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Accounting Policies | 6 Months Ended
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Jun. 30, 2018
Accounting Policies [Abstract] |
Accounting Policies | ACCOUNTING POLICIES Significant Accounting Policies The significant accounting policies used in preparation of these unaudited condensed consolidated financial statements for the three and six months ended June 30, 2018, are consistent with those discussed in Note 2 to the consolidated financial statements in our 2017 Annual Report, except as noted below. New Accounting Pronouncements Adopted Effective January 1, 2018, we adopted the New Revenue Standard using the modified retrospective method for all contracts not completed as of the date of adoption. We recognized the cumulative effect of initially applying the New Revenue Standard as an adjustment to the opening balance of retained earnings. The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods presented. As a result of the adoption of ASU 2014-09, we have changed our accounting policy for revenue recognition and the details of the significant changes and quantitative impact of the changes are set out below. Up-Front Customer Loyalty Programs. Our up-front loyalty programs provide customers with incentives in the form of cash or IDEXX Points upon entering into multi-year agreements to purchase annual minimum amounts of future products or services. Under previous U.S. GAAP, if up-front incentives were subsequently utilized to purchase instruments, we limited instrument revenue to the amount of consideration received from the customer at the time of placement that was not contingent on future purchases and consequently deferred instrument revenue and costs at the time of placement. The New Revenue Standard permits revenue recognition at the time of instrument placement when the consideration is committed, but contingent on the purchase of future goods and services. As a result, we have accelerated our recognition of instrument revenues and costs when up-front incentives are used to purchase instruments. The New Revenue Standard did not change our accounting for up-front payments to customers, which continue to be capitalized as customer acquisition costs, within other assets, and subsequently recognized as a reduction to revenue over the term of the agreement. We previously reported deferred instrument revenues and costs within net customer acquisition cost, and upon transition to the New Revenue Standard the decrease in deferred revenue and costs resulted in an increase in our reported customer acquisition costs. Volume Commitment Programs. Our volume commitment programs provide customers with a free or discounted instrument or system upon entering into multi-year agreements to purchase annual minimum amounts of future products or services and includes our new IDEXX 360 program introduced in the first quarter of 2018. Under previous U.S. GAAP, we limited instrument revenue to the amount of consideration received from the customer at the time of placement that was not contingent on future purchases and consequently instrument revenue and cost were recognized over the term of the customer agreement. The New Revenue Standard permits revenue recognition at the time of instrument placement when the consideration is committed, but contingent on the purchase of future goods and services. As a result, we have accelerated recognition on instrument revenues and costs placed through our volume commitment programs. This change resulted in a net increase in current and long-term other assets upon transition to the New Revenue Standard as we recognized contract assets related to instrument revenue recognized in advance of billings, offset by a reduction in previously deferred instrument costs. Instrument Rebate Programs. Our instrument rebate programs, previously referred to as IDEXX Instrument Marketing Programs, require an instrument purchase and provide customers the opportunity to earn future rebates based on the volume of products and services they purchase over the term of the program. Under previous U.S. GAAP, the total consideration in the contract, including an estimate of future optional purchases, was allocated to all products and services based on their standalone selling prices. This resulted in deferring a portion of instrument revenue related to our obligation to provide future rebate incentives, which was included in accrued liabilities. Under the New Revenue Standard, the total consideration in the contract is limited to only goods and services that the customer is presently obligated to purchase and does not include future purchases that are optional. The customer’s right to earn rebates on future purchases is accounted for as a separate performance obligation. The exclusion of optional future purchases resulted in the instrument absorbing a higher relative allocation of future rebates. Therefore, we defer an increased portion of instrument revenue upon placement, which is realized as higher recurring revenue when customers buy future products and services, offsetting future rebates as they are earned. This change resulted in an increase in current and long-term deferred revenue upon transition to the New Revenue Standard and a reduction to accrued and other long-term liabilities for rebate obligations that are now reported as deferred revenues. Reagent Rental Programs. Our reagent rental programs provide customers the right to use our instruments upon entering into multi-year agreements to purchase annual minimum amounts of consumables. These types of agreements include an embedded operating lease for the right to use our instrument and no instrument revenue is recognized at the time of instrument installation. Under the New Revenue Standard, we continue to recognize a portion of the revenue allocated to the embedded lease concurrent with the future sale of consumables over the term of the agreement. We determine the amount of revenue allocated from the consumable to the embedded lease based on standalone selling prices and determine the rate of lease revenue recognition in proportion to the customer’s minimum volume commitment. There was no impact to our consolidated financial statements upon transition to the New Revenue Standard, as a result of our reagent rental programs. Other Customer Incentive Programs. Certain agreements with customers include discounts or rebates on the sale of products and services applied retrospectively, such as volume rebates achieved by purchasing a specified threshold of goods and services. Under the New Revenue Standard, we continue to record revenue reductions related to these customer incentive programs and record the related refund obligations in accrued liabilities based on the actual issuance of incentives, incentives earned but not yet issued and estimates of incentives to be earned in the future. There was no impact to our consolidated financial statements upon transition to the New Revenue Standard, as a result of our other customer incentive programs. IDEXX Points. IDEXX Points may be applied to trade receivables due to us, converted to cash, or applied against the purchase price of IDEXX products and services. Under the New Revenue Standard, we continue to consider IDEXX Points equivalent to cash and IDEXX Points that have not yet been used by customers are included in accrued liabilities until utilized or expired. There was no impact to our consolidated financial statements upon transition to the New Revenue Standard, as a result of IDEXX Points. Shipping and Delivery. Under previous U.S. GAAP, we recognized revenue and cost from the sales of diagnostic products and accessories upon delivery to the customer because our typical business practice is to cover losses incurred while in transit. Under the New Revenue Standard, revenue and costs are recognized when a customer obtains control of the product based on legal title transfer and our right to payment, which generally occurs at the time of shipment. This resulted in an acceleration of revenue and cost recognition and an increase in accounts receivable and a reduction in inventories upon transition to the New Revenue Standard. Costs to Obtain a Contract. Under previous U.S. GAAP, we recognized sales commissions incurred to obtain long term product and service contracts as sales and marketing expenses as incurred. Under the New Revenue Standard, we defer commissions incurred to obtain long term contracts, when considered incremental and recoverable. Sales commissions are amortized as sales and marketing expenses consistently with the pattern of transfer for the product or service to which the asset relates. If the expected amortization period is one year or less, the sales commission is expensed when incurred. This change resulted in an increase to other current and long-term assets upon transition to the New Revenue Standard. Income Taxes. The adoption of the New Revenue Standard primarily resulted in an acceleration of revenues under up-front customer loyalty programs and an increase in deferred revenue under instrument rebate programs, which in turn generated additional deferred tax assets within other long-term assets. The cumulative effects of the changes made to our consolidated balance sheet as of January 1, 2018, in connection with the adoption of the New Revenue Standard were as follows (in thousands): ໿ ໿
﻿ | Condensed Consolidated Balance Sheet
﻿ |  |  |  |  |
﻿ | Previous U.S. GAAP December 31, 2017 (Reported) |  | New U.S. GAAP January 1, 2018 |  | Attributed to the New Revenue Standard
﻿ |  |  |  |  |  |
ASSETS |  |  |  |  |  |
Cash, cash equivalents and marketable securities | $ | 471,930 |  |  | $ | 471,930 |  |  | $ | — |
Accounts receivable | 234,597 |  |  | 237,281 |  |  | 2,684 |
Inventories | 164,318 |  |  | 163,184 |  |  | (1,134 | )
Property and equipment, net | 379,096 |  |  | 379,096 |  |  | — |
Goodwill and intangible assets, net | 243,719 |  |  | 243,719 |  |  | — |
Other assets | 219,756 |  |  | 246,481 |  |  | 26,725 |
TOTAL ASSETS | $ | 1,713,416 |  |  | $ | 1,741,691 |  |  | $ | 28,275 |
﻿ |  |  |  |  |
LIABILITIES AND STOCKHOLDERS’ DEFICIT |  |  |  |  |
Accounts payable | $ | 66,968 |  |  | $ | 66,968 |  |  | $ | — |
Accrued liabilities | 253,418 |  |  | 254,381 |  |  | 963 |
Deferred income tax liabilities | 25,353 |  |  | 25,087 |  |  | (266 | )
Line of credit and long-term debt | 1,261,075 |  |  | 1,261,075 |  |  | — |
Deferred revenue | 64,726 |  |  | 110,158 |  |  | 45,432 |
Other long-term liabilities | 95,718 |  |  | 82,840 |  |  | (12,878 | )
Total liabilities | 1,767,258 |  |  | 1,800,509 |  |  | 33,251 |
﻿ |  |  |  |  |
Stockholders’ Deficit: |  |  |  |  |
Retained earnings | 803,545 |  |  | 798,569 |  |  | (4,976 | )
All other stockholders' deficit and noncontrolling interest | (857,387 | ) |  | (857,387 | ) |  | — |
Total stockholders’ deficit | (53,842 | ) |  | (58,818 | ) |  | (4,976 | )
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT | $ | 1,713,416 |  |  | $ | 1,741,691 |  |  | $ | 28,275 |
The following tables compare the reported unaudited condensed consolidated balance sheet, statement of operations and cash flows, as of and for the three and six months ended June 30, 2018, to the balances without the adoption of ASC 606 ("previous U.S. GAAP") (in thousands): ໿ ໿
﻿ | Condensed Consolidated Balance Sheet
﻿ | As of June 30, 2018
﻿ |  |  |  |  |
﻿ | Previous U.S. GAAP |  | New U.S. GAAP (As Reported) |  | Attributed to the New Revenue Standard
﻿ |  |  |  |  |  |
ASSETS |  |  |  |  |  |
Cash and cash equivalents | $ | 174,559 |  |  | $ | 174,559 |  |  | $ | — |
Accounts receivable | 262,420 |  |  | 265,012 |  |  | 2,592 |
Inventories | 178,187 |  |  | 176,487 |  |  | (1,700 | )
Property and equipment, net | 394,021 |  |  | 394,021 |  |  | — |
Goodwill and intangible assets, net | 235,010 |  |  | 235,010 |  |  | — |
Other assets | 238,682 |  |  | 275,596 |  |  | 36,914 |
TOTAL ASSETS | $ | 1,482,879 |  |  | $ | 1,520,685 |  |  | $ | 37,806 |
﻿ |  |  |  |  |
LIABILITIES AND STOCKHOLDERS’ DEFICIT |  |  |  |  |
Accounts payable | $ | 68,015 |  |  | $ | 68,015 |  |  | $ | — |
Accrued liabilities | 228,095 |  |  | 228,380 |  |  | 285 |
Deferred income tax liabilities | 35,470 |  |  | 35,459 |  |  | (11 | )
Line of credit and long-term debt | 1,040,130 |  |  | 1,040,130 |  |  | — |
Deferred revenue | 64,061 |  |  | 106,283 |  |  | 42,222 |
Other long-term liabilities | 92,290 |  |  | 83,267 |  |  | (9,023 | )
Total liabilities | 1,528,061 |  |  | 1,561,534 |  |  | 33,473 |
﻿ |  |  |  |  |
Stockholders’ Deficit: |  |  |  |  |
Retained earnings | 984,736 |  |  | 989,039 |  |  | 4,303 |
Accumulated other comprehensive income (loss) | (42,589 | ) |  | (42,559 | ) |  | 30 |
All other stockholders' deficit and noncontrolling interest | (987,329 | ) |  | (987,329 | ) |  | — |
Total stockholders’ deficit | (45,182 | ) |  | (40,849 | ) |  | 4,333 |
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT | $ | 1,482,879 |  |  | $ | 1,520,685 |  |  | $ | 37,806 |
໿
﻿ | Condensed Consolidated Statement of Operations
﻿ | For the Three Months Ended June 30, 2018 |  | For the Six Months Ended June 30, 2018
﻿ |  |  |  |  |  |  |  |  |  |  |
﻿ | Previous U.S. GAAP |  | New U.S. GAAP (As Reported) |  | Attributed to the New Revenue Standard |  | Previous U.S. GAAP |  | New U.S. GAAP (As Reported) |  | Attributed to the New Revenue Standard
﻿ |  |  |  |  |  |  |  |  |  |  |
Total revenue | $ | 565,879 |  |  | $ | 580,752 |  |  | $ | 14,873 |  |  | $ | 1,091,248 |  |  | $ | 1,118,408 |  |  | $ | 27,160 |
Total cost of revenue | 239,491 |  |  | 248,313 |  |  | 8,822 |  |  | 467,456 |  |  | 482,870 |  |  | 15,414 |
Gross profit | 326,388 |  |  | 332,439 |  |  | 6,051 |  |  | 623,792 |  |  | 635,538 |  |  | 11,746 |
﻿ |  |  |  |  |  |  |  |  |  |  |
Total operating expense | 187,321 |  |  | 186,845 |  |  | (476 | ) |  | 377,947 |  |  | 376,900 |  |  | (1,047 | )
Income from operations | 139,067 |  |  | 145,594 |  |  | 6,527 |  |  | 245,845 |  |  | 258,638 |  |  | 12,793 |
Interest expense | (8,457 | ) |  | (8,457 | ) |  | — |  |  | (17,731 | ) |  | (17,731 | ) |  | — |
Interest income | 437 |  |  | 172 |  |  | (265 | ) |  | 1,299 |  |  | 751 |  |  | (548 | )
Income before provision for income taxes | 131,047 |  |  | 137,309 |  |  | 6,262 |  |  | 229,413 |  |  | 241,658 |  |  | 12,245 |
Provision for income taxes | 27,107 |  |  | 28,629 |  |  | 1,522 |  |  | 40,536 |  |  | 43,502 |  |  | 2,966 |
Net income | $ | 103,940 |  |  | $ | 108,680 |  |  | $ | 4,740 |  |  | $ | 188,877 |  |  | $ | 198,156 |  |  | $ | 9,279 |
໿ ໿
﻿ | Condensed Consolidated Statement of Cash Flows
﻿ | For the Six Months Ended June 30, 2018
﻿ |  |  |  |  |
﻿ | Previous U.S. GAAP |  | New U.S. GAAP (As Reported) |  | Attributed to the New Revenue Standard
Cash Flows from Operating Activities: |  |  |  |  |  |
Net income | $ | 188,877 |  |  | $ | 198,156 |  |  | $ | 9,279 |
Adjustments to reconcile net income to net cash provided by operating activities: |  |  |  |  |
Benefit of deferred income taxes | 6,218 |  |  | 8,638 |  |  | 2,420 |
All other adjustments to reconcile net income to net cash provided by operating activities | 55,661 |  |  | 55,661 |  |  | — |
Changes in assets and liabilities, net | (97,028 | ) |  | (108,727 | ) |  | (11,699 | )
Net cash provided by operating activities | $ | 153,728 |  |  | $ | 153,728 |  |  | $ | — |
໿ There were no changes to cash flows from investing and financing activities as a result of the adoption of the New Revenue Standard. Effective January 1, 2018, we adopted FASB ASU 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory, which requires an entity to recognize the income tax consequences of an intra-entity transfer of an asset, other than inventory, when the transfer occurs, even though the pre-tax effects of that transaction are eliminated in consolidation. We recognized the cumulative effect of applying this standard as an adjustment to the opening balance of retained earnings and a reduction to other long-term assets of $7.7 million. Effective January 1, 2018, we adopted FASB ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments, which provides guidance on the statement of cash flows presentation of certain transactions where diversity in practice exists on the classification of certain cash receipts and payments. We adopted this amendment on a retrospective basis. This amendment did not have an impact on our financial statements. Effective January 1, 2018, we adopted FASB ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash, to add guidance on the classification and presentation of restricted cash. These amendments require that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The adoption of this standard did not have an impact on our financial statements. Effective January 1, 2018, we adopted FASB ASU 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, to simplify the measurement of goodwill by eliminating Step 2 from the goodwill impairment test. Instead, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill. The adoption of this standard did not have an impact on our financial statements. Effective January 1, 2018, we adopted FASB ASU 2017-09, Compensation-Stock Compensation (Topic 718): Scope of Modification Accounting, which provides clarification on accounting for modifications in share-based payment awards. The adoption of this guidance did not have an impact on our consolidated financial statements or related disclosures as there were no modifications to our share-based payment awards during the first half of 2018. In March 2018, we adopted FASB ASU 2018-05, Income Taxes (Topic 740): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118, which updates the income tax accounting to reflect the SEC’s interpretive guidance released on December 22, 2017, when the 2017 Tax Act was signed into law. See “Note 11. Income Taxes.” In April 2018, we early adopted FASB ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities, which amends the hedge accounting recognition and presentation requirements, effective January 1, 2018. The adoption of this guidance allowed us to simplify our procedures to assess critical terms and broadens the application of hedge accounting. The early adoption of this standard did not have a material impact on our consolidated financial statements. New Accounting Pronouncements Not Yet Adopted In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) (the "New Leasing Standard"), to increase transparency and comparability among organizations’ leasing arrangements. Since then, the FASB has issued updates to ASU 2016-02. The principal difference from previous guidance is that effective upon adoption, the lease assets and lease liabilities arising from operating leases will be recognized in the balance sheet. For public business entities, the amendments in this update are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, with early adoption permitted. In transition, we are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach, including the option to utilize a number of practical expedients. We are in the process of evaluating our lessee and lessor arrangements. We currently expect that under the New Leasing Standard as a lessee, our operating lease commitments will be recognized as operating lease liabilities and right-of-use assets upon our adoption, which will increase our total assets and total liabilities that we report relative to such amounts prior to adoption. See lease commitments in Note 14 to the consolidated financial statements in our 2017 Annual Report for additional information. While the New Leasing Standard will not impact the overall economics of our products and services sold under customer incentive programs, we currently expect that the New Leasing Standard will require us to classify new instrument placements for certain reagent rental programs as sales-type leases and thus accelerate instrument revenue and cost recognition at the time of placement. Under current U.S. GAAP, instruments placed under our reagent rental programs are classified as operating leases and instrument revenue and cost is recognized over the term of the program. We do not expect this change to have a material impact on our financial statements. See "Note 3. Revenue Recognition" for a description of our reagent rental programs. In February 2018, the FASB issued ASU 2018-02, Income Statement – Reporting Comprehensive Income (Topic 220) Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, to allow a reclassification from accumulated other comprehensive income to retained earnings related to the stranded effects of the 2017 Tax Act. The amendments in this update are effective for all entities for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years with early adoption permitted. In transition, we are required to apply the amendments either in the period of adoption or retrospectively. We are currently evaluating the impact these amendments will have on our consolidated financial statements. For a discussion of other accounting standards that have been issued by the FASB but are not yet effective, refer to the New Accounting Pronouncements Not Yet Adopted section in our 2017 Annual Report.

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