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.

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 Ended			Variance Capitalization and			For the Year Ended	Adjusted
Operating Income (Loss)	December 31, 2015		Percent of	Subsequent Recognition			December 31, 2015	Percent of
(dollars in thousands)	As Previously Reported		Revenue	to the Operating Segments			As Adjusted	Revenue

CAG	$	231,642	17.1%	$	1,677	$	233,319	17.2%
Water		44,584	46.0%		168		44,752	46.2%
LPD		24,397	19.2%		2,760		27,157	21.4%
Other		156	0.7%		(293)		(137)	(0.6%)
Unallocated Amounts		(867)	N/A		(4,312)		(5,179)	N/A
Total Company	$	299,912	18.7%	$	-	$	299,912	18.7%

				Net Impact of Standard Cost
	For the Year Ended			Variance Capitalization and			For the Year Ended	Adjusted
Operating Income (Loss)	December 31, 2014		Percent of	Subsequent Recognition			December 31, 2014	Percent of
(dollars in thousands)	As Previously Reported		Revenue	to the Operating Segments			As Adjusted	Revenue

CAG	$	203,536	16.6%	$	(3,002)	$	200,534	16.4%
Water		39,262	41.4%		(348)		38,914	41.1%
LPD		33,788	23.9%		(4,461)		29,327	20.8%
Other		2,479	9.2%		178		2,657	9.9%
Unallocated Amounts		(18,810)	N/A		7,633		(11,177)	N/A
Total Company	$	260,255	17.5%	$	-	$	260,255	17.5%

Below is our segment information (in thousands):



For the Years Ended December 31,
	CAG		Water		LPD		Other		Unallocated Amounts		Consolidated 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 taxes												321,846
Provision for income taxes												99,792
Net income												222,054
Less: Net income attributable to noncontrolling interest												9
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 taxes												273,141
Provision for income taxes												81,006
Net income												192,135
Less: Net income attributable to noncontrolling interest												57
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 taxes												246,555
Provision for income taxes												64,604
Net income												181,951
Less: Net loss attributable to noncontrolling interest												45
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.

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



	For the Years Ended December 31,
		2016		2015		2014
CAG segment revenue:
CAG Diagnostics recurring revenue:	$	1,281,262	$	1,147,026	$	1,039,252
IDEXX VetLab consumables		451,456		396,526		341,407
Rapid assay products		189,122		182,670		165,647
Reference laboratory diagnostic and consulting services		581,067		512,155		479,192
CAG Diagnostics service and accessories		59,617		55,675		53,006
CAG Diagnostics capital - instruments		121,191		98,502		79,993
Veterinary software, services and diagnostic imaging systems		120,236		110,759		103,819
CAG segment revenue		1,522,689		1,356,287		1,223,064

Water segment revenue		103,579		96,884		94,725
LPD segment revenue		126,491		127,143		141,179
Other segment revenue		22,664		21,578		26,839

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,
		2016		2015		2014
Americas
United States	$	1,089,595	$	980,281	$	848,928
Canada		74,923		69,303		69,743
Latin America		38,872		34,725		34,086
		1,203,390		1,084,309		952,757

Europe, the Middle East and Africa
Germany		80,156		73,395		85,189
United Kingdom		77,671		74,879		74,131
France		51,204		46,972		53,322
Italy		28,907		25,903		28,794
Spain		24,268		19,998		21,566
Switzerland		16,361		15,631		14,544
Netherlands		14,049		11,645		10,643
Other		83,147		79,910		78,201
		375,763		348,333		366,390
Asia Pacific Region
Australia		52,871		49,274		58,448
Japan		51,544		43,171		44,132
China		48,257		40,619		34,674
Other		43,598		36,186		29,406
		196,270		169,250		166,660
Total	$	1,775,423	$	1,601,892	$	1,485,807

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,
		2016		2015
Americas
United States	$	298,944	$	285,391
Brazil		17,910		8,404
Canada		1,977		1,796
		318,831		295,591
Europe, the Middle East and Africa
United Kingdom		9,127		13,269
Germany		5,040		5,159
Netherlands		5,948		4,425
France		2,428		2,679
Switzerland		2,450		2,831
Other		3,490		2,047
		28,483		30,410
Asia Pacific Region
Japan		2,469		2,210
Australia		4,185		2,135
Other		3,454		2,680
		10,108		7,025
Total	$	357,422	$	333,026