
Amount of (loss) gain reclassified from accumulated other comprehensive income into income	(833		)	753



	Six Months Ended June 30,
	2018			2017
	Costs of revenue			Costs of revenue

Financial statement line items in which effects of cash flow hedges are recorded	$	482,870		$	420,055
Foreign exchange contracts
Amount of (loss) gain reclassified from accumulated other comprehensive income into income	(2,668		)	1,828

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

September 30,

December 31,

2017

2016

Derivatives designated as hedging instruments

Balance Sheet Classification

Foreign currency exchange contracts

Other current assets

$
855

$
8,926

Foreign currency exchange contracts

Other long-term assets

116

-

Total derivative instruments presented as cash flow hedges on the balance sheet

971

8,926

Gross amounts subject to master netting arrangements not offset on the balance sheet

971

679

Net amount

$
-

$
8,247

Hedging Liabilities

September 30,

December 31,

2017

2016

Derivatives designated as hedging instruments

Balance Sheet Classification

Foreign currency exchange contracts

Accrued liabilities

$
5,537

$
1,081

Foreign currency exchange contracts

Other long-term liabilities

1,467

-

Total derivative instruments presented as cash flow hedges on the balance sheet

7,004

1,081

Foreign currency borrowings designated as net investment hedge on the balance sheet

Long-term debt

104,656

93,664

Total hedging instruments presented on the balance sheet

111,660

94,745

Gross amounts subject to master netting arrangements not offset on the balance sheet

971

679

Net amount

$
110,689

$
94,066



		Hedging Assets
		June 30, 2018		December 31, 2017

Derivatives designated as hedging instruments	Balance Sheet Classification
Foreign currency exchange contracts	Other current assets	$	2,704	$	477
Cross currency swaps	Other current assets	314		—
Foreign currency exchange contracts	Other long-term assets	1,755		—
Total derivative instruments presented as cash flow hedges on the balance sheet		4,773		477
Gross amounts subject to master netting arrangements not offset on the balance sheet		703		477
Net amount		$	4,070	$	—

໿



		Hedging Liabilities
		June 30, 2018		December 31, 2017

Derivatives designated as hedging instruments	Balance Sheet Classification
Foreign currency exchange contracts	Accrued liabilities	$	1,304	$	6,468
Foreign currency exchange contracts	Other long-term liabilities	56		—
Total derivative instruments presented as cash flow hedges on the balance sheet		1,360		6,468
Foreign currency borrowings designated as net investment hedge on the balance sheet	Long-term debt	103,590		106,567
Total hedging instruments presented on the balance sheet		104,950		113,035
Gross amounts subject to master netting arrangements not offset on the balance sheet		703		477
Net amount		$	104,247	$	112,558

~~The effect of derivative instruments designated as cash flow hedges on the condensed consolidated balance sheets consisted of the following~~ ໿~~(in thousands)~~:

Gain (Loss) Recognized in AOCI on Derivative Instruments (Effective Portion)

For the Three Months Ended

For the Nine Months Ended

September 30,

September 30,
Derivative instruments

2017

2016

2017

2016

Cash flow hedging derivatives:

Foreign currency exchange contracts, net of tax

$
(2,530)

$
(580)

$
(9,059)

$
(2,616)
Interest rate swaps, net of tax

-

-

-

242
Total cash flow hedges

$
(2,530)

$
(580)

$
(9,059)

$
(2,374)

Item 2.Management’s 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.

Business Overview

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:

~~Point-of-care veterinary diagnostic products, comprising instruments, consumables, and rapid assay test kits;~~

~~Veterinary reference laboratory diagnostic and consulting services;~~

~~Veterinary management and diagnostic imaging systems and services;~~

Point-of-care veterinary diagnostic products, comprising instruments, consumables, and rapid assay test kits;

~~Biomedical research, reference laboratory diagnostic services and instruments;~~

Veterinary reference laboratory diagnostic and consulting services;

~~Diagnostic, health-monitoring products for livestock, poultry and antibiotic residue testing in dairy;~~

Veterinary management and diagnostic imaging systems and services;

~~Products that test water for certain microbiological contaminants;~~

Biomedical research, reference laboratory diagnostic services, and instruments;

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

Diagnostic, health-monitoring products for livestock, poultry, and antibiotic residue testing in dairy;

Products that test water for certain microbiological contaminants;

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

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 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~~biomedical analytics 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 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.

Effects of Certain Factorsand Trendson Results of Operations

Currency Impact. See “Part I. Item 3. Quantitative and Qualitative 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.

Critical Accounting Policies and Estimates

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 and ~~nine~~six months ended ~~September~~June 30, ~~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 - Critical Accounting Policies and Estimates.”

~~Recent Accounting Pronouncements~~

~~Share-Based Compensation.~~Revenue Recognition. We ~~estimate that tax benefits related to share-based payments~~adopted the New Revenue Standard in the first quarter of 2018 on a modified-retrospective basis. While the New Revenue Standard will ~~reduce income tax expense by approximately $27 million for~~not impact the ~~full year 2017, primarily through a reduction in~~overall economics of our effective income tax rate. 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 $13 million to $16 million of annual tax benefits reflects a reasonable estimate for 2018, based on current settlement trends, stock price levelsproducts and ~~assuming no change in U.S. corporate tax policy. These impacts may vary significantly by quarter based on~~services sold under customer marketing and incentive programs, it has changed the timing of ~~actual settlement activity.~~revenue recognition. For more information regarding the adoption of the New Revenue Standard and new ~~share-based compensation guidance, ASU 2016-09, s~~eerevenue 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.

~~Revenue Recognition.~~ ~~In May 2014, the FASB issued ASU 2014-09, which will replace most~~

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 ~~the existing~~ revenue ~~recognition guidance within U.S. GAAP. We plan~~in future periods as compared to ~~adopt ASU 2014-09, as amended,~~reductions in the ~~first quarter of 2018 on a modified-retrospective basis. While ASU 2014-09 will not impact the overall economics of our products and services sold under~~current or prior periods. Additionally, certain customer ~~marketing and incentive~~ programs ~~we expect the New Revenue Standard will~~ require us to ~~accelerate revenue recognition~~estimate, based on historical experience, and apply judgment to predict the amounts of future customer purchases, customer rebates and other incentive payments, and price adjustments related to ~~certain of our~~multi-year agreements. Differences between estimated and actual customer programs and to delay revenue recognition for certain other customer programs. We expect to accelerate revenue recognition on instruments and systems placed through programs where customers are committed to purchase future goods and services, including our up-front customer loyalty programs. This change is the result of the New Revenue Standard no longer limiting revenue recognition topurchases may impact the amount of customer consideration received upon placement. Conversely, we expect to defer an increased portion of revenue related to instrument placements under programs that provide rebate incentives on future purchases, including certain of our instrument marketing programs. Under the New Revenue Standard, future purchases that are optional and not subject to a customer commitment, are not considered part of the customer arrangement, resulting in the instrument absorbing a higher relative allocation of rebate incentives. We expect this change to result in lower instrument revenue upon placement and higher recurring revenues over the term of the rebate incentive program. Based on our progress to date, we believe these will be the most significant impacts related to our adoption of the New Revenue Standard, however the overall impact on our 2018 revenues is not expected to be material, as we estimate the net impact of the modified-retrospective cumulative adjustments and the change in timing of revenue ~~recognition on~~recognition. At June 30, 2018, ~~activity to be relatively neutral. This assessment is based on the anticipated volume, mix and design of our customer marketing and incentive programs, which may~~a 5% change in ~~response to future~~these customer and competitive demands. Furthermore, the New Revenue Standard requires the deferral of incremental costs to obtain a customer contract over the term of the customer arrangement, such as sales commissions. Based on the current design of our sales commission plans, the impact of implementing this element of the New Revenue Standard is also not expected to be material. For more information regarding the adoption of theprogram estimates would have increased or reduced revenue ~~recognition guidance, ASU 2014-09, s~~by approximately $0.8 million.

Recent Accounting Pronouncements~~ee Note 2 to the 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 other recent accounting standards and amendments will have on our consolidated financial statements as described in Note 2 to the unaudited condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Non-GAAP Financial Measures

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 and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2018, as compared to the same ~~periods~~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 ~~prior year period.~~

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 and six months ended June 30, 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 and six months ended June 30, 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.

Results of Operations

Three Months Ended ~~September~~June 30, ~~2017,~~2018, Compared to Three Months Ended ~~September~~June 30, ~~2016~~

2017

Comparison to Prior Periods. Our fiscal quarter ended on June 30. Unless otherwise stated, the analysis and discussion of our financial condition and results of operations below, including references to growth and organic growth and increases and decreases, are being compared to the equivalent prior year period.

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

For the Three

For the Three

Net Revenue

Months Ended

Months Ended

Percentage

Percentage

Organic

September 30,

September 30,

Dollar

Percentage

Change from

Change from

Revenue

(dollars in thousands)

2017

2016

Change

Change

Currency

Acquisitions

Growth (1)

CAG

$
426,686

$
385,288

$
41,398

10.7%

0.9%

0.3%

9.6%

United States

280,651

258,208

22,443

8.7%

-

0.2%

8.5%

International

146,035

127,080

18,955

14.9%

2.8%

0.4%

11.8%

Water

31,030

27,862

3,168

11.4%

1.1%

-

10.3%

United States

14,972

13,980

992

7.1%

-

-

7.1%

International

16,058

13,882

2,176

15.7%

2.3%

-

13.4%

LPD

28,396

29,799

(1,403)

(4.7%)

1.8%

-

(6.5%)

United States

3,576

3,463

113

3.3%

-

-

3.3%

International

24,820

26,336

(1,516)

(5.8%)

2.0%

-

(7.8%)

Other

5,864

5,359

505

9.4%

0.4%

-

9.1%

Total Company

$
491,976

$
448,308

$
43,668

9.7%

1.0%

0.2%

8.5%

United States

301,457

277,240

24,217

8.7%

-

0.2%

8.6%

International

190,519

171,068

19,451

11.4%

2.5%

0.3%

8.5%



	For the Three Months Ended June 30,
Net Revenue (dollars in thousands)	2018		2017		Dollar Change			Reported Revenue Growth ⁽¹⁾		Percentage Change from Currency		Percentage Change from Acquisitions		Organic Revenue Growth ⁽¹⁾

CAG	$	507,487	$	439,948	$	67,539		15.4	%	1.8	%	0.1	%	13.4	%
United States	334,865		295,829		39,036			13.2	%	—		0.1	%	13.1	%
International	172,622		144,119		28,503			19.8	%	5.6	%	—		14.1	%

Water	32,658		29,424		3,234			11.0	%	2.0	%	—		9.0	%
United States	15,740		14,366		1,374			9.6	%	—		—		9.6	%
International	16,918		15,058		1,860			12.3	%	3.8	%	—		8.5	%

LPD	34,998		33,553		1,445			4.3	%	4.0	%	—		0.3	%
United States	3,681		3,433		248			7.3	%	—		—		7.3	%
International	31,317		30,120		1,197			4.0	%	4.5	%	—		(0.5	%)

Other	5,609		6,015		(406		)	(6.7	%)	0.4	%	—		(7.2	%)

Total Company	$	580,752	$	508,940	$	71,812		14.1	%	2.0	%	0.1	%	12.1	%
United States	356,736		315,695		41,041			13.0	%	—		0.1	%	12.9	%
International	224,016		193,245		30,771			15.9	%	5.2	%	—		10.7	%


(1)		~~Amounts presented~~Reported revenue growth and organic revenue growth may not recalculate ~~to organic revenue growth rates~~ due to rounding.

Total Company Revenue. The increase in both U.S. and international organic revenues ~~for the three months ended September 30, 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 and expanded commercial organization that are driving increased volumes from new and existing customers in our reference laboratory business and the continued expansion of our CAG Diagnostics instrument installed base. International organic growth was strong across all regions, reflecting the aforementioned CAG Diagnostics recurring volume driven growth. Our Water business also contributed to our international growth, primarily from higher sales volumes of our Colilert test products and related accessories. Total company revenue included approximately $14.9 million in the second quarter of 2018 that was attributed to the New Revenue Standard.

The following table presents total Company results of operations:



	For the Three Months Ended June 30,								Change
Total Company - Results of Operations (dollars in thousands)	2018		Percent of Revenue		2017		Percent of Revenue		Amount		Percentage

Revenues	$	580,752			$	508,940			$	71,812	14.1	%
Cost of revenue	248,313				216,225				32,088		14.8	%
Gross profit	332,439		57.2	%	292,715		57.5	%	39,724		13.6	%

Operating Expenses:
Sales and marketing	96,255		16.6	%	87,693		17.2	%	8,562		9.8	%
General and administrative	61,080		10.5	%	55,460		10.9	%	5,620		10.1	%
Research and development	29,510		5.1	%	26,998		5.3	%	2,512		9.3	%
Total operating expenses	186,845		32.2	%	170,151		33.4	%	16,694		9.8	%
Income from operations	$	145,594	25.1	%	$	122,564	24.1	%	$	23,030	18.8	%

Gross Profit. Gross profit increased due to higher sales volumes and was offset by a 30 basis point decrease in the gross profit percentage. The decrease in the gross profit percentage was driven by higher information technology costs, including costs that were previously captured within operating expenses, increased investments in reference laboratory capacity and employee benefits, as well as unfavorable mix impacts from high instrument revenue growth. These impacts were partially offset by the net benefit of price increases in our CAG Diagnostics recurring revenue portfolio and productivity gains. The impact from foreign currency movements increased gross profit margin by less than 10 basis points, including the impact of hedge gains in the prior period compared to hedge losses in the current period. Gross profit included approximately $6.0 million in the second quarter of 2018 attributable to the New Revenue Standard.

Operating Expense. The increase in total Company sales and marketing expense 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 from foreign exchange losses on settlements of foreign currency denominated transactions compared to gains in the prior period, information technology investments, including ongoing depreciation and maintenance associated with prior year projects, and higher personnel-related 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 costs. The overall change in currency exchange rates resulted in an increase in total operating expenses of approximately 2.5%.

Companion Animal Group

The following table presents revenue by product and service category for CAG:

໿



	For the Three Months Ended June 30,
Net Revenue (dollars in thousands)	2018		2017		Dollar Change		Reported Revenue Growth ⁽¹⁾		Percentage Change from Currency		Percentage Change from Acquisitions		Organic Revenue Growth ⁽¹⁾

CAG Diagnostics recurring revenue:	$	437,666	$	380,319	$	57,347	15.1	%	1.9	%	—		13.2	%
IDEXX VetLab consumables	158,620		132,094		26,526		20.1	%	2.2	%	—		17.8	%
Rapid assay products	63,362		60,266		3,096		5.1	%	0.8	%	—		4.3	%
Reference laboratory diagnostic and consulting services	197,268		171,298		25,970		15.2	%	2.0	%	—		13.1	%
CAG diagnostics services and accessories	18,416		16,661		1,755		10.5	%	1.9	%	—		8.6	%
CAG Diagnostics capital - instruments	34,544		27,716		6,828		24.6	%	2.8	%	—		21.8	%
Veterinary software, services and diagnostic imaging systems	35,277		31,913		3,364		10.5	%	0.5	%	1.0	%	9.0	%
Net CAG revenue	$	507,487	$	439,948	$	67,539	15.4	%	1.8	%	0.1	%	13.4	%


(1)	Reported revenue growth and organic revenue growth may not recalculate due to rounding

CAG Diagnostics Recurring Revenue. The increase in CAG Diagnostics recurring revenue was due primarily to increased volumes in IDEXX VetLab consumables and reference laboratory diagnostic services, supported by our differentiated diagnostic technologies and our expanded commercial organization and to a lesser extent, higher realized prices. CAG Diagnostics recurring revenue included approximately $4.7 million in the second quarter of 2018 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 Dx consumables and Sedivue Dx^®analyzer pay-per-run sales, supported by growth in testing by new and existing customers and our expanded menu of available tests, as well as benefits from higher average unit sales prices. IDEXX VetLab consumables revenue included approximately $3.4 million in the second quarter of 2018 that was attributed to the New Revenue Standard.

The increase in rapid assay revenue resulted from higher sales volumes and average unit prices of canine SNAP^® 4Dx Plus and higher sales volume of single analyte SNAP products and SNAP feline combination products. Rapid assay revenue included less than $0.1 million in the second quarter of 2018 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^™ and fecal antigen testing and to a lesser extent, higher average unit sales prices. Reference laboratory diagnostic and consulting revenue included approximately $1.3 million in the second quarter of 2018 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 Diagnostics Capital – Instruments Revenue. The increase in instrument revenue reflects increased Catalyst analyzer and SediVue Dx instrument placements, supported by our new volume commitment program that 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 which resulted in increased upfront instrument revenue recognition attributed to the New Revenue Standard. CAG Diagnostics capital instrument revenue included approximately $8.8 million in the second quarter of 2018 that was attributed to the New Revenue Standard.

Veterinary Software, Services and Diagnostic Imaging Systems Revenue.The increase in revenue was primarily due to increased diagnostic imaging system placements and higher veterinary subscription service revenue, partially offset by lower diagnostic imaging system prices. Veterinary software, services and diagnostic imaging revenue included approximately $1.5 million in the second quarter of 2018 attributed to the New Revenue Standard.

The following table presents the CAG segment results of operations:



	For the Three Months Ended June 30,								Change
Results of Operations (dollars in thousands)	2018		Percent of Revenue		2017		Percent of Revenue		Amount		Percentage

Revenues	$	507,487			$	439,948			$	67,539	15.4	%
Cost of revenue	221,577				189,862				31,715		16.7	%
Gross profit	285,910		56.3	%	250,086		56.8	%	35,824		14.3	%

Operating Expenses:
Sales and marketing	84,668		16.7	%	76,374		17.4	%	8,294		10.9	%
General and administrative	49,993		9.9	%	45,396		10.3	%	4,597		10.1	%
Research and development	21,453		4.2	%	19,585		4.5	%	1,868		9.5	%
Total operating expenses	156,114		30.8	%	141,355		32.1	%	14,759		10.4	%
Income from operations	$	129,796	25.6	%	$	108,731	24.7	%	$	21,065	19.4	%

Gross Profit. Gross profit increased primarily due to higher sales volume and was offset by a 50 basis point decrease in the gross profit percentage. The decrease in gross profit percentage was driven by higher information technology costs, including costs that were previously captured within operating expenses, increased investments in reference laboratory capacity and employee benefits, as well as unfavorable mix impacts from high instrument revenue growth. These impacts were partially offset by the net benefit of price increases in our CAG Diagnostics recurring revenue portfolio and productivity gains. The impact from foreign currency movements increased gross profit margin by less than 10 basis points, including the impact of hedge gains in the prior period compared to hedge losses in the current period. Gross profit included approximately $6.0 million in the second quarter of 2018 attributable to the New Revenue Standard.

Operating Expense. The increase in sales and marketing expense was due primarily to increased personnel-related costs as we continue to invest in our global commercial infrastructure, offset by approximately $0.4 million related to net 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 incremental information technology investments, partially offset by certain information technology costs that are now captured within cost of revenue. 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 immaterial increase in operating expenses.

Water

The following table presents the Water segment results of operations:



	For the Three Months Ended June 30,								Change
Results of Operations (dollars in thousands)	2018		Percent of Revenue		2017		Percent of Revenue		Amount		Percentage

Revenues	$	32,658			$	29,424			$	3,234	11.0	%
Cost of revenue	9,579				8,772				807		9.2	%
Gross profit	23,079		70.7	%	20,652		70.2	%	2,427		11.8	%

Operating Expenses:
Sales and marketing	4,103		12.6	%	3,505		11.9	%	598		17.1	%
General and administrative	3,210		9.8	%	2,854		9.7	%	356		12.5	%
Research and development	644		2.0	%	640		2.2	%	4		0.6	%
Total operating expenses	7,957		24.4	%	6,999		23.8	%	958		13.7	%
Income from operations	$	15,122	46.3	%	$	13,653	46.4	%	$	1,469	10.8	%

Revenue. The increase in revenue was attributable to higher sales volumes of our Colilert test products and related accessories used in coliform and E. coli testing in North America and Latin America, and the benefit of price increases in North America and Europe. The favorable impact of currency movements increased revenue by approximately 2%. The New Revenue Standard did not have a material impact on Water revenue in the second quarter of 2018.

Gross Profit.Gross profit increased due to higher sales volumes as well as a 50 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 and decreases in manufacturing costs, partially offset by higher freight costs. The impact from foreign currency movements decreased gross profit margin by approximately 35 basis points, including the impact of hedge gains in the prior period compared to hedge losses in the current period. The New Revenue Standard did not have a material impact on Water gross profit in the second quarter of 2018.

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 an increase in operating expenses of approximately 1%.

Livestock, Poultry and Dairy

The following table presents the LPD segment results of operations:



	For the Three Months Ended June 30,								Change
Results of Operations (dollars in thousands)	2018		Percent of Revenue		2017		Percent of Revenue		Amount			Percentage

Revenues	$	34,998			$	33,553			$	1,445		4.3	%
Cost of revenue	14,311				13,871				440			3.2	%
Gross profit	20,687		59.1	%	19,682		58.7	%	1,005			5.1	%

Operating Expenses:
Sales and marketing	6,505		18.6	%	6,941		20.7	%	(436		)	(6.3	%)
General and administrative	4,805		13.7	%	4,753		14.2	%	52			1.1	%
Research and development	2,906		8.3	%	2,812		8.4	%	94			3.3	%
Total operating expenses	14,216		40.6	%	14,506		43.2	%	(290		)	(2.0	%)
Income from operations	$	6,471	18.5	%	$	5,176	15.4	%	$	1,295		25.0	%

Revenue. The increase in revenue was primarily due to an increase in recurring livestock and poultry testing in the U.S., Europe, and Latin America. These increases were mostly offset by lower revenue in the Asia-Pacific region related to continued pressure in our dairy business and lower pregnancy product sales, including impacts from lower milk prices. The favorable impact of currency movements increased revenue by approximately 4%. The New Revenue Standard did not have a material impact on LPD revenue in the second quarter of 2018.

Gross Profit.The increase in gross profit was due to higher sales volumes as well as a 40 basis point increase in the gross profit percentage. The increase in the gross profit percentage was primarily due to foreign currency movements and lower product costs, partially offset by lower prices. The impact from foreign currency movements increased gross profit margin by approximately 60 basis points, including the impact of higher relative hedge losses in the current period.

Operating Expenses. The decrease in sales and marketing expense was due primarily to lower personnel-related costs. General and administrative and research and development costs were consistent as compared to the prior period. The overall change in currency exchange rates resulted in an increase in operating expenses of approximately 1%.

Other

The following table presents the Other results of operations:

໿



	For the Three Months Ended June 30,								Change
Results of Operations (dollars in thousands)	2018		Percent of Revenue		2017		Percent of Revenue		Amount			Percentage

Revenues	$	5,609			$	6,015			$	(406	)	(6.7	%)
Cost of revenue	2,996				3,512				(516		)	(14.7	%)
Gross profit	2,613		46.6	%	2,503		41.6	%	110			4.4	%

Operating Expenses:
Sales and marketing	439		7.8	%	601		10.0	%	(162		)	(27.0	%)
General and administrative	773		13.8	%	826		13.7	%	(53		)	(6.4	%)
Research and development	271		4.8	%	308		5.1	%	(37		)	(12.0	%)
Total operating expenses	1,483		26.4	%	1,735		28.8	%	(252		)	(14.5	%)
Income from operations	$	1,130	20.1	%	$	768	12.8	%	$	362		47.1	%

Revenue.The decrease in revenue was due to lower volumes of our OPTI Medical analyzers and related consumables reflecting prior year customer restocking after temporary product availability constraints during the first quarter of 2017, offset by higher royalties associated with intellectual property related to our former pharmaceutical product line and higher realized prices of our OPTI Medical products and services. The favorable impact of currency movements increased revenue by approximately 40 basis points.

Gross Profit. The increase in gross profit was due to a 5% increase in the gross profit percentage due primarily to increased royalties and higher OPTI Medical realized prices, partially offset by higher OPTI Medical product costs. The overall change in currency exchange rates had an immaterial impact on the gross profit percentage.

Operating Expenses. The decrease in operating expense was due primarily to lower personnel costs in sales and marketing. General and administrative and research and development costs were consistent as compared to the prior period.

Unallocated Amounts

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.”

The following table presents the Unallocated Amounts results of operations:



	For the Three Months Ended June 30,						Change
Results of Operations (dollars in thousands)	2018			2017			Amount			Percentage

Revenues	$	—		$	—		$	—		N/A
Cost of revenue	(150		)	208			(358		)	(172.1	%)
Gross profit	150			(208		)	358			(172.1	%)

Operating Expenses:
Sales and marketing	540			272			268			98.5	%
General and administrative	2,299			1,631			668			41.0	%
Research and development	4,236			3,653			583			16.0	%
Total operating expenses	7,075			5,556			1,519			27.3	%
Loss from operations	$	(6,925	)	$	(5,764	)	$	(1,161	)	20.1	%

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

Operating Expenses. The overall increase in operating expenses was primarily due to foreign exchange losses on settlements of foreign currency denominated transactions compared to gains in the prior period, partially offset by lower unallocated employee incentive costs and corporate function costs as a result of increased allocations to our segments.

Non-Operating Items

Interest Income. Interest income was $0.2 million for the three months ended June 30, 2018, as compared to $1.2 million for the three months ended June 30, 2017. The decrease in interest income was due primarily to the liquidation of our portfolio of marketable securities during the first quarter of 2018. We do not anticipate any material interest income for the remainder of 2018. The adoption of the New Revenue Standard decreased interest income by approximately $0.3 million in the second quarter of 2018.

Interest Expense. Interest expense was $8.5 million for the three months ended June 30, 2018, as compared to $9.2 million for the same period in the prior year. The decrease in interest expense was due to lower average balance on our Credit Facility, partially offset by higher variable interest rates.

Provision for Income Taxes.Our effective income tax rate was 20.9% for the three months ended June 30, 2018, as compared to 25.5% for the three months ended June 30, 2017. The decrease in our effective tax rate was primarily related to the reduction in our U.S. statutory tax rate as a result of the 2017 Tax Act.

Results of Operations

Six Months Ended June 30, 2018, Compared to Six Months Ended June 30, 2017

Comparison to Prior Periods. Our six month period, also referred to as our first half of 2018, ended on June 30. Unless otherwise stated, the analysis and discussion of our financial condition and results of operations below, including references to growth and organic growth and increases and decreases, are being compared to the equivalent prior year period.

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



	For the Six Months Ended June 30,
Net Revenue (dollars in thousands)	2018		2017		Dollar Change		Reported Revenue Growth ⁽¹⁾		Percentage Change from Currency		Percentage Change from Acquisitions		Organic Revenue Growth ⁽¹⁾

CAG	$	978,320	$	843,175	$	135,145	16.0	%	2.7	%	0.1	%	13.3	%
United States	643,151		566,317		76,834		13.6	%	—		0.1	%	13.5	%
International	335,169		276,858		58,311		21.1	%	8.2	%	—		12.9	%

Water	61,801		54,501		7,300		13.4	%	3.1	%	—		10.3	%
United States	29,661		27,385		2,276		8.3	%	—		—		8.3	%
International	32,140		27,116		5,024		18.5	%	6.3	%	—		12.3	%

LPD	67,238		62,870		4,368		6.9	%	5.9	%	—		1.1	%
United States	6,994		6,917		77		1.1	%	—		—		1.1	%
International	60,244		55,953		4,291		7.7	%	6.6	%	—		1.1	%

Other	11,049		10,415		634		6.1	%	0.8	%	—		5.3	%

Total Company	$	1,118,408	$	970,961	$	147,447	15.2	%	2.9	%	0.1	%	12.2	%
United States	684,197		604,308		79,889		13.2	%	—		0.1	%	13.1	%
International	434,211		366,653		67,558		18.4	%	7.7	%	—		10.8	%


(1)	Reported revenue growth and organic revenue growth may not recalculate due to rounding.

Total Company Revenue. The increase in both U.S. and international organic revenues was driven by strong volume gains in CAG Diagnostics recurring revenue, supported by our differentiated diagnostic technologies and expanded commercial organization that are driving increased volumes from new and existing customers in our reference laboratory business and the continued expansion of our CAG Diagnostics instrument installed base. International organic growth was strong in Europe and the Asia Pacific region, reflecting ~~the aforementioned~~ CAG Diagnostics recurring volume driven growth. Our Water business also contributed to our international growth, ~~including benefits~~primarily from higher sales volumes of our ~~go-direct initiatives. The decline~~Colilert test products and related accessories. Total company revenue included approximately $27.2 million in ~~LPD revenue~~the first half of 2018 that was ~~primarily the result of lower global milk prices which drove lower dairy producer demand for diagnostic testing, particularly in China and Brazil, including lower herd health screening.~~

For the Three Months Ended September 30,

Change
Total Company - Results of Operations

Percent of

Percent of

(dollars in thousands)

2017

Revenue

2016

Revenue

Amount

Percentage

Revenues

$
491,976

$
448,308

$
43,668

9.7%

Cost of revenue

217,974

201,578

16,396

8.1%

Gross profit

274,002

55.7%

246,730

55.0%

27,272

11.1%

Operating Expenses:

Sales and marketing

88,818

18.1%

79,972

17.8%

8,846

11.1%

General and administrative

57,186

11.6%

52,627

11.7%

4,559

8.7%

Research and development

27,585

5.6%

25,672

5.7%

1,913

7.5%

Total operating expenses

173,589

35.3%

158,271

35.3%

15,318

9.7%

Income from operations

$
100,413

20.4%

$
88,459

19.7%

$
11,954

13.5%

~~Total Company gross profit increased during the three months ended September 30, 2017, as compared~~attributed to the ~~same period in the prior year,~~New Revenue Standard.

The following table presents total Company results of operations:



	For the Six Months Ended June 30,								Change
Total Company - Results of Operations (dollars in thousands)	2018		Percent of Revenue		2017		Percent of Revenue		Amount		Percentage

Revenues	$	1,118,408			$	970,961			$	147,447	15.2	%
Cost of revenue	482,870				420,055				62,815		15.0	%
Gross profit	635,538		56.8	%	550,906		56.7	%	84,632		15.4	%

Operating Expenses:
Sales and marketing	196,356		17.6	%	174,937		18.0	%	21,419		12.2	%
General and administrative	122,011		10.9	%	108,374		11.2	%	13,637		12.6	%
Research and development	58,533		5.2	%	52,788		5.4	%	5,745		10.9	%
Total operating expenses	376,900		33.7	%	336,099		34.6	%	40,801		12.1	%
Income from operations	$	258,638	23.1	%	$	214,807	22.1	%	$	43,831	20.4	%

Gross Profit. Gross profit increased due to higher sales volumes and a 7010 basis point increase in the gross profit percentage. The increase in the gross profit percentage was supported by the net benefit of price increases in our CAG Diagnostics recurring revenue portfolio, the favorable impact of lower product ~~and manufacturing~~ costs and ~~favorable mix benefits from high growth CAG Diagnostic recurring revenues. These favorable impacts were slightly~~productivity gains, partially offset by ~~a reduction of approximately 20 basis points~~higher information technology costs, including costs that were previously captured within operating expenses, as well as increased investments in reference laboratory capacity. The impact from foreign currency movements including the ~~combined~~ impact of ~~comparisons to~~ hedge gains in the prior ~~year and~~period compared to hedge losses in the current ~~year.~~

period did not have a material impact. Gross profit included approximately $11.7 million in the first half of 2018 attributable to the New Revenue Standard.

Operating Expense. The increase in total Company sales and marketing expense ~~during the three months ended September 30, 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 foreign exchange losses on settlements of foreign currency denominated transactions compared to gains in the prior period, 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 3%.

Companion Animal Group

~~Companion Animal Group~~

The following table presents revenue by product and service category for CAG:

Percentage

Percentage

Net Revenue

For the Three

For the Three

Change

Change

Organic

Months Ended

Months Ended

Dollar

Percentage

from

from

Revenue

(dollars in thousands)

September 30, 2017

September 30, 2016

Change

Change

Currency

Acquisitions

Growth (1)

CAG Diagnostics

recurring revenue:

$
364,937

$
324,603

$
40,334

12.4%

0.9%

0.2%

11.3%

IDEXX VetLab consumables

129,434

113,964

15,470

13.6%

1.1%

-

12.5%

Rapid assay products

50,924

48,720

2,204

4.5%

0.2%

-

4.3%

Reference laboratory diagnostic and

consulting services

167,851

146,672

21,179

14.4%

1.1%

0.5%

12.8%

CAG diagnostics services and accessories

16,728

15,247

1,481

9.7%

0.9%

-

8.8%

CAG Diagnostics capital - instruments

29,119

31,255

(2,136)

(6.8%)

0.9%

-

(7.7%)

Veterinary software, services and diagnostic

imaging systems

32,630

29,430

3,200

10.9%

0.4%

0.9%

9.6%

Net CAG revenue

$
426,686

$
385,288

$
41,398

10.7%

0.9%

0.3%

9.6%

໿



	For the Six Months Ended June 30,
Net Revenue (dollars in thousands)	2018		2017		Dollar Change		Reported Revenue Growth ⁽¹⁾		Percentage Change from Currency		Percentage Change from Acquisitions		Organic Revenue Growth ⁽¹⁾

CAG Diagnostics recurring revenue:	$	843,714	$	726,999	$	116,715	16.1	%	2.8	%	—		13.3	%
IDEXX VetLab consumables	308,133		255,647		52,486		20.5	%	3.2	%	—		17.3	%
Rapid assay products	115,379		108,161		7,218		6.7	%	1.3	%	—		5.4	%
Reference laboratory diagnostic and consulting services	384,205		330,367		53,838		16.3	%	2.9	%	—		13.4	%
CAG diagnostics services and accessories	35,997		32,824		3,173		9.7	%	3.0	%	—		6.6	%
CAG Diagnostics capital - instruments	65,439		53,899		11,540		21.4	%	4.5	%	—		16.9	%
Veterinary software, services and diagnostic imaging systems	69,167		62,277		6,890		11.1	%	0.6	%	1.0	%	9.5	%
Net CAG revenue	$	978,320	$	843,175	$	135,145	16.0	%	2.7	%	0.1	%	13.3	%


(1)		~~Amounts presented~~ Reported revenue growth and organic revenue growth may not recalculate ~~to organic revenue growth rates~~ due to rounding

CAG 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, supported by our differentiated diagnostic technologies and ~~to a lesser extent, higher realized prices, offset by~~our expanded commercial organization. CAG Diagnostics recurring revenue included approximately $9.0 million in the ~~impact~~first half of ~~fewer equivalent business days during the third quarter of 2017, as compared~~2018 that was attributed to the third quarter of 2016, changes in distributor inventory levels in select international markets and the impact of natural disasters in North America and the Caribbean, which are collectively estimated to have reduced overall growth by approximately 2 percent.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. IDEXX VetLab consumables revenue included approximately $6.1 million in the first half of 2018 that was attributed to the New Revenue Standard.

The increase in rapid assay revenue resulted from higher sales ~~volume~~volumes and average unit prices of canine SNAP^®4Dx Plus tests and higher sales volumes of single analyte SNAP products and SNAP feline combination products. Rapid assay revenue included approximately $0.3 million in the first half of 2018 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^™ and fecal antigen ~~testing. Additionally, the increase in revenue was the result of~~testing and, to a lesser extent, higher average unit sales prices. Reference laboratory diagnostic and consulting revenue included approximately $2.8 million in the first half of 2018 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 Diagnostics Capital – Instruments ~~Revenue.~~Revenue. The ~~decrease~~increase in ~~CAG Diagnostics capital instruments~~instrument revenue reflects ~~comparison to strong prior year placement levels, including fulfillment of~~increased SediVue Dx ~~backlog orders~~ and ~~our shift to focus sales incentives on~~Catalyst analyzer placements, supported by the ~~long-term economic value~~introduction of instrument placements. Our focus on long-term economic value continues to drive new and competitive Catalyst placements, which are the highest economic value placements due to the incremental CAG Diagnostic recurring revenue. As part of this focus, we saw declinesIDEXX 360 in the ~~lower relative economic value second Catalyst placements, as well as growth~~first quarter of 2018. The success of our ~~long-term customer commitment programs, including up-front customer loyalty programs in the U.S.~~new IDEXX 360 program caused a shift away from both our instrument rebate and reagent rental programs, ~~internationally. These customer commitment programs result~~which resulted in ~~lower~~

increased upfront instrument revenue ~~recognized at~~recognition attributed to the ~~time~~New Revenue Standard. CAG Diagnostics capital instrument revenue included approximately $15.7 million in the first half of ~~placement and instead~~2018 that was attributed to the ~~recognition of revenues for these programs occurs over the term of the customer agreement.~~

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 to a subscription-based model for new practice management customer acquisitions and~~ lower relative diagnostic imaging system prices. Veterinary software, services and diagnostic imaging revenue included approximately $2.1 million in the first half of 2018 attributed to the New Revenue Standard.

The following table presents the CAG segment results of operations:

For the Three Months Ended September 30,

Change
Results of Operations

Percent of

Percent of

(dollars in thousands)

2017

Revenue

2016

Revenue

Amount

Percentage

Revenues

$
426,686

$
385,288

$
41,398

10.7%

Cost of revenue

191,920

177,083

14,837

8.4%

Gross profit

234,766

55.0%

208,205

54.0%

26,561

12.8%

Operating Expenses:

Sales and marketing

78,684

18.4%

69,049

17.9%

9,635

14.0%

General and administrative

46,624

10.9%

43,025

11.2%

3,599

8.4%

Research and development

20,187

4.7%

18,638

4.8%

1,549

8.3%

Total operating expenses

145,495

34.1%

130,712

33.9%

14,783

11.3%

Income from operations

$
89,271

20.9%

$
77,493

20.1%

$
11,778

15.2%



	For the Six Months Ended June 30,								Change
Results of Operations (dollars in thousands)	2018		Percent of Revenue		2017		Percent of Revenue		Amount		Percentage

Revenues	$	978,320			$	843,175			$	135,145	16.0	%
Cost of revenue	430,477				372,019				58,458		15.7	%
Gross profit	547,843		56.0	%	471,156		55.9	%	76,687		16.3	%

Operating Expenses:
Sales and marketing	173,774		17.8	%	154,156		18.3	%	19,618		12.7	%
General and administrative	101,128		10.3	%	89,463		10.6	%	11,665		13.0	%
Research and development	42,747		4.4	%	38,951		4.6	%	3,796		9.7	%
Total operating expenses	317,649		32.5	%	282,570		33.5	%	35,079		12.4	%
Income from operations	$	230,194	23.5	%	$	188,586	22.4	%	$	41,608	22.1	%

~~CAG~~ Gross Profit.Gross profit ~~for CAG~~ increased ~~during the three months ended September 30, 2017, as compared to the same period in the prior year,~~ primarily due to higher sales volume and a ~~100~~10 basis point increase in the gross profit ~~percentage for the three months ended September 30, 2017, as compared to the same period~~percentage. The increase in ~~the prior year. The~~ gross profit percentage was supported by the net benefit of price increases in our CAG Diagnostics recurring revenue portfolio and the favorable impact of ~~lower product and manufacturing costs and favorable mix benefits from high growth in IDEXX VetLab consumables revenue. These favorable impacts were slightly~~productivity gains, partially offset by ~~a reduction of approximately 20~~higher information technology costs, including costs that were previously captured within operating expenses, as well as increased investments in reference laboratory capacity. The impact from foreign currency movements increased gross profit margin by less than 10 basis points, ~~from currency movements,~~ including the ~~combined~~ impact of ~~comparisons to~~ hedge gains in the prior ~~year and~~period compared to hedge losses in the current ~~year.~~period. Gross profit included approximately $11.4 million in the first half of 2018 attributable to the New Revenue Standard.

~~CAG~~ Operating Expense. The increase in sales and marketing expense ~~during the three months ended September 30, 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 $1.0 million related to net 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.~~investments, partially offset by certain information technology costs that are now captured within cost of revenue. 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 2%.

~~Water~~

Water

The following table presents the Water segment results of operations:

For the Three Months Ended September 30,

Change
Results of Operations

Percent of

Percent of

(dollars in thousands)

2017

Revenue

2016

Revenue

Amount

Percentage

Revenues

$
31,030

$
27,862

$
3,168

11.4%

Cost of revenue

9,401

8,651

750

8.7%

Gross profit

21,629

69.7%

19,211

69.0%

2,418

12.6%

Operating Expenses:

Sales and marketing

3,546

11.4%

3,453

12.4%

93

2.7%

General and administrative

2,949

9.5%

2,778

10.0%

171

6.2%

Research and development

629

2.0%

538

1.9%

91

16.9%

Total operating expenses

7,124

23.0%

6,769

24.3%

355

5.2%

Income from operations

$
14,505

46.7%

$
12,442

44.7%

$
2,063

16.6%



	For the Six Months Ended June 30,								Change
Results of Operations (dollars in thousands)	2018		Percent of Revenue		2017		Percent of Revenue		Amount		Percentage

Revenues	$	61,801			$	54,501			$	7,300	13.4	%
Cost of revenue	18,360				16,374				1,986		12.1	%
Gross profit	43,441		70.3	%	38,127		70.0	%	5,314		13.9	%

Operating Expenses:
Sales and marketing	8,168		13.2	%	7,168		13.2	%	1,000		14.0	%
General and administrative	6,398		10.4	%	5,785		10.6	%	613		10.6	%
Research and development	1,291		2.1	%	1,258		2.3	%	33		2.6	%
Total operating expenses	15,857		25.7	%	14,211		26.1	%	1,646		11.6	%
Income from operations	$	27,584	44.6	%	$	23,916	43.9	%	$	3,668	15.3	%

~~Revenue.~~Revenue. The increase in ~~Water~~ revenue ~~during the three months ended September 30, 2017, as compared to the same period in the prior year,~~ was attributable to ~~the benefits of price increases, partially driven by our go-direct initiative in Brazil 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 and Latin America, and the ~~Asia-Pacific region~~benefit of price increases. Revenue growth in Latin America was driven by our go-direct initiative in Brazil, which contributed approximately 1% to revenue growth, including the impact of reductions in distributor inventories in the prior year and ~~Europe. These overall~~the benefit of price increases in the current year. Water revenue of approximately $0.4 million in the first half of 2018 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 ~~impacts also benefited~~impact of currency movements increased revenue by approximately ~~110 basis points from currency movements.~~ 3%.

Gross ~~Profit.~~Profit. Gross profit ~~for Water~~ increased ~~during the three months ended September 30, 2017, as compared to the same period in the prior year,~~ due to higher sales volumes as well as a 7030 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, ~~partially driven by our go-direct initiatives~~ as well as decreases in manufacturing costs. The ~~overall change in~~impact from foreign currency ~~exchange rates resulted in a decrease in the~~movements decreased gross profit ~~percentage of~~margin by approximately 9060 basis points, ~~during the three months ended September 30, 2017, as compared to the same period of the prior year,~~ including the ~~combined~~ impact of ~~comparisons to~~ hedge gains in the prior ~~year and~~period compared to hedge losses in the current ~~year.~~period. Gross profit included approximately $0.3 million in the first half of 2018 attributable to the New Revenue Standard.

Operating ~~Expenses.~~Expenses. The increase in ~~Water~~ operating expense ~~during the three months ended September 30, 2017, as compared to the same period in the prior year,~~ was primarily due to higher personnel-related costs in sales and marketing ~~expense~~expenses and general and administrative expenses. ~~The increase in research~~Research and development expense ~~for the three months ended September 30, 2017, as compared to the same period~~was relatively unchanged. The overall change in ~~the prior year, was primarily due to lower product development costs~~currency exchange rates resulted in ~~the third quarter~~an increase in operating expenses of ~~2016.~~approximately 3%.

~~Livestock, Poultry and Dairy~~

Livestock, Poultry and Dairy

The following table presents the LPD segment results of operations:

For the Three Months Ended September 30,

Change
Results of Operations

Percent of

Percent of

(dollars in thousands)

2017

Revenue

2016

Revenue

Amount

Percentage

Revenues

$
28,396

$
29,799

$
(1,403)

(4.7%)

Cost of revenue

13,740

12,971

769

5.9%

Gross profit

14,656

51.6%

16,828

56.5%

(2,172)

(12.9%)

Operating Expenses:

Sales and marketing

6,052

21.3%

5,674

19.0%

378

6.7%

General and administrative

4,765

16.8%

5,121

17.2%

(356)

(7.0%)

Research and development

2,937

10.3%

3,007

10.1%

(70)

(2.3%)

Total operating expenses

13,754

48.4%

13,802

46.3%

(48)

(0.3%)

Income from operations

$
902

3.2%

$
3,026

10.2%

$
(2,124)

(70.2%)



	For the Six Months Ended June 30,								Change
Results of Operations (dollars in thousands)	2018		Percent of Revenue		2017		Percent of Revenue		Amount		Percentage

Revenues	$	67,238			$	62,870			$	4,368	6.9	%
Cost of revenue	28,904				26,343				2,561		9.7	%
Gross profit	38,334		57.0	%	36,527		58.1	%	1,807		4.9	%

Operating Expenses:
Sales and marketing	13,119		19.5	%	12,476		19.8	%	643		5.2	%
General and administrative	9,715		14.4	%	9,162		14.6	%	553		6.0	%
Research and development	6,068		9.0	%	5,911		9.4	%	157		2.7	%
Total operating expenses	28,902		43.0	%	27,549		43.8	%	1,353		4.9	%
Income from operations	$	9,432	14.0	%	$	8,978	14.3	%	$	454	5.1	%

~~Revenue.~~Revenue. The ~~decrease~~increase in ~~LPD~~ revenue ~~for the three months ended September 30, 2017, as compared~~was primarily due to ~~the same period~~an increase in recurring livestock and poultry testing in the ~~prior year, primarily resulted from lower global milk prices which drove lower dairy producer demand for diagnostic testing particularly in China~~U.S., Europe, and ~~Brazil, including lower herd health screening.~~Latin America. These ~~decreases~~increases were partially offset by anlower revenue in the Asia-Pacific region related to continued pressure in our dairy business, including impacts from lower milk prices. The favorable impact of currency movements increased revenue by approximately 6%. The New Revenue Standard did not have a material impact on LPD revenue in the first half of 2018.

Gross Profit.The increase in ~~swine testing, primarily in China. The overall change in exchange rates increased revenue growth by approximately 180 basis points.~~

~~Gross Profit.The decrease in LPD~~ gross profit ~~for the three months ended September 30, 2017, as compared to the same period in the prior year,~~ was due to ~~lower~~higher sales volume ~~as well as~~partially offset by a ~~4.9 percent~~110 basis point reduction in the gross profit percentage. The decrease in the gross profit percentage ~~reflecting~~reflected higher product costs and lower ~~realized prices~~prices. The impact from foreign currency movements increased gross profit margin by approximately 40 basis points, including the impact of hedge gains in the prior period compared to hedge losses in the current period.

Operating Expenses. The increase in sales and marketing expense was due primarily to ~~unfavorable regional mix.~~ ~~These unfavorable factors were offset by approximately 10 basis points~~the impact of ~~a favorable~~foreign currency ~~impact, as compared to the same period~~exchange movements. The increase in ~~the prior year.~~

~~Operating Expenses.~~general and administrative expense resulted primarily from consultant costs. The ~~overall decrease~~increase in LPD operating expenses for the three months ended September 30, 2017, as compared to the same period in the prior year, was primarily due to lower LPD allocation of overall overhead costs reflecting the higher relative growth in our CAG business as compared to LPD. This decrease was offset by higher personnel-related costs related to increased headcount in sales and marketing. Researchresearch and development expense ~~for the three months ended September 30, 2017, as compared~~was due primarily to ~~the same period in the prior year, was lower primarily due to lower~~increased personnel-related costs, ~~and consultant costs, slightly~~partially offset by ~~higher regulatory~~lower third-party costs. The overall change in currency exchange rates resulted in an increase in operating expenses of approximately 3%.

Other

The following table presents the Other results of operations:

For the Three Months Ended September 30,

Change
Results of Operations

Percent of

Percent of

(dollars in thousands)

2017

Revenue

2016

Revenue

Amount

Percentage

Revenues

$
5,864

$
5,359

$
505

9.4%

Cost of revenue

2,252

2,574

(322)

(12.5%)

Gross profit

3,612

61.6%

2,785

52.0%

827

29.7%

Operating Expenses:

Sales and marketing

438

7.5%

664

12.4%

(226)

(34.0%)

General and administrative

843

14.4%

558

10.4%

285

51.1%

Research and development

217

3.7%

555

10.4%

(338)

(60.9%)

Total operating expenses

1,498

25.5%

1,777

33.2%

(279)

(15.7%)

Income from operations

$
2,114

36.1%

$
1,008

18.8%

$
1,106

109.7%

໿



	For the Six Months Ended June 30,								Change
Results of Operations (dollars in thousands)	2018		Percent of Revenue		2017		Percent of Revenue		Amount			Percentage

Revenues	$	11,049			$	10,415			$	634		6.1	%
Cost of revenue	6,362				5,801				561			9.7	%
Gross profit	4,687		42.4	%	4,614		44.3	%	73			1.6	%

Operating Expenses:
Sales and marketing	959		8.7	%	1,220		11.7	%	(261		)	(21.4	%)
General and administrative	1,577		14.3	%	1,617		15.5	%	(40		)	(2.5	%)
Research and development	523		4.7	%	616		5.9	%	(93		)	(15.1	%)
Total operating expenses	3,059		27.7	%	3,453		33.2	%	(394		)	(11.4	%)
Income from operations	$	1,628	14.7	%	$	1,161	11.1	%	$	467		40.2	%

~~Revenue.~~Revenue. TheThe increase in ~~Other~~ revenue ~~during the three months ended September 30, 2017, as compared to the same period in the prior year,~~ was ~~primarily~~ due to higher royalties associated with intellectual property related to our former pharmaceutical product line, as well as higher realized prices of our OPTI Medical products and services, partially offset by ~~product availability constraints.~~ lower volumes of our OPTI Medical products and services. The ~~overall change in exchange rates~~favorable impact of currency movements increased revenue ~~growth~~ by approximately 4080 basis points.

Gross ~~Profit.~~Profit~~Gross~~. Overall gross profit ~~for Other increased due to higher sales volumes and~~remained relatively flat despite a ~~9.6 percent increase~~1.9% decrease in the gross profit percentage ~~related~~due primarily to higher ~~realized prices and, to a lesser extent, lower overall~~ OPTI Medical product ~~costs.~~costs, offset by increased royalties. The overall change in currency exchange rates had noan immaterial impact on the gross profit percentage.

Operating ~~Expenses.~~Expenses. The decrease in operating expense ~~for the three months ended September 30, 2017, as compared to the same period in the prior year,~~ was due primarily to lower personnel ~~cost~~costs in sales and marketing ~~due to targeted cost reductions,~~ and research and ~~development, due to discontinuing our product development activities in the human point-of-care medical diagnostics market. These decreases were partially offset by increases in general~~development. General and administrative costs ~~primarily related~~were consistent as compared to ~~personnel related expense.~~the prior period.

Unallocated Amounts

~~The following table presents the Unallocated Amounts results of operations:~~

For the Three Months Ended September 30,

Change
Results of Operations

(dollars in thousands)

2017

2016

Amount

Percentage

Revenues

$
-

$
-

$
-

N/A

Cost of revenue

661

299

362

121.1%

Gross profit

(661)

(299)

(362)

121.1%

Operating Expenses:

Sales and marketing

98

1,132

(1,034)

(91.3%)

General and administrative

2,005

1,145

860

75.1%

Research and development

3,615

2,934

681

23.2%

Total operating expenses

5,718

5,211

507

9.7%

Loss from operations

$
(6,379)

$
(5,510)

$
(869)

15.8%

The following table presents the Unallocated Amounts results of operations:



	For the Six Months Ended June 30,						Change
Results of Operations (dollars in thousands)	2018			2017			Amount			Percentage

Revenues	$	—		$	—		$	—		N/A
Cost of revenue	(1,233		)	(482		)	(751		)	155.8	%
Gross profit	1,233			482			751			155.8	%

Operating Expenses:
Sales and marketing	336			(83		)	419			(504.8	%)
General and administrative	3,193			2,347			846			36.0	%
Research and development	7,904			6,052			1,852			30.6	%
Total operating expenses	11,433			8,316			3,117			37.5	%
Loss from operations	$	(10,200	)	$	(7,834	)	$	(2,366	)	30.2	%

Gross ~~Profit.~~Profit. Costs of revenues impacts that were not allocated to segments ~~during the three months ended September 30, 2017, as compared to the same period in the prior year,~~ were relatively consistent.

Operating ~~Expenses.~~Expenses The increase in operating expenses during the three months ended September 30, 2017, as compared to the same period in the prior year, was primarily due to corporate function spending in research and development and information technology, as well as employee incentives. The decrease in sales and marketing expense was primarily due to lower consulting costs.. The overall increase in operating expenses was primarily due to foreign exchange losses on settlements of foreign currency denominated transactions compared to gains in the prior period, partially offset by ~~favorable foreign exchange gains on monetary assets,~~lower unallocated employee incentive costs and corporate function costs as a result of increased allocations to our segments.

Non-Operating Items

Interest Income. Interest income was $0.8 million for the six months ended June 30, 2018, as compared to ~~losses in the prior year period.~~

~~Non-Operating Items~~

~~Interest Income.~~ ~~Interest income was $1.4~~$2.3 million for the ~~three~~six months ended ~~September~~June 30, ~~2017, as compared to $0.9 million for the three months ended September 30, 2016.~~2017. The ~~increase~~decrease in interest income was due primarily to ~~a relatively larger~~the liquidation of our portfolio of marketable securities during the ~~three~~first quarter of 2018. We do not anticipate any material interest income for the remainder of 2018. The adoption of the New Revenue Standard decreased interest income by approximately $0.6 million in the first half of 2018.

Interest Expense. Interest expense was $17.7 million for the six months ended ~~September~~June 30, ~~2017,~~2018, as compared to ~~the same period of the prior year.~~

~~Interest Expense.~~ ~~Interest expense was $9.8 million for the three months ended September 30, 2017, as compared to $7.8~~$17.7 million for the same period in the prior year. ~~The increase in interest expense was due to higher outstanding balances and higher floating~~Higher variable interest rates on our Credit ~~Facility.~~Facility were offset by lower average balances

Provision for Income ~~Taxes.~~Taxes. Our effective income tax rate was ~~23.4 percent~~18.0% for the ~~three~~six months ended ~~September~~June 30, ~~2017, and 30.8 percent~~2018, as compared to 22.5% for the ~~three~~six months ended ~~September~~June 30, ~~2016.~~2017. The decrease in our effective tax rate ~~for the three months ended September 30, 2017, as compared to the same period in the prior year,~~ was primarily related to the ~~adoption of ASU 2016-09 related to share-based compensation, which reduced~~reduction in our ~~effective~~U.S. statutory tax rate by approximately 4 percent and the expected utilization of foreign tax credits, which reduced our effective tax rate by approximately 3 percent. See Note 2 to the unaudited condensed consolidated financial statements in Part I, Item I of this Quarterly Report on Form 10-Q for more information on the adoption of ASU 2016-09.

~~Nine Months Ended September 30, 2017, Compared to Nine Months Ended September 30, 2016~~

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

For the Nine

For the Nine

Months Ended

Months Ended

Percentage

Percentage

Organic
Net Revenue

September 30,

September 30,

Dollar

Percentage

Change from

Change from

Revenue
(dollars in thousands)

2017

2016

Change

Change

Currency

Acquisitions

Growth (1)

CAG

$
1,269,861

$
1,143,150

$
126,711

11.1%

(0.3%)

0.2%

11.2%

United States

846,968

766,625

80,343

10.5%

-

0.1%

10.4%

International

422,893

376,525

46,368

12.3%

(1.1%)

0.4%

13.0%

Water

85,531

79,243

6,288

7.9%

(0.4%)

-

8.3%

United States

42,357

40,359

1,998

5.0%

-

-

5.0%

International

43,174

38,884

4,290

11.0%

(0.8%)

-

11.8%

LPD

91,266

93,511

(2,245)

(2.4%)

-

-

(2.4%)

United States

10,493

9,965

528

5.3%

-

-

5.3%

International

80,773

83,546

(2,773)

(3.3%)

-

-

(3.3%)

Other

16,279

16,523

(244)

(1.5%)

-

-

(1.5%)

Total Company

$
1,462,937

$
1,332,427

$
130,510

9.8%

(0.3%)

0.2%

9.9%

United States

905,765

821,937

83,828

10.2%

-

0.1%

10.1%

International

557,172

510,490

46,682

9.1%

(0.8%)

0.3%

9.7%

⁽¹⁾

~~Amounts presented may not recalculate to organic revenue growth rates due to rounding.~~

~~The increase in both U.S. and international organic revenues, for the nine months ended September 30, 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 continued expansion of our CAG Diagnostics instrument installed base, as well as growth in our Sedivue analyzer. International organic growth was strong in Europe and the Asia Pacific region, reflecting the aforementioned CAG Diagnostics recurring volume driven growth, and growth in our Water business primarily due to our Colilert ® ~~test products, offset by declines in LPD, primarily the result of lower global milk prices which drove lower dairy producer demand for diagnostic testing, including herd health screening revenues.~~

For the Nine Months Ended September 30,

Change
Total Company - Results of Operations

Percent of

Percent of

(dollars in thousands)

2017

Revenue

2016

Revenue

Amount

Percentage

Revenues

$
1,462,937

$
1,332,427

$
130,510

9.8%

Cost of revenue

638,029

597,617

40,412

6.8%

Gross profit

824,908

56.4%

734,810

55.1%

90,098

12.3%

Operating Expenses:

Sales and marketing

263,755

18.0%

236,453

17.7%

27,302

11.5%

General and administrative

165,560

11.3%

156,239

11.7%

9,321

6.0%

Research and development

80,373

5.5%

75,704

5.7%

4,669

6.2%

Total operating expenses

509,688

34.8%

468,396

35.2%

41,292

8.8%

Income from operations

$
315,220

21.5%

$
266,414

20.0%

$
48,806

18.3%

Total Company gross profit increased during the nine months ended September 30, 2017, as compared to the same period in the prior year, due to higher sales volumes and a 130 basis point increase in the gross profit percentage. The increase in the gross profit percentage was primarily supported by the net benefit of price increases in our CAG Diagnostic recurring portfolio, the favorable impact of lower product and manufacturing costs and favorable mix benefits from high growth in CAG Diagnostics recurring revenues. The gross profit percentage was unfavorably impacted by approximately 20 basis points of currency impact during the nine months ended September 30, 2017, as compared to the same period in the prior year.

The increase in total Company sales and marketing expense during the nine months ended September 30, 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, offset by a prior year non-cash intangible asset impairment within our OPTI Medical business. Research and development expense increased primarily due to higher personnel-related and consultant costs.

~~Companion Animal Group~~

~~The following table presents revenue by product and service category for CAG:~~

Percentage

Percentage

Net Revenue

For the Nine

For the Nine

Change

Change

Organic

Months Ended

Months Ended

Dollar

Percentage

from

from

Revenue

(dollars in thousands)

September 30, 2017

September 30, 2016

Change

Change

Currency

Acquisitions

Growth (1)

CAG Diagnostics

recurring revenue:

$
1,091,936

$
969,097

$
122,839

12.7%

(0.4%)

0.2%

12.8%

IDEXX VetLab consumables

385,081

336,493

48,588

14.4%

(0.4%)

-

14.8%

Rapid assay products

159,085

147,583

11,502

7.8%

(0.2%)

-

8.0%

Reference laboratory diagnostic and

consulting services

498,218

440,514

57,704

13.1%

(0.4%)

0.5%

13.0%

CAG diagnostics services and accessories

49,552

44,507

5,045

11.3%

(0.5%)

-

11.8%

CAG Diagnostics capital - instruments

83,018

86,063

(3,045)

(3.5%)

(0.5%)

-

(3.1%)

Veterinary software, services and diagnostic

imaging systems

94,907

87,990

6,917

7.9%

-

0.3%

7.5%

Net CAG revenue

$
1,269,861

$
1,143,150

$
126,711

11.1%

(0.3%)

0.2%

11.2%

⁽¹⁾

~~Amounts presented may not recalculate to organic revenue growth rates due to rounding.~~

~~CAG Diagnostics Recurring 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.

~~IDEXX VetLabconsumables 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 Dx~~® consumables and SediVue Dx analyzer pay-per-run sales, resulting from growth in testing by existing customers and an expanded menu of available tests, as well as benefits from higher average unit sales prices.

~~The increase in rapid assay revenue resulted from higher sales volume and average unit price of canine SNAP 4Dx Plus tests and higher sales volumes of single analyte SNAP products.~~

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

~~CAG Diagnostics Capital – Instruments Revenue.~~ The decrease in CAG Diagnostics capital instruments revenue reflects comparison to strong prior year placement levels, including the introduction of SediVue Dx in the second quarter of 2016 and our shift to focus sales incentives on the long-term economic value of instrument placements during 2017. Our focus on long-term economic value continues to drive new and competitive Catalyst placements, which are the highest economic value placements due to the incremental CAG Diagnostic recurring revenue. As part of this focus, we continue to see declines in the lower relative long-term economic value second Catalyst placements, as well as growth of our customer commitment programs, including up-front customer loyalty programs in the U.S. and reagent rental programs internationally. These customer commitment programs result in lower upfront instrument revenue recognized at the time of placement, and instead the recognition of revenue for these programs occurs over the term of the customer agreement.

~~Veterinary Software, Services and Diagnostic Imaging Systems Revenue.~~The increase in customer information management and diagnostic imaging systems revenue was primarily due to increasing 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 to a subscription-based model for new practice management customer acquisitions and lower relative diagnostic imaging system prices.~~

~~The following table presents the CAG segment results of operations:~~

For the Nine Months Ended September 30,

Change
Results of Operations

Percent of

Percent of

(dollars in thousands)

2017

Revenue

2016

Revenue

Amount

Percentage

Revenues

$
1,269,861

$
1,143,150

$
126,711

11.1%

Cost of revenue

563,939

524,182

39,757

7.6%

Gross profit

705,922

55.6%

618,968

54.1%

86,954

14.0%

Operating Expenses:

Sales and marketing

232,840

18.3%

206,482

18.1%

26,358

12.8%

General and administrative

136,087

10.7%

128,104

11.2%

7,983

6.2%

Research and development

59,138

4.7%

54,524

4.8%

4,614

8.5%

Total operating expenses

428,065

33.7%

389,110

34.0%

38,955

10.0%

Income from operations

$
277,857

21.9%

$
229,858

20.1%

$
47,999

20.9%

~~CAG Gross Profit.~~ ~~Gross profit for CAG increased during the nine months ended September 30,~~ 2017 as compared to the same period in the prior year, primarily due to higher sales volume and a 150 basis point increase in the gross profit percentage for the nine months ended September 30, 2017, as compared to the same period in the prior year. The gross profit percentage was primarily supported by the net benefit of price increases in our CAG Diagnostic recurring portfolio, the favorable impact of lower product and manufacturing costs, and favorable mix benefits from high growth in IDEXX VetLab consumables and rapid assay revenues. These favorable impacts were slightly offset by a reduction of approximately 20 basis points from currency movements.Tax Act.

~~CAG Operating Expense.~~ The increase in sales and marketing expense during the nine months ended September 30, 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 higher personnel-related costs to support overall growth. The increase in research and development expense was also due primarily to increased personnel-related costs.

~~Water~~

~~The following table presents the Water segment results of operations:~~

For the Nine Months Ended September 30,

Change
Results of Operations

Percent of

Percent of

(dollars in thousands)

2017

Revenue

2016

Revenue

Amount

Percentage

Revenues

$
85,531

$
79,243

$
6,288

7.9%

Cost of revenue

25,775

24,546

1,229

5.0%

Gross profit

59,756

69.9%

54,697

69.0%

5,059

9.2%

Operating Expenses:

Sales and marketing

10,714

12.5%

9,943

12.5%

771

7.8%

General and administrative

8,734

10.2%

7,883

9.9%

851

10.8%

Research and development

1,887

2.2%

2,007

2.5%

(120)

(6.0%)

Total operating expenses

21,335

24.9%

19,833

25.0%

1,502

7.6%

Income from operations

$
38,421

44.9%

$
34,864

44.0%

$
3,557

10.2%

~~Revenue.~~ The increase in Water revenue during the nine months ended September 30, 2017, as compared to the same period in the prior year, was attributable to the benefits of price increases, partially driven by our go-direct initiative in Brazil 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. These overall favorable impacts were offset by a reduction of approximately 40 basis points from currency movements, in the current period.~~

~~Gross Profit.~~Gross profit for Water increased during the nine months ended September 30, 2017, as compared to the same period in the prior year, due to higher sales volumes as well as a 90 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, partially driven by our go-direct initiatives. The overall change in currency exchange rates resulted in a decrease in the gross profit percentage of approximately 40 basis points during the nine months ended September 30, 2017, as compared to the same period of the prior year, primarily due to lower relative hedge gains in the current year, compared to the prior year.

~~Operating Expenses.~~ The increase in Water operating expense during the nine months ended September 30, 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 nine months ended September 30, 2017, as compared to the same period in the prior year, was lower primarily due to certain project costs that were incurred in the first half of 2016.

~~Livestock, Poultry and Dairy~~

~~The following table presents the LPD segment results of operations:~~

For the Nine Months Ended September 30,

Change
Results of Operations

Percent of

Percent of

(dollars in thousands)

2017

Revenue

2016

Revenue

Amount

Percentage

Revenues

$
91,266

$
93,511

$
(2,245)

(2.4%)

Cost of revenue

40,083

39,528

555

1.4%

Gross profit

51,183

56.1%

53,983

57.7%

(2,800)

(5.2%)

Operating Expenses:

Sales and marketing

18,528

20.3%

17,084

18.3%

1,444

8.5%

General and administrative

13,927

15.3%

15,107

16.2%

(1,180)

(7.8%)

Research and development

8,848

9.7%

9,127

9.8%

(279)

(3.1%)

Total operating expenses

41,303

45.3%

41,318

44.2%

(15)

(0.0%)

Income from operations

$
9,880

10.8%

$
12,665

13.5%

$
(2,785)

(22.0%)

~~Revenue.~~ The decrease in LPD revenue for the nine months ended September 30, 2017, as compared to the same period in the prior year, resulted from lower global milk prices which drove lower dairy producer demand for diagnostic testing particularly in China and Brazil, including lower herd health screening. These decreases were partially offset by an increase in swine testing, primarily in China, as well as expanded pregnancy testing primarily in North America and Europe. The overall change in exchange rates had no impact to overall revenue growth for the nine months ended September 30, 2017, as compared to the same period in the prior year.

~~Gross Profit.~~The decrease in LPD gross profit for the nine months ended September 30, 2017, as compared to the same period in the prior year, was due to lower sales volume as well as a 160 basis point reduction in the gross profit percentage reflecting higher product costs. These unfavorable factors were offset by approximately 20 basis points of currency impact during the nine months ended September 30, 2017, ~~primarily due to lower relative hedge losses in the current year compared to the prior year.~~

~~Operating Expenses.~~ Overall LPD operating expenses for the nine months ended September 30, 2017, as compared to the same period in the prior year, was relatively unchanged. Sales and marketing expenses increased during the nine months ended September 30, 2017, as compared to the same period in the prior year, due to increases in commercial infrastructure investments in emerging markets. General and administration expenses were lower due to a lower LPD allocation of overall overhead costs reflecting the higher relative growth in our CAG business as compared to LPD. Research and development expense for the nine months ended September 30, 2017, was lower due to lower consultant and personnel-related costs, slightly offset by increases in regulatory costs, as compared to the same period in the prior year.

~~Other~~

~~The following table presents the Other results of operations:~~

For the Nine Months Ended September 30,

Change
Results of Operations

Percent of

Percent of

(dollars in thousands)

2017

Revenue

2016

Revenue

Amount

Percentage

Revenues

$
16,279

$
16,523

$
(244)

(1.5%)

Cost of revenue

8,053

8,524

(471)

(5.5%)

Gross profit

8,226

50.5%

7,999

48.4%

227

2.8%

Operating Expenses:

Sales and marketing

1,658

10.2%

2,208

13.4%

(550)

(24.9%)

General and administrative

2,460

15.1%

4,158

25.2%

(1,698)

(40.8%)

Research and development

833

5.1%

2,382

14.4%

(1,549)

(65.0%)

Total operating expenses

4,951

30.4%

8,748

52.9%

(3,797)

(43.4%)

Income (loss) from operations

$
3,275

20.1%

$
(749)

(4.5%)

$
4,024

(537.2%)

~~Revenue.~~The decrease in Other revenue during the nine months ended September 30, 2017, as compared to the same period in the prior year, was primarily due to lower sales volumes of our OPTI Medical blood gas analyzers and related consumables as a result of temporary product availability constraints, partially offset by price increases.

~~Gross Profit.~~ Gross profit for Other increased due to a 210 basis points increase in the gross profit percentage due to lower manufacturing costs and, to a lesser extent, higher realized pricing on overall OPTI Medical product and services. The overall change in currency exchange rates resulted in a decrease in the gross profit percentage of less than 10 basis points.

~~Operating Expenses.~~The decrease in operating expense for the nine months ended September 30, 2017, 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 half 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.

During the first quarter of 2016, management reviewed our OPTI Medical product offering, which resulted in the discontinuance of our instrument development activities in the human point-of-care medical diagnostics market and a decision to focus our commercial and development efforts to support our latest generation OPTI CCA-TS2 Blood Gas and Electrolyte Analyzer. During the second quarter of 2016, management identified unfavorable trends in our OPTI Medical business resulting from this change in strategy. We revised our forecasts downward, causing us to assess the realizability of the related tangible and intangible assets and determined the expected future cash flows were less than the carrying value of the OPTI Medical asset group. N~~on-cash intangible asset impairments of $2.2 million were recognized during the six months ended June 30, 2016.~~

~~Unallocated Amounts~~

~~The following table presents the Unallocated Amounts results of operations:~~

For the Nine Months Ended September 30,

Change
Results of Operations

(dollars in thousands)

2017

2016

Amount

Percentage

Revenues

$
-

$
-

$
-

N/A

Cost of revenue

179

837

(658)

(78.6%)

Gross profit

(179)

(837)

658

(78.6%)

Operating Expenses:

Sales and marketing

15

736

(721)

(98.0%)

General and administrative

4,352

987

3,365

340.9%

Research and development

9,667

7,664

2,003

26.1%

Total operating expenses

14,034

9,387

4,647

49.5%

Loss from operations

$
(14,213)

$
(10,224)

$
(3,989)

39.0%

~~Gross Profit.~~ ~~The cost of revenue that was not allocated to segments was relatively consistent during the nine months ended September 30, 2017, as compared to the same period in the prior year.~~

~~Operating Expenses.~~ The increase in operating expenses during the nine months ended September 30, 2017, as compared to the same period in the prior year, was primarily due to higher than budgeted employee incentive costs, as well as corporate function spending in research and development, information technology and human resources. The overall increase in operating expenses was partially offset by favorable foreign exchange gains on monetary assets, as compared to losses in the prior year, as well as customer interest payments on overdue accounts.

~~Non-Operating Items~~

~~Interest Income.~~ Interest income was $3.7 million for the nine months ended September 30, 2017, as compared to $2.6 million for the nine months ended September 30, 2016. The increase in interest income was due primarily to a relatively larger portfolio of marketable securities during the nine months ended September 30, 2017, as compared to the same period in the prior year.

~~Interest Expense.~~ Interest expense was $27.5 million for the nine months ended September 30, 2017, as compared to $24.3 million for the same period of the prior year. The increase in interest expense was due to higher outstanding balances and higher floating interest rates on our Credit Facility.

~~Provision for Income Taxes.~~Our effective income tax rate was 22.8 percent for the nine months ended September 30, 2017, and 30.7 percent for the nine months ended September 30, 2016. The decrease in our effective tax rate for the nine months ended September 30, 2017, as compared to the same period in the prior year, was primarily related to the adoption of ASU 2016-09 related to share-based compensation, which reduced our effective tax rate by approximately 8 percent and the expected utilization of foreign tax credits, which reduced our effective tax rate by approximately 1 percent.

Liquidity and Capital Resources

Liquidity

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 ~~September~~June 30, ~~2017,~~2018, we had ~~$454.1~~$174.6 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 ~~$53.8~~$34.5 million at ~~September~~June 30, ~~2017,~~2018, as compared to negative ~~$89.0~~$32.6 million at December 31, ~~2016.~~2017. Additionally, at ~~September~~June 30, ~~2017,~~2018, we had remaining borrowing availability of ~~$162.8~~$412.0 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.

~~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~~ Should we require more capital in the ~~various jurisdictions where~~U.S. than is generated by our operations, for example to fund significant discretionary activities, we ~~operate,~~could elect to raise capital in the ~~varying tax treatment~~U.S. through debt or equity issuances. These alternatives could result in increased interest expense or other dilution of ~~potential repatriation scenarios, andthetiming of any future repatriation.~~our earnings.

We manage our worldwide cash requirements considering available funds among all of our subsidiaries. Our foreign cash and marketable securities are generally available without restrictionsto 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 ~~September~~June 30, ~~2017,~~2018, and December 31, ~~2016:~~

2017:

Cash, cash equivalents and marketable securities

September 30,

December 31,

(dollars in thousands)

2017

2016

U.S.

$
2,733

$
4,833

Foreign

451,371

387,017

Total

$
454,104

391,850

Total cash, cash equivalents and marketable securities held in U.S. dollars

$
324,874

$
285,756

Percentage of total cash, cash equivalents and marketable securities held in U.S. dollars

71.5%

72.9%

໿

~~The following table presents~~



Cash, cash equivalents and marketable securities (dollars in thousands)	June 30, 2018			December 31, 2017

U.S.	$	3,302		$	5,902
Foreign	171,257			466,028
Total	$	174,559		471,930

Total cash, cash equivalents and marketable securities held in U.S. dollars by our foreign subsidiaries	$	20,389		$	334,339

Percentage of total cash, cash equivalents and marketable securities held in U.S. dollars by our foreign subsidiaries	11.7		%	70.8		%

໿

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 ~~September 30, 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.

Marketable securities

Percent of

Percent of

(dollars in thousands)

September 30, 2017

Total

December 31, 2016

Total

Corporate bonds

$
139,631

49.0%

$
130,771

55.2%

Certificates of deposit

60,473

21.2%

40,400

17.1%

Commercial paper

24,234

8.5%

20,228

8.5%

Asset backed securities

22,481

7.9%

27,315

11.5%

U.S. government bonds

16,286

5.7%

12,231

5.2%

Treasury bills

10,993

3.9%

-

0.0%

Agency bonds

10,987

3.9%

4,604

1.9%

Municipal bonds

-

0.0%

1,400

0.6%

Total marketable securities

$
285,085

$
236,949

Of the ~~$169~~$174.6 million of cash and cash equivalents held as of ~~September~~June 30, ~~2017, 84 percent~~2018, approximately 93% was held as bank deposits ~~12 percent~~and approximately 7% 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.~~

securities.

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.

The following table presents additional key information concerning working capital:

For the Three Months Ended

September 30,

June 30,

March 31,

December 31,

September 30,

2017

2017

2017

2016

2016

Days sales outstanding (1)

43.4

41.7

42.4

42.1

42.4
Inventory turns (2)

1.9

2.0

1.9

2.0

1.8
໿

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

~~(2)~~ ~~Inventory turns 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
	June 30, 2018	March 31, 2018	December 31, 2017	September 30, 2017	June 30, 2017

Days sales outstanding ⁽¹⁾	41.2	42.0	41.7	43.4	41.7
Inventory turns ⁽²⁾	2.2	2.0	2.2	1.9	2.0


(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.

Sources and Uses of Cash

The following table presents cash provided (used):

For the Nine Months Ended September 30,
(dollars in thousands)

2017

2016

Dollar Change

Net cash provided by operating activities

$
252,150

$
238,188

$
13,962

Net cash used by investing activities

(114,201)

(76,508)

(37,693)

Net cash used by financing activities

(129,958)

(144,944)

14,986

Net effect of changes in exchange rates on cash

6,127

4,342

1,785

Net change in cash and cash equivalents

$
14,118

$
21,078

$
(6,960)

໿



	For the Six Months Ended June 30,
(dollars in thousands)	2018			2017			Dollar Change

Net cash provided by operating activities	$	153,728		$	141,466		$	12,262
Net cash provided (used) by investing activities	232,661			(72,714		)	305,375
Net cash used by financing activities	(395,699		)	(62,087		)	(333,612		)
Net effect of changes in exchange rates on cash	(3,806		)	4,409			(8,215		)
Net change in cash and cash equivalents	$	(13,116	)	$	11,074		$	(24,190	)

Operating Activities. The increase in cash provided by operating activities of ~~$14.0~~$12.3 million was driven primarily by the ~~increase~~increases in net income ~~including~~and the ~~impact~~benefit of ~~adopting the new accounting guidance to share-based compensation,~~deferred income taxes, 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 Nine Months Ended September 30,
(dollars in thousands)

2017

2016

Dollar Change

Accounts receivable

$
(18,724)

$
(16,647)

$
(2,077)

Inventories

(22,966)

(2,503)

(20,463)

Accounts payable

(3,540)

(2,496)

(1,044)

Deferred revenue

2,279

3,798

(1,519)

Other assets and liabilities

(10,734)

12,380

(23,114)

Tax benefit from share-based compensation arrangements

-

(10,225)

10,225

Total change in cash due to changes in operating assets and liabilities and the tax benefit from share-based compensation arrangements

$
(53,685)

$
(15,693)

$
(37,992)

໿



	For the Six Months Ended June 30,
(dollars in thousands)	2018			2017			Dollar Change

Accounts receivable	$	(32,872	)	$	(32,400	)	$	(472	)
Inventories	(16,825		)	(18,850		)	2,025
Accounts payable	3			1,422			(1,419		)
Deferred revenue	(3,252		)	1,898			(5,150		)
Other assets and liabilities	(55,781		)	(21,426		)	(34,355		)

Total change in cash due to changes in operating assets and liabilities	$	(108,727	)	$	(69,356	)	$	(39,371	)

Cash used ~~by accounts receivable~~due to changes in operating assets and liabilities during the ~~nine~~six months ended~~September~~ June 30, ~~2017,~~2018, as compared to ~~cash used during~~ the same period in the prior year, increased approximately ~~$2.1~~$39.4 million primarily due to the impact of instruments placements under a new volume commitment program referred to as IDEXX 360, which increases other assets and a related decrease in deferred revenues as a result of ~~higher revenues, period over period. Cash used by inventory during~~fewer instruments placements under rebate programs. Our transition to the~~ninemonths endedSeptember 30, 2017, as compared~~ New Revenue Standard also impacted the classification of cash flow impacts, see Notes 2 and 3 to ~~cash used during~~ the ~~same period~~unaudited condensed consolidated financial statements in ~~the prior year, increased by $20.5 million, driven by operational initiatives to optimize inventory levels that were implemented in the first half~~Part I, Item I of ~~2016, which followed a period of inventory growth to support new products and increasing demand, as well as timing impacts of inventory shipments between the fourth quarter of 2016~~this Quarterly Report on Form 10-Q for additional information regarding our volume commitment programs and the ~~first quarter~~impact of ~~2017. Cash used by other assets and liabilities during theninemonths endedSeptember 30, 2017 increased $23.1 million primarily as a result of higher relative employee incentive compensation payments, compared to~~ the ~~same period in the prior year.~~

New Revenue Standard.

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 provided by investing activities was $232.7 million for the six months ended June 30, 2018, as compared to cash used by investing activities of $72.7 million for the same period in the prior year. The 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 ~~investing~~financing activities was ~~$114.2~~$395.7 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2018, as compared to ~~$76.5~~cash used by financing activities of $62.1 million for the same period in the prior year. The increase in cash used by ~~investing activities was primarily due to net purchases of marketable securities and acquisitions of businesses during the first nine months of 2017.~~

~~Financing Activities.~~Cash used by financing activities was $130.0 million for the nine months ended September 30, 2017, as compared to cash used by financing activities of $144.9 million for the same period in the prior year. The decrease in cash used by financing activities was due to ~~an increase in borrowings~~a partial repayment on our revolving Credit Facility ~~partially offset by~~from repatriated foreign cash and an increase in repurchases of our common ~~stock and the impacts of adopting the new accounting guidance related to share-based compensation, which resulted in reclassification to operating activities.~~stock.

Cash used to repurchase shares of our common stock increased ~~$137.1~~$19.1 million during the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2018, as compared to the same period in 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 10 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 ~~$160.3~~$218.0 million during the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2018, as compared to $93.0 million of cash provided in the same period of the prior year. At ~~September~~June 30, ~~2017,~~2018, we had ~~$686.3~~$437.0 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.

44Effect 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 ~~September~~June 30, ~~2017,~~2018, we were in compliance with ~~the covenants of the Credit Facility and Senior Note Agreements.~~such covenant. The following details our consolidated leverage ratio calculation as of ~~September~~June 30, ~~2017:~~

2018:


	~~September 30,~~
~~Trailing 12 Months Adjusted EBITDA:~~		~~2017~~

~~Net income attributable to stockholders~~	$	~~277,256~~
~~Interest expense~~		~~35,263~~
~~Provision for income taxes~~		~~91,148~~
~~Depreciation and amortization~~		~~81,861~~
~~Share-based compensation expense~~		~~22,632~~
~~Adjusted EBITDA~~	$	~~508,160~~

	~~September 30,~~
~~Debt to Adjusted EBITDA Ratio:~~		~~2017~~

~~Line of credit~~	$	~~686,250~~
~~Long-term debt~~		~~604,149~~
~~Total debt~~		~~1,290,399~~
~~Acquisition-related contingent consideration payable~~		~~5,087~~
~~Capitalized leases~~		~~467~~
~~U.S. GAAP change - deferred financing costs~~		~~507~~
~~Gross debt~~		~~1,296,460~~
~~Gross debt to Adjusted EBITDA ratio~~		~~2.55~~

~~Less: Cash and cash equivalents~~		~~(169,019)~~
~~Less: Marketable securities~~		~~(285,085)~~
~~Net debt~~	$	~~842,356~~
~~Net debt to Adjusted EBITDA ratio~~		~~1.66~~

໿



	Twelve months ended
Trailing 12 Months Adjusted EBITDA:	June 30, 2018

Net income attributable to stockholders (as reported)	$	306,910
Interest expense	37,212
Provision for income taxes	116,433
Depreciation and amortization	83,943
Share-based compensation expense	24,127
Adjusted EBITDA	$	568,625


Debt to Adjusted EBITDA Ratio:	June 30, 2018

Line of credit	$	437,000
Long-term debt	603,130
Total debt	1,040,130
Acquisition-related contingent consideration payable	2,537
Capitalized leases	330
U.S. GAAP change - deferred financing costs	460
Gross debt	1,043,457
Gross debt to Adjusted EBITDA ratio	1.84

Less: Cash and cash equivalents	(174,559		)
Net debt	$	868,898
Net debt to Adjusted EBITDA ratio	1.53

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.

Other Commitments, Contingencies and Guarantees

Significant commitments, contingencies and guarantees at ~~September~~June 30, ~~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-Liquidity~~Operations—Liquidity and Capital Resources,” and in Note 14 to the consolidated financial statements contained in our ~~2016~~2017 Annual Report.

Item 3. 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. ~~For both the three~~Approximately 21% and ~~nine months ended September 30, 2017, approximately 21 percent~~22% of our consolidated revenue was derived from products manufactured in the U.S. and sold internationally in local currencies for the three and six months ended June 30, 2018, respectively, as compared to ~~21 percent~~20% for both the three and six months ended ~~September 31, 2016, and 20 percent for the nine months ended September~~June 30, ~~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 exchangeimpacts arecomprised of three components: 1) local currency revenues and expenses; 2) the impact ofhedge 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 reducerevenue by approximately $2$4 million andoperating income byapproximately $1$2 million. Additionally, we project our foreign currency hedgecontractsin place as of ~~September~~June 30, ~~2017,~~2018, would result in ~~incremental~~ offsetting gains ~~of less than $0.5 million.~~that are immaterial. 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, the favorable impact onfrom a weaker dollar in the first half of 2018 will be partially offset by the projected impact of a stronger U.S. dollar for the remainder of the year, resulting in our revenues, operating profit, and diluted earnings per share for the ~~three and nine months ended September 30, 2017 and 2016, as compared to the respective prior periods:~~

For the Three Months Ended

For the Nine Months Ended
(dollars in thousands)

September 30, 2017

September 30, 2016

September 30, 2017

September 30, 2016

Revenue impact

$
4,744

$
(884)

$
(3,512)

$
(11,259)

Operating profit impact, excluding hedge activity

$
1,982

$
(104)

$
(2,514)

$
(4,778)

Hedge gains - prior year

(648)

(5,003)

(1,538)

(14,548)
Hedge (losses) gains - current year

(893)

648

935

1,538
Hedging activity impact

(1,541)

(4,355)

(603)

(13,010)

Operating profit impact, including hedge activity

$
441

$
(4,459)

$
(3,117)

$
(17,788)
Diluted earnings per share impact, including hedge activity

$
-

$
(0.04)

$
(0.03)

$
(0.15)

At our current foreign currency exchange rate assumptions, we anticipate the impact of a weaker U.S. dollar in the second half of 2017 will more than offset the impact of a stronger dollar in the first half of 2017 on our revenues, resulting in a year-over-year increase of approximately $5 million. We anticipate the movement in the exchange rates will decrease our operating profit and diluted earnings per share in the year ending December 31, ~~2017,~~2018, increasing by approximately $9 million, $1 million, and $0.01 per share, respectively. This ~~unfavorable~~favorable impact ~~is net of projected 2017 benefits~~includes an immaterial impact from ~~previously established~~ foreign currency hedging ~~contracts, which is expected to decrease total company operating profit by approximately $3 million and diluted earnings per share by approximately $0.02 in the year ending December 31, 2017.~~activity. 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 ~~$1.16,~~$1.14, the British pound at ~~$1.30,~~$1.28, the Canadian dollar at ~~$0.78,~~$0.74, and the Australian dollar at ~~$0.77,~~$0.72; and the Japanese yen at ~~¥114,~~¥115, the Chinese renminbi at RMB ~~6.71~~6.90 and the Brazilian real at R$~~3.20~~3.95 relative 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 and six months ended June 30, 2018 and 2017, as compared to the respective prior periods:

໿



	For the Three Months Ended June 30,						For the Six Months Ended June 30,
(dollars in thousands)	2018			2017			2018			2017

Revenue impact	$	9,791		$	(5,301	)	$	27,607		$	(8,256	)

Operating profit impact, excluding hedge activity	$	3,456		$	(2,044	)	$	10,598		$	(4,496	)

Hedge gains - prior year	(753		)	(80		)	(1,828		)	(889		)
Hedge (losses) gains - current year	(833		)	753			(2,668		)	1,828
Hedging activity impact	(1,586		)	673			(4,496		)	939

Operating profit impact, including hedge activity	$	1,870		$	(1,371	)	$	6,102		$	(3,557	)
Diluted earnings per share impact, including hedge activity	$	0.02		$	(0.01	)	$	0.05		$	(0.03	)

Item 4. Controls and Procedures

Disclosure Controls and Procedures

Our management is responsible for establishing and maintaining disclosure controls and procedures, as defined by the SEC in its Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 as amended (the “Exchange Act”). The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures at ~~September~~June 30, ~~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.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the three months ended ~~September~~June 30, ~~2017,~~2018, that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II — OTHER INFORMATION

Item 1. Legal Proceedings

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.

Item 1A. Risk Factors

In addition to the other information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the risk factors discussed in “Part I, Item 1A. Risk ~~Factors"~~Factors” in our ~~2016~~2017 Annual Report, as well as the updated risk factors below, which supplement and should be read in conjunction with the risk factors disclosed in our 2017 Annual Report, any and all of which could materially affect our business, financial condition, or future results. ~~There~~Except as described below in this Item 1A., there have been no material changes from the risk factors previously disclosed in the ~~2016~~2017 Annual Report. The risks described in this Quarterly Report on Form 10-Q and in our ~~2016~~2017 Annual Report are not the only risks facing our ~~Company and additional~~Company. 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.

Our dependence on suppliers could limit our ability to sell certain products or negatively affect our operating results

We rely on third-party suppliers to provide components for our products, manufacture products that we do not manufacture ourselves and perform services that we do not provide ourselves, including package-delivery services. Because these suppliers are independent third parties with their own financial objectives, actions taken by them could have a materially negative effect on our results of operations. The risks of relying on suppliers include our inability to enter into contracts with such suppliers on reasonable terms, breach, or termination by suppliers of their contractual obligations, inconsistent or inadequate quality control, relocation of supplier facilities, disruption to suppliers’ business, including work stoppages, suppliers’ failure to comply with complex and changing regulations, and third party financial failure. Any problems with our suppliers and associated disruptions to our supply chain could materially negatively impact our ability to supply the market, substantially decrease sales, lead to higher costs, or damage our reputation with our customers, and any longer-term disruptions

could potentially result in the permanent loss of our customers, which could reduce our recurring revenues and long-term profitability. Disruption to our supply chain could occur as a result of any number of events, including, but not limited to, increases in wages that drive up prices; the imposition of regulations, trade protection measures, tariffs, duties, import/export restrictions, quotas or embargoes on key components; labor stoppages; transportation failures affecting the supply and shipment of materials and finished goods; the unavailability of raw materials; severe weather conditions; natural disasters; civil unrest, geopolitical developments, war or terrorism; computer viruses, physical or electronic breaches, or other information system disruptions or security breaches; and disruptions in utility and other services. For more information regarding the risks presented by natural and other disasters and system disruptions and security breaches from cyberattacks, see the risk factor titled “Natural and other disasters, information technology system failures and network disruptions and cybersecurity breaches and attacks could adversely affect our business” in our 2017 Annual Report.

In addition, we currently purchase many products and materials from sole or single sources. Some of the products that we purchase from these sources are proprietary and, therefore, cannot be readily or easily replaced by alternative sources. These products include the majority of our Catalyst Dx and Catalyst One consumables; VetLyte electrolyte consumables; ProCyte Dx hematology, IDEXX VetAutoread hematology, and VetTest chemistry analyzers and related consumables and accessories; SediVue Dx urine sediment analyzer and consumables; image capture plates used in our diagnostic imaging systems; and certain components and raw materials used in our SNAP rapid assay kits and SNAP Pro Mobile Device, Catalyst One, LaserCyte and LaserCyte Dx hematology analyzers, livestock and poultry diagnostic tests, dairy testing products, and water testing products. Even where products and materials are available from alternate suppliers, if any becomes unavailable to us for any reason we likely would incur additional costs and delays in identifying or qualifying replacement materials and there can be no assurance that replacements would be available to us on acceptable terms, or at all. In certain cases, we may be required to obtain regulatory approval to use alternative suppliers, and this process of approval could delay production of our products or development of product candidates indefinitely.

We seek to mitigate risks associated with sole and single source suppliers, when possible, by entering into long-term contracts that provide for an uninterrupted supply of products at predictable or fixed prices. However, suppliers may decline to enter into long-term contracts for any number of reasons, which required us to purchase products via short-term contracts or on a purchase order basis. There can be no assurance that suppliers with which we do not have long-term contracts will continue to supply our requirements for products, that suppliers with which we do have long-term contracts will always fulfill their obligations under those contracts, or that any of our suppliers will not experience disruptions in their ability to supply our requirements for products. In cases where we purchase sole and single source products or components under purchase orders, we are more susceptible to unanticipated cost increases or changes in other terms of supply. In addition, under some contracts with suppliers we have minimum purchase obligations, and our failure to satisfy those obligations may result in loss of some or all of our rights under these contracts or require us to compensate the supplier. If we are unable to obtain adequate quantities of products in the future from sole and single source suppliers, or if such sole and single source suppliers are unable to obtain the components or other materials required to manufacture the products, we may be unable to supply the market, which could have a material adverse effect on our results of operations, and any longer-term disruptions could potentially result in the permanent loss of customers, which could reduce our recurring revenues and long-term profitability.

Our operations and reputation may be impaired if we, our products, or our services do not comply with evolving laws and regulations regarding data privacy and protection

The privacy and security of personally identifiable information stored, maintained, received, or transmitted electronically is a major issue in the United States and abroad. We offer products and services that collect and use personal data provided by client practices and individuals, including practice management systems for veterinary practices (e.g., Cornerstone and IDEXX Neo), online client communication tools and services (e.g., Pet Health Network Pro), cloud-based technology through VetConnect PLUS that enables veterinarians to access and analyze patients’ diagnostic data from our in-clinic analyzers, our rapid assays and reference laboratories in one place and two-way integration technology (e.g., IDEXX VetLab Station and IDEXX SmartService Solutions). Some of these products and services rely on third-party providers for cloud storage. We also engage in e-commerce through various websites and collect contact and other personally identifiable information from our customers and visitors to our websites.

Numerous federal and state laws and regulations govern the collection, use, retention, sharing and security of personally identifiable information, including personal data that we receive from our employees, customers, vendors and visitors to our websites and personal data collected by our customers and others when using our products and services. We are also subject to laws and regulations in non-U.S. countries covering data privacy and the protection of personal information. EU member states and other jurisdictions have adopted, or are considering adopting, data protection laws and regulations, which impose significant compliance obligations. Laws and regulations in these jurisdictions apply broadly to the collection, use, storage, disclosure, sharing and security of personal information that identifies or may be used to identify an individual, such as names, contact information, and sensitive personal data. These laws and regulations are subject to frequent revisions and

differing interpretations and have generally become more stringent over time. In many cases, the federal, state and international laws described above apply not only to third-party transactions, but also to transfers of information between us and our subsidiaries, and among us, our subsidiaries, and other parties with which we have commercial relations.

For example, in April 2016, the EU Parliament adopted the General Data Protection Regulation, or GDPR, which, among other things, imposes more stringent operational requirements for processors and controllers of personal data, including, for example, expanded disclosures about how personal information is to be used, limitations on retention of information and mandatory data breach notification requirements. The GDPR became effective May 25, 2018.

The laws and regulations related to data privacy and protection continue to develop, are subject to differing interpretations and may be applied inconsistently from jurisdiction to jurisdiction and may be inconsistent with our current data protection and privacy policies and practices. Further, the costs associated with compliance with these evolving legal and regulatory requirements are significant and likely to increase in the future and as a result may cause us to incur substantial costs, require us to change our business practices in a manner adverse to our business or limit our ability to use and share personal data. Any failure, or perceived failure, by us, the third parties with whom we work or our products and services to protect employee, applicant, vendor, website visitor or customer personal data (including as a result of a breach by or of a third-party provider) or to comply with any privacy-related laws, government regulations or directives or industry self-regulatory principles or our posted privacy policies could result in damage to our reputation, legal proceedings or actions against us by governmental entities or otherwise, which could have an adverse effect on our business. In addition, concerns about our practices with regard to the collection, use, disclosure, or security of personally identifiable information or other privacy-related matters, even if unfounded and even if we are in compliance with applicable laws, could damage our reputation and harm our business. We have and post on our website our own privacy policy and cookie statement concerning the collection, use and disclosure of user personal data.

Item 2.Unregistered Sales of Equity Securities and Use of Proceeds

During the three months ended ~~September~~June 30, ~~2017,~~2018, we repurchased shares of common stock as described below:

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 (1)

(a)

(b)

(c)

(d)

July 1 to July 31, 2017

213,974

$
164.70

213,974

5,435,275

August 1 to August 31, 2017

63,900

$
153.34

63,900

5,371,375

September 1 to September 30, 2017

36,528

$
157.20

34,140

5,337,235

Total

314,402
(2)
$
161.52

312,014

5,337,235



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

April 1 to April 30, 2018	139,550		$	193.51	139,550	4,381,238
May 1 to May 31, 2018	233,143		$	202.06	233,143	4,148,095
June 1 to June 30, 2018	144,816		$	219.77	144,050	4,004,045
Total	517,509	⁽²⁾	$	204.71	516,743	4,004,045

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 10. Repurchases~~I of ~~Common Stock”~~this Quarterly Report on Form 10-Q for ~~discussion on shares repurchased.~~

additional information about our share repurchases.


(1)		On August 13, 1999, our Board of Directors approved and announced the repurchase of our common stock in the open market or in negotiated transactions pursuant to the Company’s share repurchase program. The authorization has been increased by the Board of Directors on numerous occasions; most recently, on May 2, 2017, the maximum level of shares that may be repurchased under the program was increased from 65 million to 68 million ~~shares on May 2, 2017.~~shares. There is no specified expiration date for this share repurchase program. There were no other repurchase programs outstanding during the three months ended ~~September~~June 30, ~~2017,~~2018, and no share repurchase programs expired during the period. Repurchases of ~~312,014~~516,743 shares were made during the three months ended ~~September~~June 30, ~~2017,~~2018, in transactions made pursuant to our share repurchase program.


(2)		During the three months ended ~~September~~June 30, ~~2017,~~2018, we received ~~2,388~~766 shares of our common stock that were surrendered by employees in payment for the minimum required withholding taxes due on the vesting of restricted stock units and settlement of deferred stock units. In the above table, these shares are included in columns (a) and (b), but excluded from columns (c) and (d). These shares do not reduce the number of shares that may yet be purchased under the share repurchase program.

Item 6.Exhibits


~~Exhibit No.~~	~~Description~~
Exhibit No.	Description

10.1	Retirement Agreement dated May 24, 2018, between the Company and Jacqueline L. Studer (filed herewith).

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~~
101.INS	XBRL Instance Document.
~~101.SCH~~
101.SCH	XBRL Taxonomy Extension Schema Document.
~~101.CAL~~
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document.
~~101.DEF~~
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document.
~~101.LAB~~
101.LAB	XBRL Taxonomy Extension Label Linkbase Document.
~~101.PRE~~
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document.

SIGNATURES

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.



	IDEXX LABORATORIES, INC.


	/s/ Brian P. McKeon
Date: ~~October 31, 2017~~ August 1, 2018	Brian P. McKeon
	Executive Vice President, Chief Financial Officer and Treasurer
	(Principal Financial Officer)

໿



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

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

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



Large accelerated filer	ý	Accelerated filer	¨
Non-accelerated filer (Do not check if a smaller reporting company)	☒ ☐ ¨	~~Accelerated filer~~ Emerging growth company	☐ ☐ ¨
Smaller reporting company	☐ ¨



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 ~~2016-09~~ 2016-02	ASU ~~2016-09, “~~2016-02, ~~Compensation – Stock Compensation~~Leases (Topic ~~781):~~842);~~Improvements~~ also referred to ~~Employee Share-Based Payment Accounting~~as the “New Leasing Standard””
ASU ~~2017-01~~ 2016-16	ASU ~~2017-01, “~~2016-16, ~~Business Combinations~~Income Taxes (Topic ~~805)~~740): ~~Clarify the Definition~~Intra-Entity Transfers of ~~a Business~~Assets Other Than Inventory”
~~CAG~~ 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
~~EPS~~ FASB	~~Earnings per share. If not specifically stated, EPS refers to earnings per share on a diluted basis~~
EU	~~European Union~~
~~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
~~OCI~~	~~Other comprehensive income or loss~~
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~~market; also referred to as ~~OPTI~~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
~~SEC~~ Reported revenue growth	Represents the percentage change in revenue reported in accordance with U.S. GAAP, as compared to the same period in the prior year
SaaS	Software-as-a-service
SEC	U.S. Securities and Exchange Commission
Senior ~~Notes Agreement~~ Note Agreements	~~Private~~Note purchase agreements for the 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


~~Item No.~~		~~Page~~

Item No.		Page

	PART I—FINANCIAL INFORMATION
Item 1.	Financial Statements (unaudited)
	Condensed Consolidated Balance Sheets as of ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016~~ 2017	3
	Condensed Consolidated Statements of Operations for the Three and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2017~~2018 and ~~2016~~ 2017	4
	Condensed Consolidated Statements of Comprehensive Income for the Three and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2017~~2018 and ~~2016~~ 2017	5
	Condensed Consolidated Statements of Cash Flows for the ~~Nine~~Six Months Ended ~~September~~June 30, ~~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	22 30
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	46 53
Item 4.	Controls and Procedures	47 54
	PART II—OTHER INFORMATION
Item 1.	Legal Proceedings	47 54
Item 1A.	Risk Factors	47 54
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	48 57
Item 6.	Exhibits	49 58
Signatures		50

		59



	September 30,		December 31,
	2017		2016

ASSETS
Current Assets:
Cash and cash equivalents	$	169,019	$	154,901
Marketable securities		285,085		236,949
Accounts receivable, net of reserves of $4,873 in 2017 and $4,523 in 2016		228,159		204,494
Inventories		176,749		158,034
Other current assets		83,710		91,206
Total current assets		942,722		845,584
Long-Term Assets:
Property and equipment, net		367,513		357,422
Goodwill		199,521		178,228
Intangible assets, net		45,251		46,155
Other long-term assets		114,327		103,315
Total long-term assets		726,612		685,120
TOTAL ASSETS	$	1,669,334	$	1,530,704

LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current Liabilities:
Accounts payable	$	60,583	$	60,057
Accrued liabilities		220,507		236,131
Line of credit		686,250		611,000
Current portion of deferred revenue		29,203		27,380
Total current liabilities		996,543		934,568
Long-Term Liabilities:
Deferred income tax liabilities		33,205		39,287
Long-term debt		604,149		593,110
Long-term deferred revenue, net of current portion		34,245		33,015
Other long-term liabilities		49,583		38,937
Total long-term liabilities		721,182		704,349
Total liabilities		1,717,725		1,638,917

Commitments and Contingencies (Note 14)

Stockholders’ Deficit:
Common stock, $0.10 par value: Authorized: 120,000 shares; Issued: 104,120 shares in 2017 and 103,341 shares in 2016		10,412		10,334
Additional paid-in capital		1,060,689		1,011,895
Deferred stock units: Outstanding: 229 units in 2017 and 231 units in 2016		5,944		5,514
Retained earnings		765,288		540,401
Accumulated other comprehensive loss		(34,648)		(43,053)
Treasury stock, at cost: 16,819 shares in 2017 and 15,367 shares in 2016		(1,856,307)		(1,633,443)
Total IDEXX Laboratories, Inc. stockholders’ deficit		(48,622)		(108,352)
Noncontrolling interest		231		139
Total stockholders’ deficit		(48,391)		(108,213)
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT	$	1,669,334	$	1,530,704

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



	For the Three Months Ended				For the Nine Months Ended
	September 30,				September 30,
		2017		2016		2017		2016

Revenue:
Product revenue	$	291,031	$	266,321	$	867,087	$	800,273
Service revenue		200,945		181,987		595,850		532,154
Total revenue		491,976		448,308		1,462,937		1,332,427
Cost of Revenue:
Cost of product revenue		109,848		103,909		323,205		310,450
Cost of service revenue		108,126		97,669		314,824		287,167
Total cost of revenue		217,974		201,578		638,029		597,617
Gross profit		274,002		246,730		824,908		734,810

Expenses:
Sales and marketing		88,818		79,972		263,755		236,453
General and administrative		57,186		52,627		165,560		156,239
Research and development		27,585		25,672		80,373		75,704
Income from operations		100,413		88,459		315,220		266,414
Interest expense		(9,764)		(7,786)		(27,508)		(24,294)
Interest income		1,400		851		3,659		2,599
Income before provision for income taxes		92,049		81,524		291,371		244,719
Provision for income taxes		21,535		25,072		66,392		75,036
Net income		70,514		56,452		224,979		169,683
Less: Net income attributable to noncontrolling interest		3		(3)		92		7
Net income attributable to IDEXX Laboratories, Inc. stockholders	$	70,511	$	56,455	$	224,887	$	169,676

Earnings per Share:
Basic	$	0.81	$	0.63	$	2.56	$	1.89
Diluted	$	0.79	$	0.62	$	2.51	$	1.87
Weighted Average Shares Outstanding:
Basic		87,537		89,894		87,884		89,881
Diluted		89,256		91,138		89,735		90,960

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


~~Description of Change:~~	~~Impact of Change:~~	~~Adoption Method:~~
~~Tax benefits related to share-based payments at settlement are recorded through the income statement instead of equity~~	~~Decreases in income tax expense by approximately $3.8 million for the three months ended September 30, 2017, and approximately $22.1 million for the nine months ended September 30, 2017~~	~~Prospective (required)~~

~~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 both the three and nine months ended September 30, 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~~	~~Increases in cash flow from operating activities and decreases in cash flow from financing activities by approximately $22.1 million for the nine months ended September 30, 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~~	Increases in cash flow from operating activities and decreases in cash flow from financing activities for the nine months ended September 30, 2017 and 2016 by approximately $7.8 and $3.7 million, respectively	~~Retrospective (required)~~



	Condensed Consolidated Balance Sheet

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



	Condensed Consolidated Balance Sheet
	As of June 30, 2018

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

ASSETS
Cash and cash equivalents	$	174,559		$	174,559		$	—
Accounts receivable	262,420			265,012			2,592
Inventories	178,187			176,487			(1,700		)
Property and equipment, net	394,021			394,021			—
Goodwill and intangible assets, net	235,010			235,010			—
Other assets	238,682			275,596			36,914
TOTAL ASSETS	$	1,482,879		$	1,520,685		$	37,806

LIABILITIES AND STOCKHOLDERS’ DEFICIT
Accounts payable	$	68,015		$	68,015		$	—
Accrued liabilities	228,095			228,380			285
Deferred income tax liabilities	35,470			35,459			(11		)
Line of credit and long-term debt	1,040,130			1,040,130			—
Deferred revenue	64,061			106,283			42,222
Other long-term liabilities	92,290			83,267			(9,023		)
Total liabilities	1,528,061			1,561,534			33,473

Stockholders’ Deficit:
Retained earnings	984,736			989,039			4,303
Accumulated other comprehensive income (loss)	(42,589		)	(42,559		)	30
All other stockholders' deficit and noncontrolling interest	(987,329		)	(987,329		)	—
Total stockholders’ deficit	(45,182		)	(40,849		)	4,333
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT	$	1,482,879		$	1,520,685		$	37,806



	Condensed Consolidated Statement of Operations
	For the Three Months Ended June 30, 2018									For the Six Months Ended June 30, 2018

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

Total revenue	$	565,879		$	580,752		$	14,873		$	1,091,248		$	1,118,408		$	27,160
Total cost of revenue	239,491			248,313			8,822			467,456			482,870			15,414
Gross profit	326,388			332,439			6,051			623,792			635,538			11,746

Total operating expense	187,321			186,845			(476		)	377,947			376,900			(1,047		)
Income from operations	139,067			145,594			6,527			245,845			258,638			12,793
Interest expense	(8,457		)	(8,457		)	—			(17,731		)	(17,731		)	—
Interest income	437			172			(265		)	1,299			751			(548		)
Income before provision for income taxes	131,047			137,309			6,262			229,413			241,658			12,245
Provision for income taxes	27,107			28,629			1,522			40,536			43,502			2,966
Net income	$	103,940		$	108,680		$	4,740		$	188,877		$	198,156		$	9,279



	Condensed Consolidated Statement of Cash Flows
	For the Six Months Ended June 30, 2018

	Previous U.S. GAAP			New U.S. GAAP (As Reported)			Attributed to the New Revenue Standard
Cash Flows from Operating Activities:
Net income	$	188,877		$	198,156		$	9,279
Adjustments to reconcile net income to net cash provided by operating activities:
Benefit of deferred income taxes	6,218			8,638			2,420
All other adjustments to reconcile net income to net cash provided by operating activities	55,661			55,661			—
Changes in assets and liabilities, net	(97,028		)	(108,727		)	(11,699		)
Net cash provided by operating activities	$	153,728		$	153,728		$	—


2.	Identification of our performance obligations in the contract or agreement


4.	Allocation of the transaction price to the performance obligations


5.	Recognition of revenue when, or as, we satisfy a performance obligation


As of September 30, 2017		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value

Corporate bonds	$	139,533	$	129	$	(31)	$	139,631
Certificates of deposit		60,473		-		-		60,473
Commercial paper		24,234		-		-		24,234
Asset backed securities		22,476		11		(6)		22,481
U.S. government bonds		16,282		11		(7)		16,286
Treasury bills		10,992		1		-		10,993
Agency bonds		10,989		11		(13)		10,987
Total marketable securities	$	284,979	$	163	$	(57)	$	285,085

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


For the Nine Months Ended September 30, 2017		Unrealized Gain 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 income (loss) before reclassifications		109		(8,472)		(6,895)		24,250		8,992
Gains reclassified from accumulated other comprehensive income		-		(587)		-		-		(587)
Balance as of September 30, 2017	$	129	$	(4,143)	$	(2,859)	$	(27,775)	$	(34,648)



	For the Nine Months Ended September 30,
		CAG	Water		LPD		Other		Unallocated Amounts		Consolidated Total
2017
Revenue	$	1,269,861	$	85,531	$	91,266	$	16,279	$	-	$	1,462,937

Income (loss) from operations	$	277,857	$	38,421	$	9,880	$	3,275	$	(14,213)	$	315,220
Interest expense, net												(23,849)
Income before provision for income taxes												291,371
Provision for income taxes												66,392
Net income												224,979
Less: Net income attributable to noncontrolling interest												92
Net income attributable to IDEXX Laboratories, Inc. stockholders											$	224,887

2016
Revenue	$	1,143,150	$	79,243	$	93,511	$	16,523	$	-	$	1,332,427

Income (loss) from operations	$	229,858	$	34,864	$	12,665	$	(749)	$	(10,224)	$	266,414
Interest expense, net												(21,695)
Income before provision for income taxes												244,719
Provision for income taxes												75,036
Net income												169,683
Less: Net income attributable to noncontrolling interest												7
Net income attributable to IDEXX Laboratories, Inc. stockholders											$	169,676


		Quoted Prices		Significant
		in Active		Other		Significant
		Markets for		Observable		Unobservable
		Identical Assets		Inputs		Inputs		Balance at
As of September 30, 2017		(Level 1)		(Level 2)		(Level 3)		September 30, 2017

Assets
Money market funds(1)	$	20,924	$	-	$	-	$	20,924
Commercial paper(1)		-		3,089		-		3,089
Corporate bonds(1)		-		2,500		-		2,500
Certificates of deposit(1)		-		750		-		750

Marketable Securities
Corporate bonds		-		139,631		-		139,631
Certificates of deposit		-		60,473		-		60,473
Commercial paper		-		24,234		-		24,234
Asset backed securities		-		22,481		-		22,481
U.S. government bonds		-		16,286		-		16,286
Treasury bills				10,993				10,993
Agency bonds		-		10,987		-		10,987
Total marketable securities	$	-	$	285,085	$	-	$	285,085

Equity mutual funds(2)	$	2,119	$	-	$	-	$	2,119
Foreign currency exchange contracts(3)	$	-	$	971	$	-	$	971
Liabilities
Foreign currency exchange contracts(3)	$	-	$	7,004	$	-	$	7,004
Deferred compensation(4)	$	2,119	$	-	$	-	$	2,119



	For the Three		For the Three
Net Revenue	Months Ended		Months Ended					Percentage	Percentage	Organic
	September 30,		September 30,		Dollar		Percentage	Change from	Change from	Revenue
(dollars in thousands)	2017		2016		Change		Change	Currency	Acquisitions	Growth (1)

CAG	$	426,686	$	385,288	$	41,398	10.7%	0.9%	0.3%	9.6%
United States		280,651		258,208		22,443	8.7%	-	0.2%	8.5%
International		146,035		127,080		18,955	14.9%	2.8%	0.4%	11.8%

Water		31,030		27,862		3,168	11.4%	1.1%	-	10.3%
United States		14,972		13,980		992	7.1%	-	-	7.1%
International		16,058		13,882		2,176	15.7%	2.3%	-	13.4%

LPD		28,396		29,799		(1,403)	(4.7%)	1.8%	-	(6.5%)
United States		3,576		3,463		113	3.3%	-	-	3.3%
International		24,820		26,336		(1,516)	(5.8%)	2.0%	-	(7.8%)

Other		5,864		5,359		505	9.4%	0.4%	-	9.1%

Total Company	$	491,976	$	448,308	$	43,668	9.7%	1.0%	0.2%	8.5%
United States		301,457		277,240		24,217	8.7%	-	0.2%	8.6%
International		190,519		171,068		19,451	11.4%	2.5%	0.3%	8.5%




		For the Three Months Ended September 30,					Change
Total Company - Results of Operations			Percent of			Percent of
(dollars in thousands)	2017		Revenue		2016	Revenue	Amount		Percentage

Revenues	$	491,976		$	448,308		$	43,668	9.7%
Cost of revenue		217,974			201,578			16,396	8.1%
Gross profit		274,002	55.7%		246,730	55.0%		27,272	11.1%

Operating Expenses:
Sales and marketing		88,818	18.1%		79,972	17.8%		8,846	11.1%
General and administrative		57,186	11.6%		52,627	11.7%		4,559	8.7%
Research and development		27,585	5.6%		25,672	5.7%		1,913	7.5%
Total operating expenses		173,589	35.3%		158,271	35.3%		15,318	9.7%
Income from operations	$	100,413	20.4%	$	88,459	19.7%	$	11,954	13.5%


	For the Nine		For the Nine
	Months Ended		Months Ended					Percentage	Percentage	Organic
Net Revenue	September 30,		September 30,		Dollar		Percentage	Change from	Change from	Revenue
(dollars in thousands)	2017		2016		Change		Change	Currency	Acquisitions	Growth (1)

CAG	$	1,269,861	$	1,143,150	$	126,711	11.1%	(0.3%)	0.2%	11.2%
United States		846,968		766,625		80,343	10.5%	-	0.1%	10.4%
International		422,893		376,525		46,368	12.3%	(1.1%)	0.4%	13.0%

Water		85,531		79,243		6,288	7.9%	(0.4%)	-	8.3%
United States		42,357		40,359		1,998	5.0%	-	-	5.0%
International		43,174		38,884		4,290	11.0%	(0.8%)	-	11.8%

LPD		91,266		93,511		(2,245)	(2.4%)	-	-	(2.4%)
United States		10,493		9,965		528	5.3%	-	-	5.3%
International		80,773		83,546		(2,773)	(3.3%)	-	-	(3.3%)

Other		16,279		16,523		(244)	(1.5%)	-	-	(1.5%)

Total Company	$	1,462,937	$	1,332,427	$	130,510	9.8%	(0.3%)	0.2%	9.9%
United States		905,765		821,937		83,828	10.2%	-	0.1%	10.1%
International		557,172		510,490		46,682	9.1%	(0.8%)	0.3%	9.7%


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

Days sales outstanding (1)		43.4		41.7		42.4		42.1		42.4
Inventory turns (2)		1.9		2.0		1.9		2.0		1.8


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 (1)
	(a)			(b)	(c)	(d)

July 1 to July 31, 2017	213,974		$	164.70	213,974	5,435,275
August 1 to August 31, 2017	63,900		$	153.34	63,900	5,371,375
September 1 to September 30, 2017	36,528		$	157.20	34,140	5,337,235
Total	314,402	(2)	$	161.52	312,014	5,337,235