Item 16. FORM 10-K SUMMARY

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Item 16. FORM 10-K SUMMARY

None.

FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

AND

CONSOLIDATED FINANCIAL STATEMENT SCHEDULE

Page No.
Report of Independent Registered Public Accounting FirmF-2
Consolidated Balance Sheets as of December 31, 2016 and 2015F-3
Consolidated Statements of Income for the Years Ended December 31, 2016, 2015 and 2014F-4
Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2016, 2015 and 2014F-5
Consolidated Statements of Stockholders’ Equity (Deficit) for the Years Ended December 31, 2016, 2015 and 2014F-6
Consolidated Statements of Cash Flows for the Years Ended December 31, 2016, 2015 and 2014F-7
Notes to Consolidated Financial StatementsF-8
Schedule II
Valuation and Qualifying AccountsF-47

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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

In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of IDEXX Laboratories, Inc. and its subsidiaries as of December 31, 2016 and 2015, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2016 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the accompanying index presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2016, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company's management is responsible for these financial statements and financial statement schedule, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the Report of Management on Internal Control Over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on these financial statements, on the financial statement schedule, and on the Company's internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

As discussed in Note 12 to the consolidated financial statements, the Company changed the manner in which it classifies deferred taxes on the balance sheet in 2016.

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

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

/s/ PricewaterhouseCoopers LLP

Boston, Massachusetts

February 17, 2017

F-2

IDEXX LABORATORIES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except per share amounts)

December 31,December 31,
20162015
ASSETS
Current Assets:
Cash and cash equivalents$154,901$128,994
Marketable securities236,949213,591
Accounts receivable, net of reserves of $4,523 in 2016 and $5,128 in 2015204,494188,318
Inventories158,034188,833
Deferred income tax assets-39,829
Other current assets91,20662,069
Total current assets845,584821,634
Long-Term Assets:
Property and equipment, net357,422333,026
Goodwill178,228178,934
Intangible assets, net46,15555,909
Other long-term assets103,31585,490
Total long-term assets685,120653,359
TOTAL ASSETS$1,530,704$1,474,993
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
Current Liabilities:
Accounts payable$60,057$52,648
Accrued liabilities236,131205,530
Line of credit611,000573,000
Current portion of deferred revenue27,38025,583
Total current liabilities934,568856,761
Long-Term Liabilities:
Deferred income tax liabilities39,28749,389
Long-term debt593,110597,085
Long-term deferred revenue, net of current portion33,01527,055
Other long-term liabilities38,93728,698
Total long-term liabilities704,349702,227
Total liabilities1,638,9171,558,988
Commitments and Contingencies (Note 14)
Stockholders’ Equity (Deficit):
Common stock, $0.10 par value: Authorized: 120,000 shares; Issued: 103,341 shares in 2016 and 102,237 shares in 201510,33410,258
Additional paid-in capital1,011,895940,534
Deferred stock units: Outstanding: 231 units in 2016 and 240 units in 20155,5145,409
Retained earnings540,401318,356
Accumulated other comprehensive loss(43,053)(42,265)
Treasury stock, at cost: 15,367 shares in 2016 and 12,242 shares in 2015(1,633,443)(1,316,417)
Total IDEXX Laboratories, Inc. stockholders’ equity (deficit)(108,352)(84,125)
Noncontrolling interest139130
Total stockholders’ equity (deficit)(108,213)(83,995)
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)$1,530,704$1,474,993
The accompanying notes are an integral part of these consolidated financial statements.

F-3

IDEXX LABORATORIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share amounts)

For the Years Ended December 31,
201620152014
Revenue:
Product revenue$1,070,973$974,933$899,412
Service revenue704,450626,959586,395
Total revenue1,775,4231,601,8921,485,807
Cost of Revenue:
Cost of product revenue416,810360,208335,046
Cost of service revenue383,177351,414334,645
Total cost of revenue799,987711,622669,691
Gross profit975,436890,270816,116
Expenses:
Sales and marketing317,058299,955283,708
General and administrative207,017182,510173,890
Research and development101,12299,68198,263
Impairment charge-8,212-
Income from operations350,239299,912260,255
Interest expense(32,049)(29,239)(15,429)
Interest income3,6562,4681,729
Income before provision for income taxes321,846273,141246,555
Provision for income taxes99,79281,00664,604
Net income222,054192,135181,951
Less: Net income (loss) attributable to noncontrolling interest95745
Net income attributable to IDEXX Laboratories, Inc. stockholders$222,045$192,078$181,906
Earnings per Share:
Basic$2.47$2.07$1.82
Diluted$2.44$2.05$1.79
Weighted Average Shares Outstanding:
Basic89,73292,601100,094
Diluted90,88493,649101,503
The accompanying notes are an integral part of these consolidated financial statements.

F-4

IDEXX LABORATORIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

For the Years Ended December 31,
201620152014
Net income$222,054$192,135$181,951
Other comprehensive income, net of tax:
Foreign currency translation adjustments(5,874)(30,718)(29,126)
Unrealized gain on net investment hedge2,1421,894-
Unrealized gain (loss) on investments, net of tax expense (benefit) of $113 in 2016, ($93) in 2015 and ($63) in 2014245(226)(107)
Unrealized gain (loss) on derivative instruments:
Unrealized gain, net of tax expense of $2,174 in 2016, $3,736 in 2015 and $4,073 in 20144,9508,8399,542
Less: reclassification adjustment for gains included in net income, net of tax expense of $949 in 2016, $5,853 in 2015 and $756 in 2014(2,251)(13,983)(2,002)
Unrealized gain (loss) on derivative instruments2,699(5,143)7,540
Other comprehensive loss, net of tax(788)(34,194)(21,693)
Comprehensive income221,266157,941160,258
Less: comprehensive income attributable to noncontrolling interest95745
Comprehensive income attributable to IDEXX Laboratories, Inc.$221,257$157,884$160,213
The accompanying notes are an integral part of these consolidated financial statements.

F-5

IDEXX LABORATORIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

(in thousands, except per share amounts)

Accumulated
Common StockAdditionalDeferredOtherTotal
Number of Shares$0.10 Par ValuePaid-in CapitalStock UnitsRetained EarningsComprehensive Income (Loss)Treasury StockNoncontrolling InterestStockholders’ Equity (Deficit)
Balance January 1, 2014101,188$10,119$825,320$5,110$1,493,393$13,622$(1,829,378)$28$518,214
Net income (loss)----181,906--45181,951
Other comprehensive loss, net-----(21,693)--(21,693)
Repurchases of common stock------(623,888)-(623,888)
Common stock issued under stock plans, including excess tax benefit7597645,162-----45,238
Deferred stock units activity--(218)(114)----(332)
Share-based compensation cost--18,02970----18,099
Balance December 31, 2014101,947$10,195$888,293$5,066$1,675,299$(8,071)$(2,453,266)$73$117,589
Net income----192,078--57192,135
Other comprehensive loss, net-----(34,194)--(34,194)
Repurchases of common stock------(412,172)-(412,172)
Stock split enacted through stock dividend----(1,518,264)-1,518,264--
Shares retired(346)---(30,757)-30,757--
Common stock issued under stock plans, including excess tax benefit6366332,700-----32,763
Deferred stock units activity--(258)258-----
Share-based compensation cost--19,79985----19,884
Balance December 31, 2015102,237$10,258$940,534$5,409$318,356$(42,265)$(1,316,417)$130$(83,995)
Net income----222,045--9222,054
Other comprehensive loss, net-----(788)--(788)
Repurchases of common stock------(317,026)-(317,026)
Common stock issued under stock plans, including excess tax benefit1,1047651,904-----51,980
Deferred stock units activity--(343)14----(329)
Share-based compensation cost--19,80091----19,891
Balance December 31, 2016103,341$10,334$1,011,895$5,514$540,401$(43,053)$(1,633,443)$139$(108,213)
The accompanying notes are an integral part of these consolidated financial statements.

F-6

IDEXX LABORATORIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

For the Years Ended December 31,
201620152014
Cash Flows from Operating Activities:
Net income$222,054$192,135$181,951
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization78,21868,95658,888
Amortization on marketable securities, net8431,432-
Impairment charge2,2288,212-
Provision for uncollectible accounts1,1702,2002,035
Provision for deferred income taxes20,8815,143830
Share-based compensation expense19,89119,88418,099
Other986(472)(160)
Tax benefit from share-based compensation arrangements(14,702)(11,315)(16,078)
Changes in assets and liabilities:
Accounts receivable(22,554)(50,142)(3,626)
Inventories7,648(34,969)(38,310)
Accounts payable2,117(2,468)6,703
Deferred revenue7,672(319)14,195
Other assets and liabilities8,11918,08711,319
Net cash provided by operating activities334,571216,364235,846
Cash Flows from Investing Activities:
Purchases of property and equipment(64,787)(82,921)(60,523)
Purchase of marketable securities(227,894)(271,958)-
Proceeds from the sale and maturities of marketable securities203,85956,775-
Proceeds from sale of equity investment--5,400
Acquisitions of intangible assets--(175)
Acquisition of businesses, net of cash acquired(1,964)(10,302)(25,115)
Net cash used by investing activities(90,786)(308,406)(80,413)
Cash Flows from Financing Activities:
Borrowings on revolving credit facilities, net38,00024,000272,000
Issuance of senior notes-250,097200,000
Debt issue costs(56)(1,380)(1,406)
Payment of notes payable--(1,394)
Repurchases of common stock(304,086)(401,981)(618,158)
Proceeds from exercises of stock options and employee stock purchase plans38,34422,39729,442
Payment of acquisition-related contingent consideration(4,728)--
Tax benefit from share-based compensation arrangements14,70211,31516,078
Net cash used by financing activities(217,824)(95,552)(103,438)
Net effect of changes in exchange rates on cash(54)(5,948)(8,517)
Net increase (decrease) in cash and cash equivalents25,907(193,542)43,478
Cash and cash equivalents at beginning of period128,994322,536279,058
Cash and cash equivalents at end of period$154,901$128,994$322,536
The accompanying notes are an integral part of these consolidated financial statements.

F-7

IDEXX LABORATORIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. NATURE OF BUSINESS, BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION

The accompanying consolidated financial statements of IDEXX Laboratories, Inc. have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and with the requirements of Regulation S-X.

These statements include the accounts of IDEXX Laboratories, Inc. and our wholly-owned and majority-owned subsidiaries (“IDEXX,” the “Company,” “we” or “our”). We do not have any variable interest entities for which we are the primary beneficiary. All intercompany transactions and balances have been eliminated in consolidation.

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

We develop, manufacture and distribute products and provide services for the veterinary, bioresearch, water, livestock, poultry and dairy markets. We also sell a line of portable electrolytes and blood gas analyzers for the human point-of-care medical diagnostics market. Our principal line of business, which we refer to as our Companion Animal Group (“CAG”) operating segment, provides diagnostic capabilities and information management solutions for the veterinary market as well as biological materials testing and services for the bioresearch market. Our principal markets for these products and services are the United States (“U.S.”) and Europe, but we also sell to customers and distributors in many other countries around the world. Our Water operating segment provides innovative testing solutions for the quality and safety of water in our principal markets of the U.S. and Europe, but we also sell to customers in many other countries around the world. Our Livestock, Poultry and Dairy (“LPD”) operating segment provides diagnostic tests and related instrumentation 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. Our principal markets for these products and services is Europe, China and Australia but we also sell to customers in many other countries around the world. We also operate a smaller operating segment that comprises products for the human point-of-care medical diagnostics market (“OPTI Medical”). Financial information about our OPTI Medical operating segment is combined and presented with our pharmaceutical product line and out-licensing arrangements remaining from our pharmaceutical business in an “Other” category because they do not meet the quantitative or qualitative thresholds for reportable segments. See Note 15 for additional information regarding our reportable operating segments, products and services and geographical areas.

Stock Split

On May 6, 2015, we announced a two-for-one split of our outstanding shares of common stock which was effected through a stock dividend that was paid through the issuance of treasury shares. The stock split entitled each stockholder of record at the close of business on May 18, 2015 to receive one additional share of common stock for each outstanding share of common stock held. The additional shares of our common stock paid pursuant to the stock split were distributed by our transfer agent on June 15, 2015. All share and per share amounts in the consolidated balance sheets, consolidated statement of operations and notes to the consolidated financial statements retroactively reflect the effect of the stock split unless otherwise noted.

Reclassifications

Certain prior year amounts have been reclassified to conform with the current year presentation. Reclassifications had no material impact on previously reported results of operations, financial position or cash flows.

F-8

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) Estimates

The preparation of these consolidated financial statements in accordance with U.S. GAAP requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures. On an ongoing basis, we evaluate these estimates, including those related to reserves for accounts receivable; goodwill and other intangible assets; income taxes; inventory valuation; revenue recognition, product returns, customer programs and multiple element arrangements; share-based compensation; warranty reserves; self-insurance reserves; fair value measurements and loss contingencies. We accrue contingent liabilities when it is probable that future expenditures will be made and such expenditures can be reasonably estimated. We base our estimates on historical experience and on various other 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.

(b)Cash and Cash Equivalents

We consider all highly liquid investments with original maturities of ninety days or less to be cash equivalents. Cash and cash equivalents consist primarily of demand deposits, money market funds and short duration agency bonds and commercial paper as described above. There is no restricted cash on our consolidated balance sheet for the years ended December 31, 2016 and 2015.

(c)Marketable Securities – See Note 5

(d)Inventories – See Note 6

(e)Property and Equipment – See Note 7

(f)Goodwill and Other Intangible Assets – See Note 9

(g)Warranty Reserves

We provide a standard twelve-month warranty on all instruments sold. We recognize the cost of instrument warranties in cost of product revenue at the time revenue is recognized based on the estimated cost to repair the instrument over its warranty period. Cost of product revenue reflects not only estimated warranty expense for instruments sold in the current period, but also any changes in estimated warranty expense for the portion of the aggregate installed base that is under warranty. Estimated warranty expense is based on a variety of inputs, including historical instrument performance in the customers’ environment, historical and estimated costs incurred in servicing instruments and projected instrument reliability. Should actual service rates or costs differ from our estimates, revisions to the estimated warranty liability would be required. The liability for warranties is included in accrued liabilities in the accompanying consolidated balance sheets.

(h)Income Taxes – See Note 12

(i)Taxes Remitted to Governmental Authorities by IDEXX on Behalf of Customer

We calculate, collect from our customers, and remit to governmental authorities sales, value-added and excise taxes assessed by governmental authorities in connection with revenue-producing transactions with our customers. We report these taxes on a net basis and do not include these tax amounts in revenue or cost of product or service revenue.

F-9

(j)Revenue Recognition

We recognize revenue when four criteria are met: (i) persuasive evidence of an arrangement exists; (ii) delivery has occurred or services have been rendered; (iii) the sales price is fixed or determinable; and (iv) collectability is reasonably assured. Revenue generating transactions generally fall into one of the following categories of revenue recognition:

·We recognize revenue from the sales of consumables, rapid assay test kits and other diagnostic products when the product is delivered to the customer, except as noted below.
·We recognize revenue from the sales of instruments, non-cancelable software licenses and hardware systems upon installation and the customer’s acceptance of the instrument or system as we have no significant further obligations after this point in time.
·We recognize service revenue at the time the service is performed.
·We recognize revenue associated with extended maintenance agreements (“EMAs”) and our software-as-a-service subscriptions over the life of the contracts using the straight-line method, which approximates the expected timing in which applicable services are performed. Amounts collected in advance of revenue recognition are recorded as current or long-term deferred revenue based on the time from the balance sheet date to the future date of revenue recognition.
·We recognize revenue on certain instrument systems under rental programs over the life of the rental agreement using the straight-line method. Amounts collected in advance of revenue recognition are recorded as current or long-term deferred revenue based on the time from the balance sheet date to the future date of revenue recognition.
·We recognize revenue on practice management systems sales, where the system includes software that is considered more than incidental, either by allocating the revenue to each element of the sale based on relative fair values of the elements, including post-contract support when fair value for all elements is available, or by use of the residual method when only the fair value of the post-contract support is available. We recognize revenue for the system upon installation and customer acceptance and recognize revenue equal to the fair value of the post-contract support over the support period.
·Shipping costs reimbursed by the customer are included in revenue. These same costs are also included in cost of product revenue.

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

F-10

We allocate revenue to each element based on the relative selling price and recognize revenue when the elements have standalone value and the four criteria for revenue recognition, as discussed above, have been met for each element. If available, we establish the selling price of each element based on vendor-specific objective evidence (“VSOE”), which represents the price charged for a deliverable when it is sold separately. We use third-party evidence (“TPE”) if VSOE is not available or best estimate of selling price if neither VSOE nor TPE is available. When these arrangements include a separately-priced EMA, we recognize revenue related to the EMA at the stated contractual price on a straight-line basis over the life of the agreement to the extent the separately stated price is substantive. If there is no stated contractual price for an EMA, or the separately stated price is not substantive, we allocate revenue to each element based on the relative selling price and recognize revenue when the elements have standalone value and the four criteria for revenue recognition, as discussed above, have been met for each element.

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

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

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

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

Up-Front Customer Loyalty Programs. Our up-front loyalty programs provide incentives to customers in the form of cash payments or IDEXX Points upon entering multi-year agreements to purchase annual minimum amounts of future products or services. If a customer breaches its agreement, it is required to refund all or a portion of the up-front cash or IDEXX Points, or make other repayments, remedial actions or both. These incentives are considered to be customer acquisition costs and are capitalized within other current assets and other long-term assets and are subsequently recognized as a reduction to revenue over the term of the customer agreement. If these up-front incentives are subsequently utilized to purchase IDEXX VetLab instruments, diagnostic imaging systems or Cornerstone practice management systems, product revenue and cost is deferred and recognized over the term of the customer agreement as products and services are provided to the customer. We monitor customer purchases over the term of their agreement to assess the realizability of our capitalized customer acquisition costs. For the years ended December 31, 2016, 2015 and 2014, impairments of customer acquisition costs were immaterial.

F-11

IDEXX Instrument Marketing Programs. Our instrument marketing programs require the customer to enroll at the time of instrument purchase and offer customers the opportunity to earn incentives in future periods based on the volume of the products they purchase and utilize over the term of the program. These arrangements are considered MEAs in accordance with our revenue recognition policy stated above. Revenue reductions related to instrument marketing programs are recorded based on an estimate of customer purchase and utilization levels and the incentive the customer will earn over the term of the program. Our estimates are based on historical experience and the specific terms and conditions of the marketing program and require us to apply judgment to estimate future product purchases and utilization. Differences between our estimates and actual incentives earned are accounted for as a change in estimate. These differences were not material for the years ended December 31, 2016, 2015 and 2014.

Reagent Rental Programs. Our reagent rental programs provide our customers the right to use our instruments in consideration for multi-year agreements to purchase annual minimum amounts of consumables. No instrument revenue is recognized at the time of instrument installation. We recognize a portion of the revenue allocated to the instrument concurrent with the future sale of consumables. We determine the amount of revenue allocated from the consumable to the instrument based on relative selling prices and determine the rate of instrument revenue recognition in proportion to the customer’s minimum volume commitment. The cost of the instrument is capitalized within property and equipment or other assets, and is charged to cost of product revenue on a straight-line basis over the term of the minimum purchase agreement.

IDEXX Points may be applied against the purchase price of IDEXX products and services or applied to trade receivables due to us. IDEXX Points that have not yet been used by customers are classified as a liability until use or expiration occurs. We estimate the amount of IDEXX Points expected to expire, or breakage, based on historical expirations and we recognize the estimated benefit of breakage in proportion to actual redemptions of IDEXX Points by customers. On November 30 of each year, unused IDEXX Points earned before January 1 of the prior year generally expire and any variance from the breakage estimate is accounted for as a change in estimate. This variance was not material for the years ended December 31, 2016, 2015 and 2014.

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

Doubtful Accounts Receivable. We recognize revenue when collection from the customer is reasonably assured. We maintain allowances for doubtful accounts for potentially uncollectible receivables. We base our estimates on a detailed analysis of specific customer situations and a percentage of our accounts receivable by aging category. Additional allowances may be required if either the financial condition of our customers were to deteriorate or a strengthening U.S. dollar impacts the ability of foreign customers to make payments to us on their U.S. denominated purchases. Account balances are charged off against the allowance when we believe it is probable the receivable will not be recovered. We do not have any off-balance sheet credit exposure related to our customers. We have no significant customers that accounted for greater than 10 percent of our consolidated revenues for the year ended December 31, 2016. Similarly, we have no concentration of credit risk as of December 31, 2016.

(k)Research and Development Costs

Research and development costs, which consist of salaries, employee benefits, materials and external consulting and product development costs, are expensed as incurred. We evaluate our software research and development costs for capitalization after the technological feasibility of software and products containing software has been established. No costs were capitalized during the years ended December 31, 2016, 2015 and 2014.

F-12

(l)Advertising Costs

Advertising costs, which are recognized as sales and marketing expense in the period in which they are incurred, were $2.1 million for the year ended December 31, 2016, $1.2 million for the years ended December 31, 2015 and 2014.

(m)Legal Costs

Legal costs are considered period costs and accordingly are expensed in the year services are provided.

(n)Share-Based Compensation – See Note 4

(o)Self-Insurance Accruals

We self-insure costs associated with workers’ compensation and health and general welfare claims incurred by our U.S. and Canadian employees up to certain limits. The insurance company provides insurance for claims above these limits. Claim liabilities are recorded for estimates of the loss that we will ultimately incur on reported claims, as well as estimates of claims that have been incurred but not yet reported. Such liabilities are based on individual coverage, the average time from when a claim is incurred to the time it is paid and judgments about the present and expected levels of claim frequency and severity. Estimated claim liabilities could be significantly affected if future occurrences and claims differ from these assumptions and historical trends. Estimated claim liabilities are included in accrued liabilities in the accompanying consolidated balance sheets.

(p)Leases – See Note 14

(q)Earnings per Share – See Note 13

(r)Foreign Currency

The functional currency of all but three of our subsidiaries is their local currency. Assets and liabilities of these foreign subsidiaries are translated to the U.S. dollar using the exchange rate in effect at the balance sheet date. Revenue and expense accounts are translated to the U.S. dollar using the exchange rate at the date which those elements are recognized, and where it is impractical to do so, an average exchange rate in effect during the period is used to translate those elements. Cumulative translation gains and losses are shown in the accompanying consolidated balance sheets as a separate component of accumulated other comprehensive income (“AOCI”).

Revenues and expenses denominated in a currency other than the respective subsidiary’s functional currency are recorded at the current exchange rate when the transaction is recognized. Monetary assets and liabilities denominated in a currency other than the respective subsidiary’s functional currency are remeasured at each balance sheet date using the exchange rate in effect at each balance sheet date. These foreign currency gains and losses are included in general and administrative expenses. We recognized aggregate foreign currency losses of $1.3 million for the year ended December 31, 2016, $0.2 million for the year ended December 31, 2015, and $2.0 million for the year ended December 31, 2014.

(s)Hedging Instruments – See Note 17

(t)Fair Value Measurements – See Note 16

F-13

(u)Comprehensive Income

We report all changes in equity, including net income and transactions or other events and circumstances from non-owner sources during the period in which they are recognized. We have chosen to present comprehensive income, which encompasses net income, foreign currency translation adjustments, gains and losses on our net investment hedge and the difference between the cost and the fair market value of investments in debt and equity securities, forward currency exchange contracts and interest rate swap agreements, in the consolidated statements of comprehensive income. See Note 19 for information about the effects on net income of significant amounts reclassified out of each component of AOCI for the years ended December 31, 2016 and 2015. We consider the foreign currency cumulative translation adjustment to be permanently invested and, therefore, have not provided income taxes on those amounts.

(v)Concentrations of Risk

Financial Instruments. Financial instruments that potentially subject us to concentrations of credit risk are principally cash, cash equivalents, accounts receivable and derivatives. To mitigate such risk with respect to cash and cash equivalents, we place our cash with highly-rated financial institutions, in non-interest bearing accounts that are insured by the U.S. government and money market funds invested in government securities.

Concentration of credit risk with respect to accounts receivable is limited to certain customers to whom we make substantial sales. To reduce risk, we routinely assess the financial strength of our most significant customers and monitor the amounts owed to us, taking appropriate action when necessary. As a result, we believe that accounts receivable credit risk exposure is limited. We maintain an allowance for doubtful accounts, but historically have not experienced any material losses related to an individual customer or group of customers in any particular industry or geographic area.

To mitigate concentration of credit risk with respect to derivatives we enter into transactions with highly-rated financial institutions, enter into master netting arrangements with the counterparties to our derivative transactions and frequently monitor the credit worthiness of our counterparties. Our master netting arrangements reduce our exposure in that they permit outstanding receivables and payables with the counterparties to our derivative transactions to be offset in the event of default. We have not incurred such losses and consider the risk of counterparty default to be minimal.

Inventory. If we are unable to obtain adequate quantities of the inventory we need to sell our products, we could face cost increases or delays or discontinuations in product shipments, which could have a material adverse effect on our results of operations. Many of the third parties that provide us with the instruments we sell and certain components, raw materials and consumables used in or with our products are obtained from sole or single source suppliers. Some of the products that we purchase from these sources are proprietary or complex in nature, and, therefore, cannot be readily or easily replaced by alternative sources.

(w)New Accounting Pronouncements Not Yet Adopted

In May 2014, the Financial Accounting Standards Board (“FASB”) issued a new standard which will replace most of the existing revenue recognition guidance within U.S. GAAP. Under the new standard, 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, the new standard requires 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. 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 guidance permits two methods of adoption: a full retrospective method to each prior reporting period presented or a modified retrospective approach with the cumulative effect of initially applying the guidance recognized at the date of initial application. We are continuing to evaluate the impact of this new standard. While the new standard will not impact the overall economics of our products and services sold under customer incentive programs, we do expect the new standard will require us to delay revenue recognition related to certain of our customer incentive programs and to accelerate

F-14

revenue recognition for certain other customer incentive programs. The volume and mix of future customer incentive programs will affect our assessment of the overall net impact of the new standard on our results and will also influence our choice of adoption method. We plan to determine our method of adoption and provide an estimate of any impacts by October 2017, in connection with our financial reporting for the quarter ending September 30, 2017.

In February 2016, the FASB issued amendments to increase transparency and comparability among organizations’ leasing arrangements. The principal difference from previous guidance is that effective upon adoption, the lease assets and lease liabilities arising from operating leases will be recognized in the balance sheet. For public business entities, the amendments in this update are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. In transition, we are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach, including the option to utilize a number of practical expedients. We are in process of evaluating our lessee and lessor arrangements to determine the impact of this amendment on the consolidated financial statements. This evaluation includes an extensive review of revenue through leasing arrangements as well as lease expenses, which are primarily through operating lease arrangements for most of our facilities.

In March 2016, the FASB issued amendments which simplify several aspects of the accounting for share-based payment transactions, including income tax consequences, recognition of stock compensation award forfeitures, classification of awards as either equity or liabilities, the calculation of diluted shares outstanding and classification on the statement of cash flows. The most significant change resulting from these amendments is recording all the tax effects related to share-based payments at settlement through the income statement. Under existing guidance, tax benefits in excess of compensation costs (“windfalls”) are recorded in equity. Similarly, tax deficiencies below compensation costs (“shortfalls”) are recorded in equity to the extent of previous windfalls, while shortfalls in excess of this are recorded to the income statement. Furthermore, the new guidance is expected to increase the dilutive effect of share-based payment awards as a result of no longer assuming that tax benefits are used to purchase our common stock under the treasury method. The amendments also provide an alternative to estimating stock award forfeitures and instead recording at the time of forfeiture. We will adopt this update beginning in the first quarter of 2017. We estimate that tax benefits related to share-based payments will add approximately $0.12 to $0.16 in annual diluted earnings per share for 2017, primarily through a reduction in IDEXX’s effective tax rate, partially offset by an increase in diluted shares outstanding resulting from this accounting change. These impacts may vary significantly by quarter based on the timing of actual settlement activity.

In June 2016, the FASB issued amendments that requires financial assets measured at amortized cost be presented at the net amount expected to be collected. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial asset to present the net carrying value at the amount expected to be collected. The income statement reflects the measurement of credit losses for newly recognized financial assets, as well as the increases or decreases of expected credit losses that have taken place during the period. The measurement of expected credit losses is based upon historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. Credit losses relating to available-for-sale debt securities will be recorded through an allowance for credit losses rather than as a direct write-down to the security. Credit losses on available-for-sale securities will be required when the amortized cost is below the fair market value. During 2016, the amortized cost of our available-for-sale securities was within $0.1 million of the fair value. The amendments in this update are effective for fiscal years beginning after December 15, 2019 and interim periods within those annual periods. Early adoption for fiscal year beginning after December 15, 2018 is permitted. We will apply the standard’s provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first effective reporting period. This amendment is not expected to have a material impact on our financial statements.

In August 2016, the FASB issued amendments that provide guidance on the statement of cash flows presentation of certain transactions where diversity in practice exists on the classification of certain cash receipts and payment. The effective date will be the first quarter of an entity’s fiscal year 2019, with early adoption permitted. The amendment should be adopted using a retrospective transition approach, but may be applied prospectively if retrospective application would be impracticable. This amendment is not expected to have a material impact on our financial statements.

F-15

In October 2016, the FASB issued an amendment that requires an entity to recognize the income tax consequences of an intra-entity transfer of an asset, other than inventory, when the transfer occurs, even though the pre-tax effects of that transaction are eliminated in consolidation. The amendments are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. These amendments should be applied on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings at the beginning of the period adopted. Early adoption is permitted in the first interim period of an annual reporting period for which financial statements have not been issued. We are in the process of determining the impact of these amendments on our consolidated financial statements.

In November 2016, the FASB amended current cash flow guidance to add guidance on the classification and presentation of restricted cash. These amendments require that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The amendments are effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. We do not expect the adoption of the amendments to have a material impact our consolidated financial statements.

In January 2017, the FASB amended business combination guidance to modify the definition of a business. The amended definition of a business is 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. The amendments are effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted. This amendment may impact the allocation of purchase price in future acquisitions depending on the structure of future acquisitions.

In January 2017, the FASB amended the goodwill guidance to simplify the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test. Instead, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill. The amendments are effective for annual or any interim goodwill impairment test in fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. We do not expect the adoption of the amendments to have a material impact our consolidated financial statements.

NOTE 3. ACQUISITIONS

We believe that our acquisitions of businesses and other assets enhance our existing businesses by either expanding our geographic range and customer base or expanding our existing product lines.

During the year ended December 31, 2016, we paid an aggregate of $3.5 million in cash and amounts payable to acquire the assets of a veterinary reference laboratory testing business. We preliminarily allocated the purchase price and recognized customer related amortizable intangible assets and goodwill. The fair value of the fixed assets acquired was immaterial. Goodwill is calculated as the consideration in excess of net assets recognized and represents the future economic benefits arising from other assets acquired that could not be individually identified and separately recognized. The goodwill recorded from the business acquisition is deductible for income tax purposes. All assets acquired in connection with this acquisition were assigned to our CAG segment. Pro forma information has not been presented for this business acquisition because such information is not material to the financial statements. We expect the purchase price allocation will be completed in the first quarter of 2017.

F-16

During the year ended December 31, 2015, we paid an aggregate of $7.5 million in cash and recorded contingent consideration of $3.2 million to acquire the assets of two reference laboratory diagnostic and consulting businesses, each accounted for as a separate business combination. As part of these business acquisitions, we recognized $5.2 million in customer list amortizable intangible assets, $5.0 million in goodwill, $1.1 million in working capital, $0.3 million in fixed assets and a deferred tax liability of $0.9 million. The customer lists were each assigned useful lives of 15 years. Goodwill is calculated as the consideration in excess of net assets recognized and represents the future economic benefits arising from other assets acquired that could not be individually identified and separately recognized. The goodwill recorded from these business acquisitions is not deductible for income tax purposes. All assets acquired in connection with these business acquisitions were assigned to our CAG segment. One of the businesses acquired is located outside of the U.S. and, as such, the assets and liabilities recorded are subject to impacts of changes in foreign currency exchange rates. The results of operations of these acquired businesses have been included since the acquisition date. Pro forma information has not been presented for these business acquisitions because such information is not material to the financial statements.

During the year ended December 31, 2014, we paid an aggregate of $24.9 million, to acquire seven businesses, each accounted for as separate business combinations as described below.

We paid an aggregate of $18.7 million in cash and recorded contingent consideration of $4.2 million upon the acquisition of substantially all outstanding shares of a business and the assets of two other businesses, all of which comprise cloud-based veterinary practice software. As part of the business acquisitions, we recorded $11.7 million in amortizable intangible assets and $12.4 million in goodwill. Amortizable intangible assets primarily consisted of customer lists and software which were assigned weighted average useful lives of 16.4 years and 7.0 years, respectively. The weighted average useful life of all recognized amortizable intangible assets was 11.4 years. Of the total goodwill and amortizable assets acquired, $5.6 million of amortizable intangible assets are deductible for income tax purposes. All assets acquired in connection with these business combinations were assigned to our CAG segment. Two out of three businesses acquired are located outside of the U.S. and, as such, the assets and liabilities recorded are subject to impacts of changes in foreign currency exchange rates. The results of operations of these acquired businesses and assets have been included since the acquisition date. Pro forma information has not been presented for these business acquisitions because such information is not material to the financial statements.

We paid an aggregate of $6.2 million in cash and recorded contingent consideration of $1.5 million upon the acquisition of all outstanding shares of two veterinary reference laboratory testing businesses and to acquire the assets of two veterinary reference laboratory testing businesses. The purchase price in these business acquisitions was allocated primarily to customer list intangible assets, which were assigned a weighted average useful life of 13.3 years. $4.9 million of amortizable intangible assets associated with these acquisitions are deductible for income tax purposes. All assets acquired in connection with these business acquisitions were assigned to our CAG segment. Certain of these business acquisitions were of businesses located outside of the U.S. and, as such, the assets and liabilities recorded are subject to impacts of changes in foreign currency exchange rates. The results of operations of these acquired businesses have been included since the acquisition date. Pro forma information has not been presented for these business acquisitions because such information is not material to the financial statements.

NOTE 4. SHARE-BASED COMPENSATION

We provide for various forms of share-based compensation awards to our employees and non-employee directors. With the exception of stock options, the fair value of our awards is equal to the closing stock price of IDEXX common stock on the date of grant. We calculate the fair value of our stock option awards using the Black-Scholes-Merton option-pricing model. Share-based compensation expense is recognized net of estimated forfeitures, on a straight-line basis over the requisite service period of the award.

F-17

Share-Based Awards

Our share-based compensation plans allow for the issuance of a mix of stock options, restricted stock, stock appreciation rights, employee stock purchase rights and other stock unit awards. Other stock unit awards include restricted stock units (“RSUs”) and deferred stock units (“DSUs”). Stock options permit a holder to buy IDEXX stock upon vesting at the stock’s price on the date the option was granted. An RSU is an agreement to issue shares of IDEXX stock at the time of vesting. DSUs are granted under our Executive Deferred Compensation Plan (the “Executive Plan”) and non-employee Director Deferred Compensation Plan (the “Director Plan”). DSUs may or may not have vesting conditions depending on the plan under which they are issued. We did not issue any restricted stock or stock appreciation rights during the years ended December 31, 2016, 2015 and 2014, nor were any restricted stock or stock appreciation rights outstanding as of those years ended. There were no material modifications to the terms of outstanding options, RSUs or DSUs during the years ended December 31, 2016, 2015 or 2014.

We primarily issue shares of common stock to satisfy stock option exercises and employee stock purchase rights and to settle RSUs and DSUs. We issue shares of treasury stock to settle certain RSUs and upon the exercise of certain stock options, which were not material for the years ended December 31, 2016, 2015 and 2014. The number of shares of common stock and treasury stock issued are equivalent to the number of awards exercised or settled.

With the exception of employee stock purchase rights, equity awards are issued to employees and non-employee directors under the 2009 Stock Incentive Plan (the “2009 Stock Plan”). Our Board of Directors has authorized the issuance of 19,900,000 shares of our common stock under this share-based incentive plan. Any shares that are subject to awards of stock options or stock appreciation rights will be counted against the share limit as one share for every share granted. Any shares that are issued other than stock options and stock appreciation rights will be counted against the share limit as two shares for every share granted. If any shares issued under our prior plans are forfeited, settled for cash or expire, these shares, to the extent of such forfeiture, cash settlement or expiration, will again be available for issuance under the 2009 Stock Plan. As of December 31, 2016, there were 11,711,752 remaining shares available for issuance under the 2009 Stock Plan.

Employee stock purchase rights are issued under the 1997 Employee Stock Purchase Plan, under which we reserved and may issue up to an aggregate of 4,700,000 shares of common stock in periodic offerings. Under this plan, stock is sold to employees at a 15 percent discount off the closing price of the stock on the last day of each quarter. The dollar value of this discount is equal to the fair value of purchase rights recognized as share-based compensation. We issued 85,432, 105,000 and 93,000 shares of common stock in connection with the Employee Stock Purchase Plan during the years ended December 31, 2016, 2015 and 2014, respectively. As of December 31, 2016, there were 1,308,328 remaining shares available for issuance under the 1997 Employee Stock Purchase Plan.

Share-Based Compensation

Share-based compensation costs are classified in our consolidated financial statements consistent with the classification of cash compensation paid to the employees receiving such share-based compensation. The following is a summary of share-based compensation costs and related tax benefits recorded in our consolidated statements of income for the years ended December 31, 2016, 2015 and 2014 (in thousands):

For the Years Ended December 31,
201620152014
Share-based compensation expense included in cost of revenue$2,305$2,138$1,937
Share-based compensation expense included in operating expenses17,58617,74616,162
Total share-based compensation expense included in consolidated statements of income19,89119,88418,099
Income tax benefit resulting from share-based compensation arrangements(6,143)(6,229)(6,107)
Net impact of share-based compensation on net income$13,748$13,655$11,992

Share-based compensation expense is reduced for an estimate of the number of awards that are expected to be forfeited. We use historical data and other factors to estimate expected employee terminations and to evaluate whether particular groups of employees have significantly different forfeiture expectations.

F-18

The total unrecognized compensation expense, net of estimated forfeitures, for unvested share-based compensation awards at December 31, 2016, was $38.0 million, which will be recognized over a weighted average period of approximately 1.6 years.

Stock Options

Option awards are granted with an exercise price equal to the closing market price of our common stock on the date of grant. Options granted to employees primarily vest ratably over five years on each anniversary of the date of grant and options granted to non-employee directors vest fully on the first anniversary of the date of grant. Vesting of option awards issued is conditional based on continuous service. Options granted after May 8, 2013 have a contractual term of ten years, options granted between January 1, 2006 and May 8, 2013 have contractual terms of seven years and options granted prior to January 1, 2006 had contractual terms of ten years. Upon any change in control of the company, 25 percent of the unvested stock options then outstanding will vest and become exercisable. However, if the acquiring entity does not assume outstanding options, then all options will vest immediately prior to the change in control.

We use the Black-Scholes-Merton option-pricing model to determine the fair value of options granted. Option-pricing models require the input of highly subjective assumptions, particularly for the expected stock price volatility and the expected term of options. Changes in the subjective input assumptions can materially affect the fair value estimate. Our expected stock price volatility assumptions are based on the historical volatility of our stock over periods that are similar to the expected terms of grants and other relevant factors. We derive the expected term based on historical experience and other relevant factors concerning expected employee behavior with regard to option exercise. The risk-free interest rate is based on U.S. Treasury yields for a maturity approximating the expected term calculated at the date of grant. We have never paid any cash dividends on our common stock and we have no intention to pay a dividend at this time; therefore, we assume that no dividends will be paid over the expected terms of option awards.

We determine the assumptions used in the valuation of option awards as of the date of grant. Differences in the expected stock price volatility, expected term or risk-free interest rate may necessitate distinct valuation assumptions at those grant dates. As such, we may use different assumptions for options granted throughout the year. The weighted averages of the valuation assumptions used to determine the fair value of each option award on the date of grant and the weighted average estimated fair values were as follows:

For the Years Ended December 31,
201620152014
Expected stock price volatility25%23%28%
Expected term, in years5.75.65.7
Risk-free interest rate1.2%1.5%1.5%
Weighted average fair value of options granted$17.87$19.72$18.07

F-19

A summary of the status of options granted under our share-based compensation plans at December 31, 2016, and changes during the year then ended, are presented in the table below:

Number of Options (000)Weighted Average Exercise PriceWeighted Average Remaining Contractual TermAggregate Intrinsic Value ($000)
Outstanding as of December 31, 20153,384$49.76
Granted74569.07
Exercised(838)37.04
Forfeited(115)59.34
Expired--
Outstanding as of December 31, 20163,176$57.315.3$190,424
Fully vested as of December 31, 20161,510$46.923.2$106,255
Fully vested and expected to vest as of December 31, 20163,034$56.785.2$183,550

The total fair value of options vested was $9.3 million during the year ended December 31, 2016, $8.7 million during the year ended December 31, 2015, and $7.8 million during the year ended December 31, 2014.

Intrinsic value of stock options exercised represents the amount by which the market price of the common stock exceeded the exercise price, before applicable income taxes. The total intrinsic value of stock options exercised was $51.0 million during the year ended December 31, 2016, $35.1 million during the year ended December 31, 2015, and $51.2 million during the year ended December 31, 2014.

Restricted Stock Units

The majority of RSUs granted to employees vest ratably over five years on each anniversary of the date of grant. RSUs granted to non-employee directors vest fully on the first anniversary of the date of grant. Vesting as it relates to RSUs issued is conditional based on continuous service. Upon any change in control of the company, 25 percent of the unvested RSUs then outstanding will vest, provided, however, that if the acquiring entity does not assume the RSUs, then all such units will vest immediately prior to the change in control.

A summary of the status of RSUs granted under our share-based compensation plans at December 31, 2016, and changes during the period then ended, are presented in the table below:

Number of Units (000)Weighted Average Grant-Date Fair Value
Nonvested as of December 31, 2015498$58.94
Granted17369.14
Vested(170)52.60
Forfeited(33)60.46
Nonvested as of December 31, 2016468$64.88
Expected to vest as of December 31, 2016418$64.44

The total fair value of RSUs vested was $12.4 million during the year ended December 31, 2016, $15.3 million during the year ended December 31, 2015, and $15.4 million during the year ended December 31 2014. The aggregate intrinsic value of nonvested RSUs as of December 31, 2016, is equal to the fair value of IDEXX’s common stock as of December 31, 2016, multiplied by the number of nonvested units as of December 31, 2016.

F-20

Deferred Stock Units

Under our Director Plan, non-employee directors may defer a portion of their cash fees in the form of vested DSUs. Prior to 2014, certain members of our management could elect to defer a portion of their cash compensation in the form of vested deferred stock units under our Executive Plan. Each DSU represents the right to receive one unissued share of our common stock. These recipients receive a number of DSUs equal to the amount of cash fees or compensation deferred divided by the closing sale price of the common stock on the date of deferral. Also under the Director Plan, non-employee directors are awarded annual grants of DSUs that vest fully on the first anniversary of the date of grant. Vesting for these annual DSU grants is conditional based on continuous service. DSUs are exchanged for a fixed number of shares of common stock, upon vesting if vesting criteria apply, subject to the limitations of the Director and Executive Plans and applicable law.

There were approximately 231,000 and 240,000 vested DSUs outstanding under our share-based compensation plans as of December 31, 2016 and 2015, respectively. Unvested DSUs as of December 31, 2016 and 2015, were not material.

NOTE 5. MARKETABLE SECURITIES

During the year ended December 31, 2016, we purchased marketable debt securities, which are classified as available-for-sale and carried at fair value in the accompanying consolidated balance sheets on a trade date basis. We have classified our investments with maturities beyond one year as short-term, based on their highly liquid nature and because such marketable securities represent the investment of cash that is available for current operations. Unrealized holding gains and losses are deferred within accumulated other comprehensive income (“AOCI”), net of applicable taxes, except for when an impairment is determined to be other-than-temporary or the security is divested prior to maturity. Within the accompanying consolidated statements of operations, interest earned and amortization of premiums or discounts on marketable securities are included in interest income, realized gains and losses on the sale of our marketable securities are included in other income.

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

As of December 31, 2016Amortized CostGross Unrealized GainsGross Unrealized LossesFair Value
Corporate bonds$130,833$40$(102)$130,771
Certificates of deposit40,400--40,400
Asset backed securities27,29025-27,315
Commercial paper20,228--20,228
U.S. government bonds12,2441(14)12,231
Agency bonds4,6004-4,604
Municipal bonds1,400--1,400
Total marketable securities$236,995$70$(116)$236,949
As of December 31, 2015Amortized CostGross Unrealized GainsGross Unrealized LossesFair Value
Corporate bonds$177,810$24$(221)$177,613
U.S. government bonds12,881-(10)12,871
Agency bonds12,068-(3)12,065
Certificates of deposit3,500--3,500
Commercial paper3,491--3,491
International government bonds1,462-(3)1,459
Municipal bonds1,400-(1)1,399
Treasury bill1,1921-1,193
Total marketable securities$213,804$25$(238)$213,591

F-21

No marketable securities have been in a continuous unrealized loss position for more than twelve months. Our portfolio of marketable securities had an average AA- credit rating as of December 31, 2016. There were no marketable securities that we consider to be other-than-temporarily impaired as of December 31, 2016. 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 effective maturity date to measure the duration of the marketable securities.

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

As of December 31, 2016Amortized CostFair Value
Due in one year or less$169,044$169,002
Due after one through two years67,95167,947
$236,995$236,949

NOTE 6. INVENTORIES

Inventories are stated at the lower of cost (first-in, first-out) or 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 transportation. We write down the carrying value of inventory for estimated obsolescence by an amount equal to the difference between the cost of inventory and the estimated market value when warranted based on assumptions of future demand, market conditions, remaining shelf life, or product functionality. If actual market conditions or results of estimated functionality are less favorable than those we estimated, additional inventory write-downs may be required, which would have a negative effect on results of operations.

Unpaid inventory reflected within accounts payable in our consolidated balance sheets was $32.7 million at December 31, 2016, $30.1 million at December 31, 2015, and $21.4 million at December 31, 2014.

The components of inventories are as follows (in thousands):

December 31,December 31,
20162015
Raw materials$27,561$31,184
Work-in-process14,99818,698
Finished goods115,475138,951
Total inventories$158,034$188,833

NOTE 7. PROPERTY AND EQUIPMENT, NET

Property and equipment are stated at cost, net of accumulated depreciation and amortization. The costs of additions and improvements are capitalized, while maintenance and repairs are charged to expense as incurred. When an item is sold or retired, the cost and related accumulated depreciation is relieved, and the resulting gain or loss, if any, is recognized in the consolidated statements of income. We provide for depreciation and amortization primarily using the straight-line method by charges to income in amounts that allocate the cost of property and equipment over their estimated useful lives as follows:

Asset ClassificationEstimated Useful Life
Land improvements15 to 20 years
Buildings and improvements10 to 40 years
Leasehold improvementsShorter of remaining lease term or useful life of improvements
Machinery and equipment3 to 8 years
Office furniture and equipment3 to 7 years
Computer hardware and software3 to 7 years

F-22

We capitalize interest on the acquisition and construction of significant assets that require a substantial period of time to be made ready for use. The capitalized interest is included in the cost of the completed asset and depreciated over the asset’s estimated useful life. The amount of interest capitalized during the years ended December 31, 2016 and 2015, was not material.

We capitalize certain costs incurred in connection with developing or obtaining software designated for internal use based on three distinct stages of development. Qualifying costs incurred during the application development stage, which consist primarily of internal payroll and direct fringe benefits and external direct project costs, including labor and travel, are capitalized and amortized on a straight-line basis over the estimated useful life of the asset. Costs incurred during the preliminary project and post-implementation and operation phases are expensed as incurred. These costs are general and administrative in nature and relate primarily to the determination of performance requirements, data conversion and training. Software developed to deliver hosted services to our customers has been designated as internal use.

Property and equipment, net, consisted of the following (in thousands):

December 31,December 31,
20162015
Land and improvements$7,255$7,357
Buildings and improvements171,455162,146
Leasehold improvements44,56840,526
Machinery and equipment262,718224,100
Office furniture and equipment42,12439,334
Computer hardware and software189,327169,615
Construction in progress25,14535,546
742,592678,624
Less accumulated depreciation and amortization385,170345,598
Total property and equipment, net$357,422$333,026

Below are the amounts of depreciation and amortization, capitalized computer software for internal use and unpaid property equipment reflected in account payable and accrued expenses:

December 31,December 31,December 31,
201620152014
Depreciation and amortization expense$63,537$57,029$48,783
Capitalized computer software developed for internal use15,59019,08111,871
Unpaid property and equipment, reflected in accounts payable and accrued liabilities10,6018,5346,513

We recorded an $8.2 million impairment charge related to internally-developed software not yet placed into service within Unallocated Amounts operating expenses in our segment reporting in Note 15 during the year ended December 31, 2015 as a result of a strategic shift to refocus our development efforts within our information management business.

NOTE 8. OTHER CURRENT AND NONCURRENT ASSETS

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

December 31,December 31,
20162015
Prepaid expenses$25,746$27,244
Taxes receivable27,67211,792
Customer acquisition costs, net18,08516,412
Other assets19,7036,621
Total other current assets$91,206$62,069

F-23

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

December 31,December 31,
20162015
Investment in long-term product supply arrangements$10,978$12,165
Customer acquisition costs, net50,30943,570
Other assets42,02829,755
Total other long-term assets$103,315$85,490

NOTE 9. GOODWILL AND INTANGIBLE ASSETS, NET

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

Our business combinations regularly include contingent consideration arrangements that require additional consideration to be paid based on the achievement of established objectives, most commonly surrounding the retention of customers during the post-combination period. We assess contingent consideration to determine if it is part of the business combination or if it should be accounted for separately from the business combination in the post-combination period. Contingent consideration is recognized at its fair value on the acquisition date. A liability resulting from contingent consideration is remeasured to fair value at each reporting date until the contingency is resolved, with changes in fair value recognized in earnings. Changes in fair value of contingent consideration and differences arising upon settlement were not material during the years ended December 31, 2016, 2015 and 2014. See Note 3 for additional information regarding contingent consideration arising from recent business acquisitions.

We assess goodwill for impairment annually, at the reporting unit level, in the fourth quarter and whenever events or circumstances indicate impairment may exist. In evaluating goodwill for impairment, we have the option to first assess the qualitative factors to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test. The more likely than not threshold is defined as having a likelihood of more than 50 percent. If, after assessing the totality of events or circumstances, we determine that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, we would then perform step one of the two-step impairment test; otherwise, no further impairment test would be required. In contrast, we can opt to bypass the qualitative assessment for any reporting unit in any period and proceed directly to step one of the two-step impairment test. Doing so does not preclude us from performing the qualitative assessment in any subsequent period.

In the fourth quarters of 2016 and 2015, we elected to bypass the qualitative approach and instead proceeded directly to step one of the two-step impairment test to assess the fair value of all of our reporting units. As part of step one of the two-step impairment test, we estimate the fair values of applicable reporting units using an income approach based on discounted forecasted cash flows. We make significant assumptions about the extent and timing of future cash flows, growth rates and discount rates. Model assumptions are based on our projections and best estimates, using appropriate and customary market participant assumptions. In addition, we make certain assumptions in allocating shared assets and liabilities to individual reporting units in determining the carrying value of each reporting unit. Changes in forecasted cash flows or the discount rate would affect the estimated fair values of our reporting units and could result in a goodwill impairment charge in a future period.

No goodwill impairments were identified during the years ended December 31, 2016, 2015 or 2014.

F-24

We assess the realizability of intangible assets other than goodwill whenever events or changes in circumstances indicate that the carrying value may not be recoverable. If an impairment review is triggered, we evaluate the carrying value of intangible assets based on estimated undiscounted future cash flows over the remaining useful life of the primary asset of the asset group and compare that value to the carrying value of the asset group. The cash flows that are used contain our best estimates, using appropriate and customary assumptions and projections at the time. If the net carrying value of an intangible asset exceeds the related estimated undiscounted future cash flows, an impairment to write the intangible asset to its fair value would be reported as a non-cash charge to earnings. If necessary, we would calculate the fair value of an intangible asset using the present value of the estimated future cash flows to be generated by the intangible asset, and applying a risk-adjusted discount rate.

During the first half of 2016, management reviewed the OPTI Medical product offerings. As a result of this review, we discontinued certain development activities in the human point-of-care medical diagnostics market during March 2016 that was devoted to a new platform and focused our efforts in this market on supporting our current generation OPTI CCA-TS2 Blood Gas and Electrolyte Analyzer. Non-cash intangible asset impairments of $2.2 million were recorded within our condensed consolidated statement of operations, within general and administration expenses, within our unallocated segment, during 2016. The intangibles associated with our OPTI Medical human point-of-care medical diagnostics market are fully written off. Impairments of our intangible assets during the years ended December 31, 2015 and 2014 were not material.

We provide for amortization primarily using the straight-line method by charges to income in amounts that allocate the intangible assets over their estimated useful lives as follows:

Asset ClassificationEstimated Useful Life
Patents13 years
Product rights(1)5 to 15 years
Customer-related intangible assets(2)5 to 17 years
Noncompete agreements3 to 5 years
(1)Product rights comprise certain technologies, intellectual property, licenses and trade names acquired from third parties.
(2)Customer-related intangible assets comprise customer lists and customer relationships acquired from third parties.

Intangible assets other than goodwill consisted of the following (in thousands):

December 31, 2016December 31, 2015
CostAccumulated AmortizationCostAccumulated Amortization
Patents$2,192$2,075$2,192$1,907
Product rights (1)29,74820,87735,31822,976
Customer-related intangible assets (2)74,92238,19086,80644,232
Noncompete agreements1,1116761,413705
$107,973$61,818$125,729$69,820
(1)Product rights comprise certain technologies, licenses and trade names acquired from third parties.
(2)Customer-related intangible assets are comprised of customer lists and customer relationships acquired from third parties.

Amortization expense of intangible assets other than goodwill was $9.5 million for the year ended December 31, 2016, $10.4 million for the year ended December 31, 2015, and $9.8 million for the year ended December 31, 2014. The decrease in intangible assets other than goodwill during the year ended December 31, 2016, was driven by amortization expense and the write-off of intangibles related to our OPTI Medical line of business, partly offset by intangibles recognized in connection with the acquisition of businesses.

F-25

At December 31, 2016, the aggregate amortization expense associated with intangible assets is estimated to be as follows for each of the next five years and thereafter (in thousands):

Amortization Expense
2017$8,467
20187,453
20196,561
20205,261
20214,457
Thereafter13,956
$46,155

The decrease in goodwill during the twelve months ended December 31, 2016, resulted from changes in foreign currency exchange rates, partly offset by goodwill recognized in connection with the acquisition of businesses. See Note 3 for information regarding goodwill and other intangible assets recognized in connection with the acquisition of businesses and other assets during the years ended December 31, 2016, 2015 and 2014.

The changes in the carrying amount of goodwill for the years ended December 31, 2016, 2015, and 2014, were as follows (in thousands):

CAGWaterLPDOtherConsolidated Total
Balance as of December 31, 2013$141,408$14,515$18,067$6,531$180,521
Business Combinations13,077---13,077
Impact of Changes in Foreign Currency Exchange Rates(6,334)(826)(1,988)-(9,148)
Balance as of December 31, 2014$148,151$13,689$16,079$6,531$184,450
Business Combinations5,047---5,047
Impact of Changes in Foreign Currency Exchange Rates(8,007)(651)(1,905)-(10,563)
Balance as of December 31, 2015$145,191$13,038$14,174$6,531$178,934
Business Combinations1,720---1,720
Impact of Changes in Foreign Currency Exchange Rates(717)(2,148)439-(2,426)
Balance as of December 31, 2016$146,194$10,890$14,613$6,531$178,228

NOTE 10. ACCRUED LIABILITIES

Accrued liabilities consisted of the following (in thousands):

December 31,December 31,
20162015
Accrued expenses$71,984$65,665
Accrued employee compensation and related expenses91,11377,027
Accrued taxes23,97318,963
Accrued customer programs49,06143,875
Total accrued liabilities$236,131$205,530

F-26

NOTE 11. DEBT

Effective January 1, 2016, we adopted FASB amendments that require debt issuance costs related to a recognized debt liability be presented within the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. This reclassification of the presentation of deferred financing costs did not have a material impact on other long-term assets or long-term debt amounts reported in our condensed consolidated balance sheet and additionally would not have a material impact on such amounts reported in a prior period. These amendments have been reflected prospectively from the date of inception; prior period amounts have not been revised for the effects of this amendment. For line-of-credit arrangements, borrowers have the option of presenting debt issuance costs as an asset which is subsequently amortized ratably over the term of the line-of-credit arrangement, regardless of whether there are any related outstanding borrowings. As such, we continue to present deferred financing costs associated with our unsecured revolving credit facility within other long-term assets in the accompanying condensed consolidated balance sheets.

Credit Facility

In December 2015, we refinanced our existing $700 million unsecured revolving credit facility by entering into a second amended and restated credit agreement relating to a five-year unsecured revolving credit facility in the principal amount of $850 million with a syndicate of multinational banks, which matures on December 4, 2020 (the new credit facility and the prior credit facility are referred to collectively as the “Credit Facility”) and requires no scheduled prepayments before that date. Although the Credit Facility does not mature until December 4, 2020, all individual borrowings under the terms of the Credit Facility have a stated term between 30 and 180 days. At the end of each term, the obligation is either repaid or rolled over into a new borrowing. The Credit Facility contains a subjective material adverse event clause, which allows the debt holders to call the loans under the Credit Facility if we fail to provide prompt written notice to the syndicate of such an event. Based on the stated term and the existence of the subjective material adverse event clause, this Credit Facility is reflected in the current liabilities section of our consolidated balance sheets. At December 31, 2016, we had $611.0 million outstanding under our Credit Facility with a weighted average effective interest rate of 1.95 percent. At December 31, 2015, we had $573.0 million outstanding under our Credit Facility with a weighted average effective interest rate 1.9 percent. The funds available under the Credit Facility at December 31, 2016, and December 31, 2015, reflect a further reduction due to the issuance of a letter of credit for $1.0 million, which was issued in connection with our workers’ compensation policy.

Applicable interest rates on borrowings under the Credit Facility generally range from 0.875 to 1.375 percentage points (“Credit Spread”) above the London interbank offered rate, based on our leverage ratio, or the prevailing prime rate plus a maximum spread of up to 0.375 percent, based on our leverage ratio. We previously entered into forward fixed interest rate swap agreements to manage the economic effect of the first $80 million of variable interest rate borrowings. We designated the interest rate swaps as a cash flow hedges. See Note 17 for a discussion of our derivative instruments and hedging activities. Under the Credit Facility, we pay quarterly commitment fees of 0.075 percent to 0.25 percent, based on our leverage ratio, on any unused commitment.

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. The Credit Facility contains affirmative, negative and financial covenants customary for financings of this type. The negative covenants include restrictions on liens, indebtedness of subsidiaries of the Company, fundamental changes, investments, transactions with affiliates and certain restrictive agreements. The sole financial covenant is a consolidated leverage ratio test that requires our ratio of debt to earnings before interest, taxes, depreciation, amortization and share-based compensation defined as the consolidated leverage ratio under the terms of the Credit Facility, not to exceed 3.5-to-1. At December 31, 2016, we were in compliance with the covenants of the Credit Facility.

F-27

Senior Notes

In December 2013, we issued and sold through a private placement an aggregate principal amount of $150 million of unsecured senior notes consisting of $75 million of 3.94% Series A Senior Notes due December 11, 2023 (the “2023 Notes”) and $75 million of 4.04% Series B Senior Notes due December 11, 2025 (the “2025 Series B Notes” and together with the 2023 Notes, the “December Notes”) under a Note Purchase Agreement among the Company, New York Life Insurance Company and the accredited institutional purchasers named therein (the “December 2013 Note Agreement”).

In July 2014, we issued and sold through a private placement an aggregate principal amount of $125 million of unsecured senior notes consisting of $75 million of 3.76% Series B Senior Notes due July 21, 2024 (the “2024 Notes”) and $50 million of 3.32% Series A Senior Notes due July 21, 2021 (the “2021 Notes” and together with the 2024 Notes, the “Prudential Notes”) under a Note Purchase and Private Shelf Agreement among the Company, Prudential Investment Management, Inc. (“Prudential”) and the accredited institutional purchasers named therein (the “July 2014 Note Agreement”).

In September 2014, we issued and sold through a private placement an aggregate principal amount of $75 million of unsecured 3.72% senior notes due September 4, 2026 (the “2026 Notes”) under a Note Purchase Agreement dated as of July 22, 2014 among the Company, New York Life Insurance Company and the accredited institutional purchasers named therein (the “September 2014 Note Agreement”).

In December 2014, we entered into a Multi-Currency Note Purchase and Private Shelf Agreement among the Company, Metropolitan Life Insurance Company (“MetLife”), and the accredited institutional purchasers named therein pursuant to which we agreed to issue and sell $75 million of its unsecured 3.25% Series A Senior Notes having a seven-year term, and $75 million of its unsecured 3.72% Series B Senior Notes having a twelve-year term. The issuance, sale and purchase of these notes occurred in February 2015 (the “MetLife Notes”). The agreement (the “December 2014 Note Agreement”) also provides for an uncommitted shelf facility by which we may request that MetLife purchase, over the subsequent three years, up to $50 million of additional senior promissory notes of the Company at a fixed interest rate to be determined at the time of purchase and with a maturity date not to exceed fifteen years.

In June 2015, we entered into an Amended and Restated Multi-Currency Note Purchase and Private Shelf Agreement (the “2015 Amended Agreement”), among the Company, Prudential Investment Management, Inc. and the accredited institutional purchasers named therein, which amends and restates the Note Purchase and Private Shelf Agreement dated July 21, 2014. We refer to the 2015 Amended Agreement together with the December 2013 Note Agreement, September 2014 Note Agreement, and December 2014 Note Agreement collectively as the “Senior Note Agreements”).

Pursuant to the 2015 Amended Agreement, we issued and sold through a private placement a principal amount of €88.9 million of unsecured 1.785% Series C Senior Notes due June 18, 2025 (the “2025 Series C Notes”). We refer to the 2025 Series C Notes together with the Prudential Notes, December Notes, MetLife Notes and the 2026 Notes, collectively, as the “Senior Notes”). We used the net proceeds from this issuance and sale of the 2025 Notes for general corporate purposes, including repaying amounts outstanding under our Credit Facility.

The 2015 Amended Agreement also provides for an uncommitted shelf facility by which we may request that Prudential purchase, over the next three years, up to $75 million (or the foreign currency equivalent) of additional senior promissory notes of the Company at a fixed interest rate and with a maturity date not to exceed twelve years (the “Shelf Notes”). Prudential is under no obligation to purchase any of the Shelf Notes. The interest rate of any series of Shelf Notes will be determined at the time of purchase. The proceeds of any series of Shelf Notes are able to be used for general corporate purposes.

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. The sole financial covenant is a consolidated leverage ratio test that requires our ratio of debt to earnings before interest, taxes, depreciation, amortization and share-based compensation, as defined in the Senior Note Agreements, not to exceed 3.5-to-1. At December 31, 2016, we were in compliance with the covenants of the Senior Note Agreements.

F-28

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. The obligations under the Senior Notes may be accelerated upon the occurrence of an event of default under the applicable Senior Note Agreement, 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.

Interest paid for the periods ended December 31, 2016, 2015 and 2014, was $31.8 million, $27.2 million, and $12.3 million, respectively.

Annual principal payments on long-term debt at December 31, 2016, are as follows (in thousands):

Years Ending December 31,Amount
2017-
2018-
2019-
2020-
202150,000
Thereafter543,664
$593,664

NOTE 12. INCOME TAXES

The provision for income taxes is determined using the asset and liability approach of accounting for income taxes. Under this approach, deferred taxes represent the estimated future tax effects of temporary differences between book and tax treatment of assets and liabilities and carryforwards to the extent they are realizable. We record a valuation allowance to reduce our deferred tax assets to the amount that is more likely than not to be realized. While we consider future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for a valuation allowance, in the event we were to determine that we would be able to realize our deferred tax assets in the future in excess of the net recorded amount, a reduction of the valuation allowance would increase income in the period such determination was made. Likewise, should we determine that we would not be able to realize all or part of our net deferred tax asset in the future, a reduction to the deferred tax asset would be charged to income in the period such determination was made.

We record a liability for uncertain tax positions that do not meet the more likely than not standard as prescribed by the authoritative guidance for income tax accounting. We record tax benefits for only those positions that we believe will more likely than not be sustained. Unrecognized tax benefits are the differences between tax positions taken, or expected to be taken, in tax returns, and the benefits recognized for accounting purposes.

Significant judgment is required in determining our worldwide provision for income taxes and our income tax filings are regularly under audit by tax authorities. Any audit result differing from amounts recorded would increase or decrease income in the period that we determine such adjustment is likely. Interest expense and penalties associated with the underpayment of income taxes are included in income tax expense.

Earnings before income taxes were as follows (in thousands):

For the Years Ended December 31,
201620152014
Domestic$227,875$187,200$148,510
International93,97185,94198,045
$321,846$273,141$246,555

F-29

The provision (benefit) for income taxes comprised the following (in thousands):

For the Years Ended December 31,
201620152014
Current
Federal$53,285$52,966$39,713
State6,6085,3534,692
International19,29117,68120,213
79,18476,00064,618
Deferred
Federal20,3055,7622,301
State1,19652633
International(893)(1,282)(2,348)
20,6085,006(14)
$99,792$81,006$64,604

The provision for income taxes differs from the amounts computed by applying the statutory federal income tax rate as follows:

For the Years Ended December 31,
201620152014
U.S. federal statutory rate35.0%35.0%35.0%
State income tax, net of federal tax benefit1.81.61.5
International income taxes(4.8)(5.3)(7.0)
Domestic manufacturing exclusions(1.0)(1.5)(1.2)
Research and development credit(0.8)(1.2)(1.3)
Other, net0.81.1(0.8)
Effective tax rate31.0%29.7%26.2%

Our effective income tax rate was 31.0 percent for the year ended December 31, 2016, and 29.7 percent for the year ended December 31, 2015. The increase in our effective income tax rate for the year ended December 31, 2016, as compared to the year ended December 31, 2015, was primarily related to a change in earnings mix in 2016, with relatively higher earnings subject to domestic tax rates as opposed to lower international tax rates including the impact of foreign currency exchange rates.

Our effective income tax rate was 29.7 percent for the year ended December 31, 2015, and 26.2 percent for the year ended December 31, 2014. The increase in our effective income tax rate for the year ended December 31, 2015, as compared to the year ended December 31, 2014, was related to lower relative earnings subject to international tax rates that are lower than domestic tax rates, including the impact of foreign currency exchange rates, as well as a non-recurring benefit recognized during period ended December 31, 2014, related to the deferral of inter-company profits that were included in prior year tax provisions in error, which is not material to prior interim or annual periods.

Income taxes paid for the periods ended December 31, 2016, 2015 and 2014 was $74.7 million, $54.9 million, and $60.2 million, respectively.

We have business operations in Switzerland and the Netherlands and have been granted tax rulings by each jurisdiction. Our Netherlands ruling is set to expire on December 31, 2022 and our Switzerland ruling remains in effect as long as our business operations comply with the ruling requirements during the period or until Switzerland finalizes the implementation dates of new international tax rules. Prior to the year ended December 31, 2016 we benefited from a Switzerland ruling which expired December 31, 2015.

As a result of the tax rulings, our net income was higher by $7.8 million for the year ended December 31, 2016, $8.5 million for the year ended December 31, 2015, and $8.5 million for the year ended December 31, 2014. The benefit from these tax rulings is reflected within the overall benefit received from international income taxes in the table above.

F-30

We consider the majority of the operating earnings of non-U.S. subsidiaries to be indefinitely invested outside the U.S. The cumulative earnings of these subsidiaries were $546.7 million at December 31, 2016. No provision has been made for U.S. federal and state, or international taxes that may result from future remittances of the undistributed earnings of non-U.S. subsidiaries. Should we repatriate these earnings in the future, we would have to adjust the income tax provision in the period in which the decision to repatriate earnings is made. A determination of the related tax liability that would be paid on these undistributed earnings if repatriated is not practicable for several reasons including the complexity of laws and regulations in the various jurisdictions where we operate, the varying tax treatment of potential repatriation scenarios and the timing of any future repatriation. For the operating earnings not considered to be indefinitely invested outside the U.S., we have accounted for the tax impact on a current basis.

The components of the net deferred tax assets (liabilities) included in the accompanying consolidated balance sheets are as follows (in thousands):

December 31, 2016December 31, 2015
Long-TermCurrentLong-Term
Assets
Accrued expenses$22,145$23,298$5,329
Accounts receivable reserves2,7152,973-
Deferred revenue13,4007,3923,656
Inventory basis differences3,9593,292293
Property-based differences1,382-1,524
Share-based compensation13,0212,56510,580
Other678234361
Net operating loss carryforwards4,182654,059
Unrealized losses on foreign currency exchange contracts, interest rate swaps and investments148-53
Total assets61,63039,81925,855
Valuation allowance(4,891)(507)(3,939)
Total assets, net of valuation allowance56,73939,31221,916
Liabilities
Accrued expenses(143)--
Accounts receivable reserves(85)--
Deferred revenue(36)-
Deferred instrument costs(24,142)-(16,090)
Property-based differences(43,159)-(35,079)
Intangible asset basis differences(17,672)-(17,109)
Other(507)(550)(1,460)
Unrealized gains on foreign currency exchange contracts, interest rate swaps and investments(4,575)(882)-
Total liabilities(90,319)(1,432)(69,738)
Net deferred tax assets (liabilities)$(33,580)$37,880$(47,822)

During the first quarter of 2016, the Company early adopted FASB amendments which require us to classify all deferred tax assets and liabilities as noncurrent within our condensed consolidated balance sheet. In accordance with the FASB’s permitted transition guidance, we applied this guidance prospectively and did not revise our prior period balance sheet presentation for the effects of this amendment.

We record a liability for uncertain tax positions that do not meet the more likely than not standard as prescribed by the authoritative guidance for income tax accounting. We record tax benefits for only those positions that we believe will more likely than not be sustained. Unrecognized tax benefits are the differences between tax positions taken, or expected to be taken, in tax returns, and the benefits recognized for accounting purposes. We classify certain uncertain tax positions as long-term liabilities.

The total amount of unrecognized tax benefits at December 31, 2016, and December 31, 2015, was $18.5 million and $7.2 million, respectively. Of the total unrecognized tax benefits at December 31, 2016 and 2015, $5.9 million and $5.9 million, respectively, comprise unrecognized tax positions that would, if recognized, affect our effective tax rate. The increase in net liability is primarily related to two uncertain tax positions taken during the year. The first relates to our claiming certain tax deductions under a recent court case, but one that the IRS has vowed to appeal. The second relates to certain changes we made in our transfer pricing policies to better align

F-31

statutory accounting with business operations. The ultimate deductibility of the remaining unrecognized tax positions is highly certain but there is uncertainty about the timing of such deductibility. Because of the impact of deferred tax accounting, other than interest and penalties, the disallowance of the shorter deductibility period would not affect the annual effective tax rate but would accelerate the payment of cash to the taxing authority to an earlier period.

During each of the years ended December 31, 2016, 2015 and 2014, we recorded interest expense and penalties of $0.3 million as income tax expense in our consolidated statement of income. At December 31, 2016 and 2015, we had $0.6 million and $0.6 million, respectively, of estimated interest expense and penalties accrued in our consolidated balance sheets.

The following table summarizes the changes in unrecognized tax benefits during the years ended December 31, 2016, 2015 and 2014 (in thousands):

For the Years Ended December 31,
201620152014
Total amounts of unrecognized tax benefits, beginning of period$7,204$5,942$6,325
Gross increases in unrecognized tax benefits as a result of tax positions taken during a prior period7547432
Gross increases in unrecognized tax benefits as a result of tax positions taken in the current period12,6571,5691,789
Decreases in unrecognized tax benefits relating to settlements with taxing authorities(1,326)-(2,242)
Decreases in unrecognized tax benefits as a result of a lapse of the applicable statutes of limitations(147)(354)(362)
Total amounts of unrecognized tax benefits, end of period$18,463$7,204$5,942

In the ordinary course of our business, our income tax filings are regularly under audit by tax authorities. While we believe we have appropriately provided for all uncertain tax positions, amounts asserted by taxing authorities could be greater or less than our accrued position. Accordingly, additional provisions on income tax matters, or reductions of previously accrued provisions, could be recorded in the future as we revise our estimates due to changing facts and circumstances or the underlying matters are settled or otherwise resolved. We are currently under tax examinations by various state and international tax authorities. We anticipate that these examinations will be concluded within the next year. With few exceptions, we are no longer subject to income tax examinations in any state and local, or international jurisdictions in which we conduct significant taxable activities for years before 2008.

At December 31, 2016, we had net operating loss carryforwards in certain state and international jurisdictions of approximately $21.7 million available to offset future taxable income. Most of these net operating loss carryforwards will expire at various dates through 2018 and the remainder have indefinite lives. We have recorded a valuation allowance of $4.9 million against certain deferred tax assets related to temporary differences including net operating loss carryforwards, as it is more likely than not that they will not be realized or utilized within the carryforward period.

NOTE 13. EARNINGS PER SHARE

Basic earnings per share is computed by dividing net income attributable to IDEXX Laboratories, Inc. 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, the total unrecognized compensation expense for unvested share-based compensation awards and the excess 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. 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 for additional information regarding deferred stock units.

F-32

The following is a reconciliation of shares outstanding for basic and diluted earnings per share for the years ended December 31, 2016, 2015 and 2014 (in thousands):

For the Years Ended December 31,
201620152014
Shares outstanding for basic earnings per share:89,73292,601100,094
Shares outstanding for diluted earnings per share:
Shares outstanding for basic earnings per share89,73292,601100,094
Dilutive effect of share-based payment awards1,1521,0481,409
90,88493,649101,503

Certain options to acquire shares have been excluded from the calculation of shares outstanding for dilutive earnings per share because they were anti-dilutive. The following table presents information concerning those anti-dilutive options for the years ended December 31, 2016, 2015 and 2014 (in thousands):

For the Years Ended December 31,
201620152014
Weighted average number of shares underlying anti-dilutive options88644644

NOTE 14. COMMITMENTS, CONTINGENCIES AND GUARANTEES

Leases

The majority of our facilities are occupied under operating lease arrangements with various expiration dates through 2030. We are responsible for the real estate taxes and operating expenses related to these facilities. Additionally, we enter into operating leases for certain vehicles and office equipment in the normal course of business. We determine the expected term of any executed agreements using the non-cancelable lease term plus any renewal options by which the failure to renew imposes a penalty in such amount that renewal is reasonably assured. The derived expected term is then used in the determination of a capital or operating lease and in the calculation of straight-line rent expense. Rent escalations are considered in the calculation of minimum lease payments in our capital lease tests and in determining straight-line rent expense for operating leases.

Commitments

Rent expense charged to operations under operating leases was approximately $22.7 million for the year ended December 31, 2016, $20.5 million for the year ended December 31, 2015, and $17.2 million for the year ended December 31, 2014.

Minimum annual rental payments under these agreements are estimated as follows (in thousands):

Years Ending December 31,Amount
2017$15,724
201812,573
20198,256
20206,301
20215,957
Thereafter9,050
$57,861

We have various minimum royalty payments due through 2028 of $1.6 million. If these obligations are not satisfied, the related license arrangements may be terminated, resulting in either a loss in exclusivity or the right to use the technology.

We are required to annually purchase a minimum amount of inventory from certain suppliers. Through 2022, we have a total of $14.3 million in minimum purchase commitments under these arrangements.

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Contingencies

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

Under our workers’ compensation insurance policies for U.S. employees, we have retained the first $300,000, $300,000 and $300,000 in claim liability per incident with aggregate maximum claim liabilities per year of $2.6 million, $3.5 million and $2.3 million for the years ended December 31, 2016, 2015 and 2014, respectively. Workers’ compensation expense recognized during the years ended December 31, 2016, 2015 and 2014 and our respective liability for such claims as of December 31, 2016, 2015, and 2014 was not material. Claims incurred during the years ended December 31, 2016 and 2015 are relatively undeveloped as of December 31, 2016. Therefore, it is possible that we could incur additional healthcare and wage indemnification costs beyond those previously recognized up to our aggregate liability for each of the respective claim years. For the years ended on or prior to December 31, 2014, based on our retained claim liability per incident and our aggregate claim liability per year, our maximum liability in excess of the amounts deemed probable and previously recognized is not material as of December 31, 2016. As of December 31, 2016, we had outstanding letters of credit totaling $1.3 million to the insurance companies as security for these claims in connection with these policies.

Under our current employee healthcare insurance policy for U.S. employees, we retain claims liability risk per incident up to $450,000 per year in 2016, $425,000 per year in 2015 and $375,000 per year in 2014. We recognized employee healthcare claim expense of $40.4 million for the year ended December 31, 2016, $34.6 million for the year ended December 31, 2015 and $32.0 million during the year ended December 31, 2014, which represents actual claims paid and an estimate of our liability for the uninsured portion of employee healthcare obligations that have been incurred but not paid. Should employee health insurance claims exceed our estimated liability, we would have further obligations. Our estimated liability for healthcare claims that have been incurred but not paid as of December 31, 2016 and 2015, was $4.0 million as of December 31, 2016 and $4.8 million as of December 31, 2015.

We have entered into an employment agreement with our chief executive officer whereby payment may be required if we terminate his employment without cause other than following a change in control. The amount payable is based upon the executive’s salary at the time of termination and the cost to us of continuing to provide certain benefits. Had this officer been terminated without cause at December 31, 2016, other than following a change in control, we would have had an obligation for salaries and benefits of approximately $1.6 million under such agreement. In addition, the agreement provides for continued vesting of his outstanding equity awards for a period of two years.

We have entered into employment agreements with each of our officers that require us to make certain payments in the event the officer’s employment is terminated under certain circumstances within a certain period following a change in control. The amount payable by us under each of these agreements is based on the officer’s salary and bonus history at the time of termination and the cost to us of continuing to provide certain benefits. Had all of our officers been terminated in qualifying terminations following a change in control at December 31, 2016, we would have had aggregate obligations of approximately $27.1 million under these agreements. These agreements also provide for the acceleration of the vesting of all stock options and restricted stock units upon any qualifying termination following a change in control. At this time, we believe the likelihood of terminations as a result of the scenarios described is remote, and therefore, we have not accrued for such loss contingencies.

We have total contingent consideration liabilities outstanding of up to $6.4 million primarily related to the achievement of certain revenue milestones. We have recorded $0.9 million and $5.9 million of contingent consideration liabilities on our consolidated balance sheets at December 31, 2016 and 2015, respectively. We have not accrued for $5.5 million of contingent consideration liabilities, related to the acquisition of an intangible asset in 2008, as we do not deem the achievement of associated revenue milestones to be probable of occurring as of December 31, 2016.

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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.

Guarantees

We enter into agreements with third parties in the ordinary course of business under which we are obligated to indemnify such third parties for and against various risks and losses. The precise terms of such indemnities vary with the nature of the agreement. In many cases, we limit the maximum amount of our indemnification obligations, but in some cases those obligations may be theoretically unlimited. We have not incurred material expenses in discharging any of these indemnification obligations, and based on our analysis of the nature of the risks involved, we believe that the fair value of these agreements is minimal. Accordingly, we have recorded no liabilities for these obligations at December 31, 2016 and 2015.

When acquiring a business, we sometimes assume liability for certain events or occurrences that took place prior to the date of acquisition. We have recorded $1.8 million and $1.4 million of probable pre-acquisition liabilities in the accompanying consolidated balance sheets at December 31, 2016 and 2015, respectively.

NOTE 15. SEGMENT REPORTING

We operate primarily through three business segments: diagnostic and information technology-based products and services for the veterinary market, which we refer to as CAG; water quality products (“Water”); and diagnostic products and services for livestock and poultry health and to ensure the quality and safety of milk and food, which we refer to as 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.

During the second quarter of 2016, we renamed our customer information management and diagnostic imaging systems line of business in the CAG segment to veterinary software, services and diagnostic imaging systems. Financial results were not adjusted as a result of this name change.

During the fourth quarter of 2016, we modified our management reporting to rename IDEXX VetLab service and accessories to CAG Diagnostics service and accessories 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 $1.4 million during the year ended December 31, 2016, and $0.5 million during the year ended December 31, 2015. The amount reclassified was immaterial during the year ended December 31, 2014.

Prior to January 1, 2015, our CAG segment included certain herd health screening services processed within our CAG Reference Laboratories. We have transitioned the responsibility for these diagnostic services from our CAG segment to our LPD segment to more effectively align our business with the nature and customers of these livestock services. Segment revenue and income from operations for the year ended December 31, 2014 has been retrospectively revised in this Annual Report on Form 10-K to reflect this change in the composition of our reportable segments. Revenue related to these livestock diagnostic services was $13.8 million for the year ended December 31, 2014.

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

F-35

CAG develops, designs, manufactures and distributes products and performs services for veterinarians and the bioresearch market, primarily related to diagnostics and information management. Water develops, designs, manufactures and distributes a range of products used in the detection of various microbiological parameters in water. LPD develops, designs, manufactures and distributes diagnostic tests and related instrumentation 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 develops, designs, manufactures and distributes point-of-care electrolyte and blood gas analyzers and related consumable products for the human medical diagnostics market.

The accounting policies of our segments are the same as those described in the summary of significant accounting policies in Note 2 except for inventories, as discussed below. Intersegment revenues, which are not included in the table below, were not material for the years ended December 31, 2016, 2015 and 2014.

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.

Effective January 1, 2016, we modified our management reporting to the Chief Operating Decision Maker to provide a more comprehensive view of the performance of our operating segments by including the capitalization and subsequent recognition of variances between standard and actual manufacturing costs, which adjusts the timing of cost recognition from when the variance is created to the period in which the related inventory is sold. Prior to January 1, 2016, the capitalization and subsequent recognition of these variances were not allocated to our operating segments and were instead reported under the caption “Unallocated Amounts”.

The segment income (loss) from operations within this Annual Report on Form 10-K for the years ended December 31, 2015 and 2014, has been retrospectively revised to reflect the changes to our segment performance metrics described above. The following is a summary of revised segment gross profit from operations for the years ended December 31, 2015 and 2014:

Net Impact of Standard Cost
For the Year EndedVariance Capitalization andFor the Year EndedAdjusted
Operating Income (Loss)December 31, 2015Percent ofSubsequent RecognitionDecember 31, 2015Percent of
(dollars in thousands)As Previously ReportedRevenueto the Operating SegmentsAs AdjustedRevenue
CAG$231,64217.1%$1,677$233,31917.2%
Water44,58446.0%16844,75246.2%
LPD24,39719.2%2,76027,15721.4%
Other1560.7%(293)(137)(0.6%)
Unallocated Amounts(867)N/A(4,312)(5,179)N/A
Total Company$299,91218.7%$-$299,91218.7%
Net Impact of Standard Cost
For the Year EndedVariance Capitalization andFor the Year EndedAdjusted
Operating Income (Loss)December 31, 2014Percent ofSubsequent RecognitionDecember 31, 2014Percent of
(dollars in thousands)As Previously ReportedRevenueto the Operating SegmentsAs AdjustedRevenue
CAG$203,53616.6%$(3,002)$200,53416.4%
Water39,26241.4%(348)38,91441.1%
LPD33,78823.9%(4,461)29,32720.8%
Other2,4799.2%1782,6579.9%
Unallocated Amounts(18,810)N/A7,633(11,177)N/A
Total Company$260,25517.5%$-$260,25517.5%

F-36

Below is our segment information (in thousands):

For the Years Ended December 31,
CAGWaterLPDOtherUnallocated AmountsConsolidated Total
2016
Revenue$1,522,689$103,579$126,491$22,664$-$1,775,423
Income (loss) from operations$301,342$45,702$18,914$884$(16,603)$350,239
Interest expense, net(28,393)
Income before provision for income taxes321,846
Provision for income taxes99,792
Net income222,054
Less: Net income attributable to noncontrolling interest9
Net income attributable to IDEXX Laboratories, Inc. stockholders$222,045
Depreciation and amortization$64,878$3,098$5,543$4,699$-$78,218
Expenditures for long-lived assets (1)$56,329$2,102$4,824$1,532$-$64,787
2015
Revenue$1,356,287$96,884$127,143$21,578$-$1,601,892
Income (loss) from operations$233,319$44,752$27,157$(137)$(5,179)$299,912
Interest expense, net(26,771)
Income before provision for income taxes273,141
Provision for income taxes81,006
Net income192,135
Less: Net income attributable to noncontrolling interest57
Net income attributable to IDEXX Laboratories, Inc. stockholders$192,078
Depreciation and amortization$60,715$3,188$4,367$686$-$68,956
Expenditures for long-lived assets (1)$69,371$2,781$9,110$1,659$-$82,921
2014
Revenue$1,223,064$94,725$141,179$26,839$-$1,485,807
Income (loss) from operations$200,534$38,914$29,327$2,657$(11,177)$260,255
Interest expense, net(13,700)
Income before provision for income taxes246,555
Provision for income taxes64,604
Net income181,951
Less: Net loss attributable to noncontrolling interest45
Net income attributable to IDEXX Laboratories, Inc. stockholders$181,906
Depreciation and amortization$48,740$2,553$5,144$2,451$-$58,888
Expenditures for long-lived assets (1)$49,270$2,499$4,025$4,729$-$60,523

(1)Expenditures for long-lived assets exclude expenditures for intangible assets. See Note 3 for information regarding acquisitions of intangible assets during the years ended December 31, 2016, 2015 and 2014.

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

For the Years Ended December 31,
201620152014
CAG segment revenue:
CAG Diagnostics recurring revenue:$1,281,262$1,147,026$1,039,252
IDEXX VetLab consumables451,456396,526341,407
Rapid assay products189,122182,670165,647
Reference laboratory diagnostic and consulting services581,067512,155479,192
CAG Diagnostics service and accessories59,61755,67553,006
CAG Diagnostics capital - instruments121,19198,50279,993
Veterinary software, services and diagnostic imaging systems120,236110,759103,819
CAG segment revenue1,522,6891,356,2871,223,064
Water segment revenue103,57996,88494,725
LPD segment revenue126,491127,143141,179
Other segment revenue22,66421,57826,839
Total revenue$1,775,423$1,601,892$1,485,807

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

For the Years Ended December 31,
201620152014
Americas
United States$1,089,595$980,281$848,928
Canada74,92369,30369,743
Latin America38,87234,72534,086
1,203,3901,084,309952,757
Europe, the Middle East and Africa
Germany80,15673,39585,189
United Kingdom77,67174,87974,131
France51,20446,97253,322
Italy28,90725,90328,794
Spain24,26819,99821,566
Switzerland16,36115,63114,544
Netherlands14,04911,64510,643
Other83,14779,91078,201
375,763348,333366,390
Asia Pacific Region
Australia52,87149,27458,448
Japan51,54443,17144,132
China48,25740,61934,674
Other43,59836,18629,406
196,270169,250166,660
Total$1,775,423$1,601,892$1,485,807

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

December 31,December 31,
20162015
Americas
United States$298,944$285,391
Brazil17,9108,404
Canada1,9771,796
318,831295,591
Europe, the Middle East and Africa
United Kingdom9,12713,269
Germany5,0405,159
Netherlands5,9484,425
France2,4282,679
Switzerland2,4502,831
Other3,4902,047
28,48330,410
Asia Pacific Region
Japan2,4692,210
Australia4,1852,135
Other3,4542,680
10,1087,025
Total$357,422$333,026

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 non-recurring basis and certain financial assets and liabilities that are not measured at fair value in our 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:

Level 1Quoted prices in active markets for identical assets or liabilities that the entity can access at the measurement date.
Level 2Observable 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 3Unobservable 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.

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

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

We measure the fair value of our interest rate swaps classified as derivative instruments using an income approach, utilizing a discounted cash flow analysis based on the terms of the contract and the interest rate curve adjusted for counterparty risk.

The amount outstanding under our unsecured revolving credit facility and long-term debt are measured at carrying value in our accompanying 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. At December 31, 2016, the estimated fair value and carrying value of our long-term debt were $609.5 million and $593.7 million, respectively. At December 31, 2015, the estimated fair value and carrying value of our long-term debt were $593.7 million and $597.1 million, respectively.

The following table sets forth our assets and liabilities that were measured at fair value on a recurring basis at December 31, 2016, and at December 31, 2015, by level within the fair value hierarchy (in thousands):

Quoted PricesSignificant
in ActiveOtherSignificant
Markets forObservableUnobservable
Identical AssetsInputsInputsBalance at
As of December 31, 2016(Level 1)(Level 2)(Level 3)December 31, 2016
Assets
Money market funds(1)$34,208$-$-$34,208
Certificates of deposit$-$1,500$-$1,500
Commercial paper$-$898$-$898
Marketable securities
Corporate bonds$-$130,771$-$130,771
Certificates of deposit-40,400-40,400
Asset backed securities-27,315-27,315
Commercial paper-20,228-20,228
U.S. government bonds-12,231-12,231
Agency bonds-4,604-4,604
Municipal bonds-1,400-1,400
Total marketable securities$-$236,949$-$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

F-40

Quoted PricesSignificant
in ActiveOtherSignificant
Markets forObservableUnobservable
Identical AssetsInputsInputsBalance at
As of December 31, 2015(Level 1)(Level 2)(Level 3)December 31, 2015
Assets
Money market funds(1)$15,490$-$-$15,490
Certificates of deposit$-$1,999$-$1,999
Commercial paper$-$1,800$-$1,800
Marketable securities
Corporate bonds$-$177,613$-$177,613
U.S. government bonds-12,871-12,871
Agency bonds-12,065-12,065
Certificates of deposit-3,500-3,500
Commercial paper-3,491-3,491
International government bonds-1,459-1,459
Municipal bonds-1,399-1,399
Treasury bills-1,193-1,193
Total marketable securities$-$213,591$-$213,591
Equity mutual funds(2)$2,264$-$-$2,264
Foreign currency exchange contracts(3)$-$4,876$-$4,876
Liabilities
Foreign currency exchange contracts(3)$-$1,365$-$1,365
Deferred compensation(4)$2,264$-$-$2,264
Interest rate swaps(5)$-$384$-$384
(1)Money market funds, agency bonds 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 December 31, 2016, and December 31, 2015, consisted of demand deposits. Commercial paper with an original maturity of over ninety days is 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, net. See number (4) below for a discussion of the related deferred compensation liability.
(3)Foreign currency exchange contracts are included within other current assets, net; other long-term assets, net; 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 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 number (2) above.
(5)Interest rate swaps are included within accrued liabilities.

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 years ended December 31, 2016 and 2015.

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 17. HEDGING Instruments

We recognize all derivative and non-derivative instruments (collectively “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.

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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 accompanying 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.

Disclosure within this footnote is presented to provide transparency about how and why we use derivative and non-derivative instruments (collectively “hedging instruments”) and how the hedging instruments and related hedged items affect our financial position, results of operations, and cash flows. See Note 16 for additional information regarding the fair value of our derivative instruments and Note 19 for additional information regarding the effect of derivative instruments designated as cash flow hedges on the consolidated statement of operations.

We are exposed to certain risks related to our ongoing business operations. The primary risks that we manage by using hedging instruments are foreign currency exchange risk and interest rate risk. Our subsidiaries enter into foreign currency exchange contracts to manage the exchange risk associated with their forecasted intercompany inventory purchases and sales for the next year. From time to time, we may also enter into other foreign currency exchange contracts or foreign-denominated debt issuances to minimize the impact of foreign currency fluctuations associated with specific balance sheet exposures, including net investments in certain foreign subsidiaries. We 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 euro, British pound, Japanese yen, Canadian dollar, Australian dollar and Swiss franc. We also utilize natural hedges to mitigate our transaction and commitment exposures. Our corporate policy prescribes the range of allowable hedging activity. We enter into foreign currency exchange contracts with well-capitalized multinational financial institutions, and we do not hold or engage in transactions involving hedging instruments for purposes other than risk management. Our accounting policies for these contracts are based on our designation of such instruments as hedging transactions.

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. Unless noted otherwise, we have also designated our derivative instruments as qualifying for hedge accounting treatment.

We did not de-designate any instruments from hedge accounting treatment during the years ended December 31, 2016, 2015 and 2014. Gains or losses related to hedge ineffectiveness recognized in earnings during the years ended December 31, 2016, 2015 and 2014 were not material. At December 31, 2016, the estimated amount of net gains, net of income tax expense, which are expected to be reclassified out of AOCI and into earnings within the next twelve months is $ 4.9 million if exchange and interest rates do not fluctuate from the levels at December 31, 2016.

We hedge approximately 85 percent 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 $175.9 million at December 31, 2016, and $176.1 million at December 31, 2015.

F-42

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 became 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 became effectively fixed at 1.64 percent plus the Credit Spread through June 30, 2016. As of December 31, 2016, we have no outstanding interest rate swaps.

Net Investment Hedge

In June 2015, we issued and sold our 2025 Series C Notes through a private placement an aggregate principal amount of €88.9 million. We have designated these euro-denominated notes as a hedge of our euro net investment in certain foreign subsidiaries to reduce the volatility in stockholders’ equity caused by changes in foreign currency exchange rates in the euro relative to the U.S. dollar. As a result of this designation, gains and losses from the change in translated U.S. dollar value of these euro-denominated notes are recorded in AOCI rather than to earnings. We recorded a $2.1 million gain, net of income tax, within AOCI as a result of this net investment hedge for the year ended December 31, 2016. This unrealized gain recorded at December 31, 2016, will not be reclassified in earnings until the complete or substantially complete liquidation of the net investment in the hedged foreign operations or all or a portion of the hedge no longer qualifies for hedge accounting treatment. See Note 11 to the consolidated financial statements included in this Annual Report on Form 10-K for further information regarding the issuance of these 2025 Series C Notes.

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

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

Hedging Assets
December 31,December 31,
20162015
Derivatives designated as hedging instrumentsBalance Sheet Classification
Foreign currency exchange contractsOther current assets$8,926$4,876
Total derivative instruments presented as cash flow hedges on the balance sheet8,9264,876
Gross amounts subject to master netting arrangements not offset on the balance sheet6791,268
Net amount$8,247$3,608
Hedging Liabilities
December 31,December 31,
20162015
Derivatives designated as hedging instrumentsBalance Sheet Classification
Foreign currency exchange contractsAccrued liabilities$1,081$1,365
Interest rate swapsAccrued liabilities-384
Total derivative instruments presented as cash flow hedges on the balance sheet1,0811,749
Foreign currency borrowings designated as net investment hedge on the balance sheetLong-term debt93,66497,085
Total hedging instruments presented on the balance sheet94,74598,834
Gross amounts subject to master netting arrangements not offset on the balance sheet6791,268
Net amount$94,066$97,566

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The effect of derivative instruments designated as cash flow hedges on the consolidated balance sheets for the years ended December 31, 2016, 2015 and 2014 consisted of the following (in thousands):

Gain (Loss) Recognized in AOCI on Derivative Instruments (Effective Portion)
For Year Ended December 31,
Derivative instruments201620152014
Foreign currency exchange contracts, net of tax$2,457$(5,604)$7,098
Interest rate swaps, net of tax242461442
Total derivative instruments, net of tax$2,699$(5,143)$7,540

NOTE 18. REPURCHASES OF COMMON STOCK

Our Board of Directors has authorized the repurchase of up to 65,000,000 shares of our common stock in the open market or in negotiated transactions pursuant to the Company’s share repurchase program. We believe that the repurchase of our common stock is a favorable means of returning value to our shareholders, and we also repurchase to offset the dilutive effect of our share-based compensation programs. Repurchases of our common stock may vary depending upon the level of other investing activities and the share price. As of December 31, 2016, there are 3,735,508 remaining shares available for repurchase under this authorization.

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

The following is a summary of our open market common stock repurchases and shares acquired through employee surrender for the years ended December 31, 2016, 2015 and 2014 (in thousands, except per share amounts):

For the Years Ended December 31,
201620152014
Share repurchases during the period(1)3,0715,6599,761
Shares acquired through employee surrender(1)606992
Total shares repurchased(1)3,1315,7289,853
Cost of share repurchases during the period$313,072$406,430$618,158
Cost of employee surrenders4,3725,4575,809
Total cost of shares repurchased$317,444$411,887$623,967
Average cost per share$101.40$71.90$63.32
(1)Shares repurchased and acquired through employee surrender for payment of minimum required withholding taxes on and before June 15, 2015 and the associated average cost per share have been adjusted to reflect the June 2015 two-for-one stock split. Actual shares repurchased were approximately 4,313,000 and 4,927,000 for the years ended December 31, 2015 and 2014, respectively.

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NOTE 19. ACCUMULATED OTHER COMPREHENSIVE INCOME

The changes in accumulated other comprehensive income, net of tax, for the years ended December 31, 2016 and 2015 consisted of the following (in thousands):

Unrealized gain (loss) on investments, net of taxUnrealized gain (loss) on derivatives instruments, net of taxUnrealized gain on net investment hedge, net of taxCumulative translation adjustmentTotal
Balance as of December 31, 2014$1$7,361$-$(15,433)$(8,071)
Other comprehensive income (loss) before reclassifications(226)8,8391,894(30,718)(20,211)
Gains reclassified from accumulated other comprehensive income-(13,983)--(13,983)
Balance as of December 31, 2015(225)2,2171,894(46,151)(42,265)
Other comprehensive income (loss) before reclassifications2454,9502,142(5,874)1,463
Gains reclassified from accumulated other comprehensive income-(2,251)--(2,251)
Balance as of December 31, 2016$20$4,916$4,036$(52,025)$(43,053)

The following is a summary of reclassifications out of accumulated other comprehensive income for the years ended December 31, 2016, 2015 and 2014 (in thousands):

Amounts Reclassified from Accumulated Other
Affected Line Item in theComprehensive Income
Details about Accumulated OtherStatement WhereFor the Years Ended December 31,
Comprehensive Income ComponentsNet Income is Presented201620152014
Gains (losses) on derivative instruments included in net income:
Foreign currency exchange contractsCost of revenue$3,621$20,878$3,822
Interest rate swapsInterest expense(421)(1,042)(1,064)
Total gains before tax3,20019,8362,758
Tax expense9495,853756
Gains, net of tax$2,251$13,983$2,002

NOTE 20. PREFERRED STOCK

Our Board of Directors is authorized, subject to any limitations prescribed by law, without further stockholder approval, to issue from time to time up to 500,000 shares of Preferred Stock, $1.00 par value per share (“Preferred Stock”), in one or more series. Each such series of Preferred Stock shall have such number of shares, designations, preferences, voting powers, qualifications and special or relative rights or privileges as shall be determined by the Board of Directors, which may include, among others, dividend rights, voting rights, redemption and sinking fund provisions, liquidation preferences, conversion rights and preemptive rights. There are no shares of Preferred Stock outstanding as of December 31, 2016.

NOTE 21. IDEXX RETIREMENT AND INCENTIVE SAVINGS PLAN

We have established the IDEXX Retirement and Incentive Savings Plan (the “401(k) Plan”). U.S. employees eligible to participate in the 401(k) Plan may contribute specified percentages of their salaries. We match a portion of these contributions, not to exceed 4 percent of participants’ eligible compensation. We matched $12.5 million for the year ended December 31, 2016, $11.5 million for the year ended December 31, 2015, and $8.8 million for the year ended December 31, 2014. In addition, we may make contributions to the 401(k) Plan at the discretion of the Board of Directors. There were no discretionary contributions in 2016, 2015 or 2014.

We also have established defined contribution plans for regional employees in Europe and in Canada. With respect to these plans, our contributions over the past three years have not been material.

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NOTE 22. SUMMARY OF QUARTERLY DATA (UNAUDITED)

A summary of quarterly data(1) follows (in thousands, except per share data):

For the Three Months Ended
March 31,June 30,September 30,December 31,
2016
Revenue$417,550$466,569$448,308$442,996
Gross profit227,537260,543246,730240,626
Operating income73,793104,16288,45983,825
Net income attributable to IDEXX Laboratories, Inc. stockholders46,01967,20256,45552,369
Earnings per share:
Basic$0.51$0.75$0.63$0.59
Diluted$0.51$0.74$0.62$0.58
2015
Revenue$382,477$413,343$406,387$399,685
Gross profit215,544232,757224,274217,695
Operating income72,80388,30371,89566,911
Net income attributable to IDEXX Laboratories, Inc. stockholders46,59456,91244,22344,349
Earnings per share:
Basic$0.49$0.61$0.48$0.49
Diluted$0.49$0.60$0.48$0.48
(1)Amounts presented may not recalculate to full-year totals due to rounding.

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SCHEDULE II

IDEXX LABORATORIES, INC. AND SUBSIDIARIES

VALUATION AND QUALIFYING ACCOUNTS

(in thousands)

Balance at Beginning of YearCharges to Costs and ExpensesCharges to Other Accounts(1)Write-Offs/Cash PaymentsForeign Currency TranslationBalance at End of Year
Reserves for doubtful accounts receivable:
December 31, 2014$3,533$2,035$-$(1,146)$(116)$4,306
December 31, 20154,3062,200-(817)(561)5,128
December 31, 20165,128822-(531)(896)4,523
Valuation allowance for deferred tax assets:
December 31, 2014$5,201$799$-$(1,042)$(280)$4,678
December 31, 20154,678634-(468)(398)4,446
December 31, 20164,446885-(816)3764,891
(1) Amount relates to net operating losses obtained through acquisitions where uncertainty exists as to our ability to use the tax attribute.

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EXHIBIT INDEX

Exhibit No.Description
3.1Restated Certificate of Incorporation of the Company, as amended (filed as Exhibit No. 3(i) to Quarterly Report on Form 10-Q for the quarter ended June 30, 2006, File No. 0-19271, and incorporated herein by reference).
3.2Amended and Restated By-Laws of the Company (filed as Exhibit No. 3.2 to Annual Report on Form 10-K for the year ended December 31, 2015, File No. 0-19271 (“2015 Form 10-K”), and incorporated herein by reference).
4.1Note Purchase Agreement, dated as of December 11, 2013, among the Company, as issuer, New York Life Insurance Company, and New York Life Investment Management LLC, as investment manager for New York Life Insurance and Annuity Corporation and New York Life Insurance and Annuity Corporation Institutionally Owned Life Insurance Separate Account (BOLI 30C), as purchasers (filed as Exhibit No. 99.1 to Current Report on Form 8-K filed December 11, 2013, File No. 0-19271, and incorporated herein by reference).
4.2Note Purchase and Private Shelf Agreement, dated as of July 21, 2014, among the Company, as issuer, Prudential Investment Management, Inc., Pruco Life Insurance Company, The Prudential Insurance Company of America, Prudential Investment Japan Co., Ltd., as investment manager, and Prudential Investment Management, Inc., as sub-adviser for The Gibraltar Life Insurance Co., Ltd., Prudential Arizona Reinsurance Universal Company, as grantor, and Prudential Investment Management, Inc., as investment manager for PAR U Hartford Life Insurance Comfort Trust, Prudential Private Placement Investors, L.P., as investment advisor, and Prudential Private Placement Investors, Inc., as general partner to each of, The Independent Order of Foresters, Zurich American Insurance Company, Globe Life and Accident Insurance Company, Family Heritage Life Insurance Company of America, MTL Insurance Company, The Lincoln National Life Insurance Company, William Penn Life Insurance Company of New York, Farmers Insurance Exchange and Mid Century Insurance Company, as purchasers (filed as Exhibit No. 99.1 to Current Report on Form 8-K Filed July 25, 2014, File No. 0-19271, and incorporated herein by reference).
4.3Note Purchase Agreement, dated as of July 22, 2014, among the Company, as issuer, New York Life Insurance Company, and NYL Investors LLC, as investment manager for New York Life Insurance and Annuity Corporation and New York Life Insurance and Annuity Corporation Institutionally Owned Life Insurance Separate Account (BOLI 30C), as purchasers (filed as Exhibit No. 99.2 to Current Report on Form 8-K file July 25, 2014, File No. 0-19271, and incorporated herein by reference).
4.4Amended and Restated Multi-Currency Note Purchase and Private Shelf Agreement, dated as of June 18, 2015, among the Company, Prudential Investment Management, Inc., Pruco Life Insurance Company, The Prudential Insurance Company of America, Prudential Investment Japan Co., Ltd., as investment manager, and Prudential Investment Management, Inc., as sub-adviser for The Gibraltar Life Insurance Co., Ltd., Prudential Arizona Reinsurance Universal Company, as grantor, and Prudential Private Placement Investors, L.P., as investment advisor, and Prudential Private Placement Investors, Inc., as general partner to each of, The Independent Order of Foresters, Zurich American Insurance Company, Globe Life and Accident Insurance Company, Family Heritage Life Insurance Company of America, MTL Insurance Company, The Lincoln National Life Insurance Company, William Penn Life Insurance Company of New York, Farmers Insurance Exchange and Mid Century Insurance Company, as purchasers. (filed as Exhibit No. 99.1 to Current Report on Form 8-K filed June 24, 2015 and incorporated herein by reference).

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10.1*U.S. Supply Agreement, effective as of October 16, 2003, between the Company and Ortho-Clinical Diagnostics, Inc. (“Ortho”) (filed as Exhibit No. 10.7 to Annual Report on Form 10-K for the year ended December 31, 2003, File No. 0-19271 (“2003 Form 10-K”), and incorporated herein by reference).
10.2*Amendment No. 1 to U.S. Supply Agreement effective as of January 1, 2005, between the Company and Ortho (filed as Exhibit No. 10.1 to Quarterly Report on Form 10-Q for the quarter ended June 30, 2005, File No. 0-19271 (“June 2005 Form 10-Q”), and incorporated herein by reference).
10.3Amendment No. 2 to U.S. Supply Agreement effective as of October 15, 2006, between the Company and Ortho (filed as Exhibit No. 10.4 to Annual Report on Form 10-K for the year ended December 31, 2007, File No. 0-19271 (“2007 Form 10-K”), and incorporated herein by reference).
10.4*Amendment No. 3 to U.S. Supply Agreement effective as of January 18, 2008, between the Company and Ortho (filed as Exhibit No. 10.5 to 2007 Form 10-K, and incorporated herein by reference).
10.5*Amendment No. 4 to U.S. Supply Agreement effective as of December 28, 2011, between the Company and Ortho (filed as Exhibit No. 10.5 to Annual Report on Form 10-K for the year ended December 31, 2011, File No. 0-19271 (“2011 Form 10-K”), and incorporated herein by reference).
10.6*Amendment No. 5 to U.S. Supply Agreement effective as of December 9, 2013, between the Company and Ortho (filed as Exhibit No. 10.6 to Annual Report on Form 10-K for the year ended December 31, 2013, File No. 0-19271 (“2013 Form 10-K”), and incorporated herein by reference).
10.7*European Supply Agreement, effective as of October 17, 2003, between the Company and Ortho (filed as Exhibit No. 10.8 to 2003 Form 10-K, and incorporated herein by reference).
10.8*Amendment No. 1 to European Supply Agreement effective as of January 1, 2005, between the Company and Ortho (filed as Exhibit No. 10.2 to June 2005 10-Q, and incorporated herein by reference).
10.9*Amendment No. 2 to European Supply Agreement effective as of January 18, 2008, between the Company and Ortho (filed as Exhibit No. 10.8 to 2007 Form 10-K, and incorporated herein by reference).
10.10*Amendment No. 3 to European Supply Agreement effective as of December 28, 2011, between the Company and Ortho (filed as Exhibit No. 10.9 to 2011 Form 10-K, and incorporated herein by reference).
10.11*Amendment No. 4 to European Supply Agreement effective as of December 9, 2013, between the Company and Ortho (filed as Exhibit No. 10.11 to 2013 Form 10-K, and incorporated herein by reference).
10.12Amendment, Release and Settlement Agreement dated as of September 12, 2002, among the Company, IDEXX Europe B.V., and Ortho (filed as Exhibit No. 10.1 to Quarterly Report on Form 10-Q for the quarter ended September 30, 2002, File No. 0-19271, and incorporated herein by reference).
10.13*Supply Agreement, effective as of May 7, 2007 between the Company and Moss, Inc. (filed as Exhibit No. 10.1 to Quarterly Report on Form 10-Q for the quarter ended June 30, 2010, File No. 0-19271 (“June 2010 Form 10-Q”), and incorporated herein by reference).
10.14**Employment Agreement dated January 22, 2002, between the Company and Jonathan W. Ayers (filed as Exhibit No. 10.13 to Annual Report on Form 10-K for the year ended December 31, 2001, File No. 0-19271, and incorporated herein by reference).
10.15**Amended and Restated Executive Employment Agreement dated May 26, 2013, between the Company and Jonathan W. Ayers (filed as Exhibit No. 10.2 to July 23, 2013 Form 10-Q for the quarter ended June 30, 2013, File No. 0-19271 (“June 2013 Form 10-Q”), and incorporated herein by reference).

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10.16**Form of Executive Employment Agreement dated May 26, 2013, between the Company and each of the Company’s Executive Officers, other than the Chief Executive Officer (filed as Exhibit No. 10.3 to June 2013 Form 10-Q, and incorporated herein by reference).
10.17**Restated Director Deferred Compensation Plan, as amended (filed as Exhibit No. 10.1 to Quarterly Report on Form 10-Q for the quarter ended September 30, 2010, File No. 0-19271, and incorporated herein by reference).
10.18*Restated Executive Deferred Compensation Plan, as amended (filed as Exhibit No. 10.3 to June 2010 Form 10-Q, and incorporated herein by reference).
10.19**Form of Director Stock Option Agreement, as amended pursuant to the 2009 Stock Incentive Plan (filed as Exhibit No. 10.19 to the 2015 Form 10-K, and incorporated herein by reference).
10.20**Form of Employee Stock Option Agreement, as amended pursuant to the 2009 Stock Incentive Plan (filed as Exhibit No. 10.20 to the 2015 Form 10-K, and incorporated herein by reference).
10.21**IDEXX Laboratories 1997 Employee Stock Purchase Plan, as amended (filed as Exhibit No. 10.2 to the Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2015 filed July 30, 2015 and incorporated herein by reference).
10.22**Form of Restricted Stock Unit Agreement, as amended pursuant to the 2009 Stock Incentive Plan (filed as Exhibit No. 10.22 to the 2015 Form 10-Kherein by reference).
10.23**2009 Stock Incentive Plan, as amended (filed as Exhibit No. 99.1 to Registration Statement on Form S-8 filed December 30, 2013, File No. 333-193136, and incorporated herein by reference).
10.24**2014 Incentive Compensation Plan, (filed as Exhibit No. 10.2 to Quarterly Report on Form 10-Q for the quarter ended June 30, 2014, File No. 0-19271 (“June 2014 Form 10-Q”), and incorporated herein by reference).
10.25**Form of Performance-Based Restricted Stock Unit Agreement pursuant to the 2009 Stock Incentive Plan (filed as Exhibit No. 10.25 to the 2015 Form 10-K, and incorporated herein by reference).
10.26Second Amended and Restated Credit Agreement, dated as of December 4, 2015, among the Company, IDEXX Distribution, Inc., IDEXX Operations, Inc., OPTI Medical Systems, Inc., IDEXX Laboratories Canada Corporation and IDEXX Europe B.V., as borrowers, the lenders party thereto, JPMorgan Chase Bank, N.A., as administrative agent, JPMorgan Chase Bank, N.A., Toronto Branch, as Toronto agent, and J.P. Morgan Europe Limited, as London agent (filed as Exhibit No. 10.1 to the Current Report on Form 8-K filed December 8, 2015 and incorporated herein by reference).
21Subsidiaries of the Company (filed herewith).
23Consent of PricewaterhouseCoopers LLP, an independent registered public accounting firm (filed herewith).
31.1Certification 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 (filed herewith).
31.2Certification 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 (filed herewith).
32.1Certification 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 (filed herewith).
32.2Certification 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 (filed herewith).
101.INSXBRL Instance Document.

F-50

101.SCHXBRL Taxonomy Extension Schema Document.
101.CALXBRL Taxonomy Extension Calculation Linkbase Document.
101.DEFXBRL Taxonomy Extension Definition Linkbase Document.
101.LABXBRL Taxonomy Extension Label Linkbase Document.
101.PREXBRL Taxonomy Extension Presentation Linkbase Document.
*Confidential treatment requested as to certain portions.
**Management contract or compensatory arrangement required to be filed as an exhibit pursuant to Item 15(a)(3) of Form 10-K.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

IDEXX LABORATORIES, INC.
By: /s/ Jonathan W. Ayers
Date: February 17, 2017Jonathan W. Ayers
President and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated:

SIGNATURETITLEDATE
/s/ Jonathan W. AyersPresident, Chief Executive Officer andFebruary 17, 2017
Jonathan W. AyersChairman of the Board of Directors (Principal Executive Officer)
/s/ Brian P. McKeonExecutive Vice President, Chief FinancialFebruary 17, 2017
Brian P. McKeonOfficer and Treasurer (Principal Financial and Accounting Officer)
/s/ Bruce L. ClaflinDirectorFebruary 17, 2017
Bruce L. Claflin
/s/ Thomas CraigDirectorFebruary 17, 2017
Thomas Craig
/s/ William T. EndDirectorFebruary 17, 2017
William T. End
/s/ Rebecca M. Henderson, PhDDirectorFebruary 17, 2017
Rebecca M. Henderson, PhD
/s/ Barry C. Johnson, PhDDirectorFebruary 17, 2017
Barry C. Johnson, PhD

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/s/ Daniel M. JuniusDirectorFebruary 17, 2017
Daniel M. Junius
/s/ Lawrence D. KingsleyDirectorFebruary 17, 2017
Lawrence D. Kingsley
/s/ M. Anne SzostakDirectorFebruary 17, 2017
M. Anne Szostak
/s/ Sophie V. Vandebroek, PhDDirectorFebruary 17, 2017
Sophie V. Vandebroek, PhD

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