Document


 

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

__________________________________

FORM 6-K
 
__________________________________

REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16 OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2018
Commission File Number 001-38332
 
__________________________________
QIAGEN N.V.
__________________________________
Hulsterweg 82
5912 PL Venlo
The Netherlands
__________________________________

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F:
Form 20-F x           Form 40-F  o
Indicate by check mark whether the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):  o
Indicate by check mark whether the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):  o


 


Table of Contents

QIAGEN N.V.
Form 6-K
TABLE OF CONTENTS
 
Item
 
Page 
 
 
 
 

2
Table of Contents

OTHER INFORMATION
For the three- and six-month periods ended June 30, 2018, QIAGEN N.V. prepared its quarterly report under United States generally accepted accounting principles (U.S. GAAP). This quarterly report is furnished herewith as Exhibit 99.1 and incorporated by reference herein.
 

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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
QIAGEN N.V.
 
 
 
BY:
/s/ Roland Sackers      
 
Roland Sackers
 
Chief Financial Officer
 
 
Date:
July 31, 2018
 

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EXHIBIT INDEX
 
Exhibit
No. 
 
Exhibit
 
 
 
 
99.1
 


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Exhibit 99.1
QIAGEN N.V. AND SUBSIDIARIES
U.S. GAAP QUARTERLY REPORT FOR THE PERIOD ENDED JUNE 30, 2018
TABLE OF CONTENTS
 
Financial Information
 
 
 
Condensed Consolidated Financial Statements
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

1
Table of Contents


QIAGEN N.V. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
 
 
Note 
 
June 30,
2018
 
December 31,
2017
 
 
 
(unaudited)
 
 
Assets
 
 
 
 
 
Current assets:
 
 
 
 
 
Cash and cash equivalents
 
 
$
674,413

 
$
657,714

Short-term investments
 
 
225,774

 
359,198

Accounts receivable, net of allowance for doubtful accounts of $9,257 and $8,008 in 2018 and 2017, respectively
 
 
314,668

 
329,138

Income taxes receivable
 
 
43,230

 
39,509

Inventories, net
(11)
 
158,235

 
155,927

Prepaid expenses and other current assets
(7)
 
271,315

 
106,487

Total current assets
 
 
1,687,635

 
1,647,973

Long-term assets:
 
 
 
 
 
Property, plant and equipment, net of accumulated depreciation of $584,596 and $564,588 in 2018 and 2017, respectively
 
 
492,027

 
494,321

Goodwill
(6)
 
2,101,461

 
2,012,904

Intangible assets, net of accumulated amortization of $1,158,295 and $1,117,423 in 2018 and 2017, respectively
(6)
 
565,378

 
499,318

Deferred income taxes
 
 
40,211

 
39,353

Other long-term assets (of which $6,448 and $17,713 in 2018 and 2017 due from related parties, respectively)
(5, 7)
 
422,353

 
344,647

Total long-term assets
 
 
3,621,430

 
3,390,543

Total assets
 
 
$
5,309,065

 
$
5,038,516


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

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Table of Contents

QIAGEN N.V. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except par value)
 
 
Note 
 
June 30,
2018
 
December 31,
2017
 
 
 
(unaudited)
 
 
Liabilities and equity
 
 
 
 
 
Current liabilities:
 
 
 
 
 
Current portion of long-term debt
(9)
 
$
420,993

 
$
—

Accrued and other current liabilities (of which $6,808 and $9,028 in 2018 and 2017 due to related parties, respectively)
(7)
 
444,482

 
244,114

Accounts payable
 
 
60,942

 
59,205

Income taxes payable
 
 
14,777

 
21,473

Total current liabilities
 
 
941,194

 
324,792

Long-term liabilities:
 
 
 
 
 
Long-term debt
(9)
 
1,341,496

 
1,758,258

Deferred income taxes
 
 
93,551

 
76,727

Other long-term liabilities (of which $3,075 in 2017 due to related parties)
(7)
 
408,964

 
337,743

Total long-term liabilities
 
 
1,844,011

 
2,172,728

Commitments and contingencies
(15)
 
 
 
 
Equity:
 
 
 
 
 
Preference shares, 0.01 EUR par value, authorized—450,000 shares, no shares issued and outstanding
 
 
—

 
—

Financing preference shares, 0.01 EUR par value, authorized—40,000 shares, no shares issued and outstanding
 
 
—

 
—

Common Shares, 0.01 EUR par value, authorized—410,000 shares, issued—230,829 shares in 2018 and in 2017
(12)
 
2,702

 
2,702

Additional paid-in capital
(12)
 
1,649,368

 
1,630,095

Retained earnings
 
 
1,268,140

 
1,247,945

Accumulated other comprehensive loss
(12)
 
(279,644
)
 
(220,759
)
Less treasury shares at cost— 3,793 and 4,272 shares in 2018 and 2017, respectively
(12)
 
(116,706
)
 
(118,987
)
Total equity
 
 
2,523,860

 
2,540,996

Total liabilities and equity
 
 
$
5,309,065

 
$
5,038,516


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

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QIAGEN N.V. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except share data)
 
 
Three months ended
 
June 30,
 
2018
 
2017
 
(unaudited)
Net sales
$
377,196

 
$
348,990

Cost of sales
123,440

 
124,433

Gross profit
253,756

 
224,557

Operating expenses:
 
 
 
Research and development
39,633

 
37,899

Sales and marketing
101,853

 
96,193

General and administrative, restructuring, integration and other, net
48,886

 
58,419

Acquisition-related intangible amortization
10,051

 
9,681

Total operating expenses
200,423

 
202,192

Income from operations
53,333

 
22,365

Other income (expense):
 
 
 
Interest income
5,104

 
1,718

Interest expense
(15,835
)
 
(10,581
)
Other income (expense), net
3,356

 
(1,111
)
Total other expense, net
(7,375
)
 
(9,974
)
Income before income taxes
45,958

 
12,391

Income taxes
9,143

 
(1,560
)
Net income
$
36,815

 
$
13,951

Basic earnings per common share
$
0.16

 
$
0.06

Diluted earnings per common share
$
0.16

 
$
0.06

 
 
 
 
Weighted-average shares outstanding
 
 
 
Basic
227,273

 
227,963

Diluted
233,784

 
232,681


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

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QIAGEN N.V. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except share data)
 
 
 
 
 
 
Six months ended
 
June 30,
 
2018
 
2017
 
(unaudited)
Net sales
$
720,764

 
$
656,696

Cost of sales
241,334

 
236,294

Gross profit
479,430

 
420,402

Operating expenses:
 
 
 
Research and development
79,154

 
74,838

Sales and marketing
197,932

 
187,654

General and administrative, restructuring, integration and other, net
80,838

 
92,436

Acquisition-related intangible amortization
20,231

 
19,358

Total operating expenses
378,155

 
374,286

Income from operations
101,275

 
46,116

Other income (expense):
 
 
 
Interest income
9,778

 
3,628

Interest expense
(30,855
)
 
(20,743
)
Other income (expense), net
4,903

 
(127
)
Total other expense, net
(16,174
)
 
(17,242
)
Income before income taxes
85,101

 
28,874

Income taxes
15,990

 
(2,728
)
Net income
$
69,111

 
$
31,602

Basic earnings per common share
$
0.30

 
$
0.14

Diluted earnings per common share
$
0.30

 
$
0.14

 
 
 
 
Weighted-average shares outstanding
 
 
 
Basic
227,096

 
228,968

Diluted
233,158

 
233,781


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


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QIAGEN N.V. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
(in thousands)
 
 
 
 
Three months ended
 
 
 
June 30,
 
 
 
2018
 
2017
 
 
 
(unaudited)
Net income
 
 
$
36,815

 
$
13,951

Other comprehensive income (loss) to be reclassified to profit or loss in subsequent periods:
 
 
 
 
 
Gains (losses) on cash flow hedges, before tax
(7)
 
14,164

 
(13,851
)
Reclassification adjustments on cash flow hedges, before tax
(7)
 
(11,934
)
 
12,978

Cash flow hedges, before tax
 
 
2,230

 
(873
)
Net investment hedge
(7)
 
16,902

 
(6,228
)
Losses on marketable securities, before tax
 
 
—

 
(3,714
)
Foreign currency translation adjustments, before tax
 
 
(93,298
)
 
59,719

Other comprehensive (loss) income, before tax
 
 
(74,166
)
 
48,904

Income tax relating to components of other comprehensive income
 
 
87

 
1,501

Total other comprehensive (loss) income, after tax
 
 
(74,079
)
 
50,405

Comprehensive (loss) income
 
 
$
(37,264
)
 
$
64,356


 
 
 
 
 
 
 
 
 
Six months ended
 
 
 
June 30,
 
 
 
2018
 
2017
 
 
 
(unaudited)
Net income
 
 
$
69,111

 
$
31,602

Other comprehensive income (loss) to be reclassified to profit or loss in subsequent periods:
 
 
 
 
 
Gains (losses) on cash flow hedges, before tax
(7)
 
2,369

 
(13,841
)
Reclassification adjustments on cash flow hedges, before tax
(7)
 
(6,030
)
 
15,678

Cash flow hedges, before tax
 
 
(3,661
)
 
1,837

Net investment hedge
(7)
 
8,538

 
(6,228
)
Losses on marketable securities, before tax
 
 
—

 
(38
)
Foreign currency translation adjustments, before tax
 
 
(66,329
)
 
94,061

Other comprehensive (loss) income, before tax
 
 
(61,452
)
 
89,632

Income tax relating to components of other comprehensive income
 
 
1,624

 
(584
)
Total other comprehensive (loss) income, after tax
 
 
(59,828
)
 
89,048

Comprehensive income
 
 
$
9,283

 
$
120,650


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

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QIAGEN N.V. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(in thousands)
 
 
 
 
Common Shares
 
Additional Paid-In Capital
 
Retained
Earnings
 
Accumulated Other Comprehensive Income (Loss)
 
Treasury Shares
 
Total
Equity
(unaudited)
Note 
 
Shares
 
Amount
 
 
 
 
Shares
 
Amount
 
BALANCE AT DECEMBER 31, 2017
 
 
230,829

 
$
2,702

 
$
1,630,095

 
$
1,247,945

 
$
(220,759
)
 
(4,272
)
 
$
(118,987
)
 
$
2,540,996

Balance at January 1, 2018, as previously reported
 
 
230,829

 
$
2,702

 
$
1,630,095

 
$
1,247,945

 
$
(220,759
)
 
(4,272
)
 
$
(118,987
)
 
$
2,540,996

ASU 2016-01 impact of change in accounting policy
(2)
 
—

 
—

 
—

 
(942
)
 
942

 
—

 
—

 
—

ASU 2016-16 impact of change in accounting policy
(2)
 
—

 
—

 
—

 
(16,096
)
 
—

 
—

 
—

 
(16,096
)
ASC 606 impact of change in accounting policy
(2)
 
—

 
—

 
—

 
(1,306
)
 
—

 
—

 
—

 
(1,306
)
Adjusted balance at January 1, 2018
 
 
230,829

 
$
2,702

 
$
1,630,095

 
$
1,229,601

 
$
(219,817
)
 
(4,272
)
 
$
(118,987
)
 
$
2,523,594

Net income
 
 
—

 
—

 
—

 
69,111

 
—

 
—

 
—

 
69,111

Unrealized gain, net on hedging contracts
(7)
 
—

 
—

 
—

 
—

 
10,315

 
—

 
—

 
10,315

Realized gain, net on hedging contracts
(7)
 
—

 
—

 
—

 
—

 
(4,523
)
 
—

 
—

 
(4,523
)
Translation adjustment, net
(12)
 
—

 
—

 
—

 
—

 
(65,619
)
 
—

 
—

 
(65,619
)
Purchase of treasury shares
(12)
 
—

 
—

 
—

 
—

 
—

 
(819
)
 
(29,577
)
 
(29,577
)
Issuance of common shares in connection with stock plan
 
 
—

 
—

 
—

 
(30,572
)
 
—

 
1,298

 
31,858

 
1,286

Share-based compensation
(16)
 
—

 
—

 
19,273

 
—

 
—

 
—

 
—

 
19,273

BALANCE AT JUNE 30, 2018
 
 
230,829

 
$
2,702

 
$
1,649,368

 
$
1,268,140

 
$
(279,644
)
 
(3,793
)
 
$
(116,706
)
 
$
2,523,860

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
BALANCE AT DECEMBER 31, 2016
 
 
239,707

 
$
2,812

 
$
1,794,665

 
$
1,263,464

 
$
(333,839
)
 
(5,147
)
 
$
(120,006
)
 
$
2,607,096

Net income
 
 
—

 
—

 
—

 
31,602

 
—

 
—

 
—

 
31,602

Capital repayment
(12)
 
(8,878
)
 
(110
)
 
(244,319
)
 
—

 
—

 
191

 
—

 
(244,429
)
Unrealized loss, net on hedging contracts
 
 
—

 
—

 
—

 
—

 
(16,609
)
 
—

 
—

 
(16,609
)
Realized loss, net on hedging contracts
 
 
—

 
—

 
—

 
—

 
11,759

 
—

 
—

 
11,759

Unrealized loss, net on marketable securities
 
 
—

 
—

 
—

 
—

 
(168
)
 
—

 
—

 
(168
)
Translation adjustment, net
 
 
—

 
—

 
—

 
—

 
94,066

 
—

 
—

 
94,066

Issuance of common shares in connection with stock plan
 
 
—

 
—

 
—

 
(53,302
)
 
—

 
2,361

 
56,301

 
2,999

Share-based compensation
 
 
—

 
—

 
19,058

 
—

 
—

 
—

 
—

 
19,058

BALANCE AT JUNE 30, 2017
 
 
230,829

 
$
2,702

 
$
1,569,404

 
$
1,241,764

 
$
(244,791
)
 
(2,595
)
 
$
(63,705
)
 
$
2,505,374


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

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QIAGEN N.V. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
 
 
 
Six months ended
 
 
 
June 30,
 
Note 
 
2018
 
2017
Cash flows from operating activities:
 
 
(unaudited)
Net income
 
 
$
69,111

 
$
31,602

Adjustments to reconcile net income to net cash provided by operating activities, net of effects of businesses acquired:
 
 
 
 
 
Depreciation and amortization
 
 
107,609

 
111,348

Non-cash impairments
(5)
 
10,644

 
3,122

Amortization of debt discount and issuance costs
 
 
16,950

 
10,432

Share-based compensation expense
(16)
 
19,273

 
19,058

Deferred income taxes
 
 
3,325

 
(2,101
)
(Gain) loss on marketable securities
 
 
(3,007
)
 
1,055

Other items, net including fair value changes in derivatives
 
 
(11,283
)
 
(4,384
)
Net changes in operating assets and liabilities:
 
 
 
 
 
Accounts receivable
 
 
1,087

 
13,480

Inventories
 
 
(19,344
)
 
(18,750
)
Prepaid expenses and other current assets
 
 
2

 
(7,259
)
Other long-term assets
 
 
(30,718
)
 
(1,676
)
Accounts payable
 
 
(7
)
 
(4,404
)
Accrued and other current liabilities
 
 
11,246

 
2,856

Income taxes
 
 
(8,411
)
 
(24,425
)
Other long-term liabilities
 
 
(239
)
 
(438
)
Net cash provided by operating activities

 
166,238

 
129,516

Cash flows from investing activities:
 
 
 
 
 
Purchases of property, plant and equipment
 
 
(42,866
)
 
(37,907
)
Proceeds from sale of equipment
 
 
7

 
42

Purchases of intangible assets
(6)
 
(23,542
)
 
(18,116
)
Purchases of investments
 
 
(15,625
)
 
(584
)
Cash paid for acquisitions, net of cash acquired
(3)
 
(172,831
)
 
(49,678
)
Purchases of short-term investments
 
 
(176,289
)
 
(36,209
)
Proceeds from redemptions of short-term investments
 
 
311,700

 
65,234

Cash paid for collateral asset
 
 
(17,362
)
 
(2,296
)
Other investing activities
(3)
 
16,337

 
—

Net cash used in investing activities
 
 
(120,471
)
 
(79,514
)
Cash flows from financing activities:
 
 
 
 
 
Proceeds from long-term debt, net of issuance costs
(9)
 
—

 
300,155

Capital repayment
(12)
 
—

 
(243,945
)
Principal payments on capital leases
 
 
(657
)
 
(674
)
Proceeds from issuance of common shares
 
 
1,286

 
2,999

Purchase of treasury shares
(12)
 
(20,782
)
 
—

Other financing activities
(8)
 
(5,219
)
 
(10,187
)
Net cash (used in) provided by financing activities
 
 
(25,372
)
 
48,348

Effect of exchange rate changes on cash and cash equivalents
 
 
(3,696
)
 
5,311

Net increase in cash and cash equivalents
 
 
16,699

 
103,661

Cash and cash equivalents, beginning of period
 
 
657,714

 
439,180

Cash and cash equivalents, end of period
 
 
$
674,413

 
$
542,841


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

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QIAGEN N.V. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

1.
Corporate Information
QIAGEN N.V. is a public limited liability company ('naamloze vennootschap') under Dutch law with a registered office at Hulsterweg 82, 5912 PL Venlo, The Netherlands. QIAGEN N.V., a Netherlands holding company, and subsidiaries (we, our or the Company) is a leading global provider of Sample to Insight solutions to transform biological materials into valuable molecular insights. Our sample technologies isolate and process DNA, RNA and proteins from blood, tissue and other materials. Assay technologies make these biomolecules visible and ready for analysis. Bioinformatics software and knowledge bases interpret data to report relevant, actionable insights. Automation solutions tie these together in seamless and cost-effective molecular testing workflows. We provide these workflows to four major customer classes: Molecular Diagnostics (human healthcare), Applied Testing (forensics, veterinary testing and food safety), Pharma (pharmaceutical and biotechnology companies) and Academia (life sciences research). We market our products in more than 130 countries.

2.
Basis of Presentation and Accounting Policies     
Basis of Presentation
The condensed consolidated financial statements include the accounts of QIAGEN N.V., its wholly-owned subsidiaries and any partially owned subsidiaries that the Company has the ability to control. All significant intercompany accounts and transactions have been eliminated in consolidation. All amounts are presented in U.S. dollars, unless otherwise indicated. Investments in companies where we exercise significant influence over the operations but do not have control, and where we are not the primary beneficiary, are accounted for using the equity method. We account for all other investments in nonmarketable equity securities in which we are not able to exercise significant influence, our cost-method investments, at our initial cost, minus any impairment, plus or minus changes from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. When there is a portion of equity in an acquired subsidiary not attributable, directly or indirectly, to the Company, we record the fair value of the noncontrolling interests at the acquisition date and classify the amounts attributable to noncontrolling interests separately in equity in the condensed consolidated financial statements. Any subsequent changes in the Company's ownership interest while the Company retains its controlling financial interest in its subsidiary are accounted for as equity transactions.
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (U.S. GAAP) for interim financial information and generally in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to the Securities and Exchange Commission (SEC) rules and regulations. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary for a fair presentation have been included.
On April 27, 2018, we acquired all shares in STAT-Dx Life, S.L. (STAT-Dx), a privately-held company located in Barcelona, Spain, and on April 19, 2018, we acquired all remaining shares of a privately held entity in which we held a minority interest. On January 6, 2017, we acquired OmicSoft Corporation, located in Cary, North Carolina (U.S.). Accordingly, at their respective acquisition dates, all the assets acquired and liabilities assumed were recorded at their respective fair values and our consolidated results of operations include the operating results from the acquired companies from the acquisition dates.
Certain prior year amounts related to restructuring costs have been reclassified to conform to the current year presentation. For the three and six months ended June 30, 2017, $0.9 million and $1.8 million were reclassified out of research and development and $7.7 million and $8.6 million were reclassified out of sales and marketing, respectively, to general and administrative, restructuring, integration and other, net. These reclassifications had no effect on income from operations.
We operate as one operating segment in accordance with the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 280, Segment Reporting. We have a common basis of organization and our products and services are offered globally. Our chief operating decision maker (CODM) makes decisions based on the Company as a whole. Accordingly, we operate and make decisions as one reporting unit.
The results of operations for an interim period are not necessarily indicative of results that may be expected for any other interim period or for the full year. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company's Annual Report on Form 20-F for the year ended December 31, 2017.

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Summary of Significant Accounting Policies
The interim condensed consolidated financial statements were prepared based on the same accounting policies as those applied and described in the consolidated financial statements as of December 31, 2017 except for the changes described below in connection with the adoption of new standards and interpretations as of January 1, 2018.
Adoption of New Accounting Standards
The following new FASB Accounting Standards Updates (ASU) were adopted in 2018:
ASU 2014-09, Revenue from Contracts with Customers (Topic 606) affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets unless those contracts are within the scope of other standards (e.g., insurance contracts or lease contracts). In August 2015, the FASB issued Accounting Standards Update No. 2015-14 (ASU 2015-14), Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date which defers the effective date of ASU 2014-09 to interim and annual reporting periods beginning after December 15, 2017. The FASB has continued to issue accounting standards updates to clarify and provide implementation guidance related to Revenue from Contracts with Customers, including ASU 2016-08 Revenue from Contract with Customers: Principal versus Agent Considerations, ASU 2016-10 Revenue from Contracts with Customers: Identifying Performance Obligations and Licensing, and ASU 2016-12 Revenue from Contracts with Customers: Narrow-Scope Improvements and Practical Expedients.
We adopted this standard on its effective date, January 1, 2018, using the modified retrospective method, by recognizing the cumulative effect of initially applying Topic 606 to incomplete contracts as a $1.3 million adjustment to the opening balance of equity at January 1, 2018. The details of the changes and quantitative impact are discussed in Note 13.
ASU 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities will impact certain aspects of recognition, measurement, presentation and disclosure of financial instruments. In February 2018, the FASB issued ASU No. 2018-03, Technical Corrections and Improvements to Financial Instruments—Overall (Subtopic 825-10), which clarified certain aspects of the previously issued ASU 2016-01.
The new guidance makes targeted improvements to existing U.S. GAAP by:
•
requiring equity investments (except those accounted for under the equity method of accounting, or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income;
•
requiring public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes;
•
requiring separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (i.e., securities or loans and receivables) on the balance sheet or the accompanying notes to the financial statements;
•
eliminating the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet; and
•
requiring a reporting organization to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk (also referred to as “own credit”) when the organization has elected to measure the liability at fair value in accordance with the fair value option for financial instruments.
The amendments became effective for our financial statements beginning in the first quarter of 2018 and require adoption using a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption. Accordingly, upon adoption, we recorded a cumulative effect adjustment to decrease opening retained earnings at January 1, 2018 by $0.9 million as required for our equity investments recorded at fair value. The implementation of the amendments is expected to increase the volatility of net income as gains or losses in future periods will be recognized in net income; however, the extent of any volatility will be dependent upon the significance of the equity investments.
ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (a consensus of the FASB Emerging Issues Task Force), addresses eight classification issues related to the statement of cash flows:
•
debt prepayment or debt extinguishment costs;
•
settlement of zero-coupon bonds;
•
contingent consideration payments made after a business combination;
•
proceeds from the settlement of insurance claims;
•
proceeds from the settlement of corporate-owned life insurance policies, including bank-owned life insurance policies;
•
distributions received from equity method investees;
•
beneficial interests in securitization transactions; and
•
separately identifiable cash flows and application of the predominance principle.

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We adopted ASU 2016-15 on January 1, 2018 without any impact from the adoption on our condensed consolidated financial statements.
ASU 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory, aims to improve the accounting for the income tax consequences of intra-entity transfers of assets other than inventory. This amendment requires an entity to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. We adopted ASU 2016-16 on a modified retrospective basis resulting in a cumulative-effect reclassification of $16.1 million for unrecognized income tax effects related to intra-entity transfers of fixed assets and intellectual property rights that occurred prior to adoption from other current and non-current assets to opening retained earnings as of January 1, 2018.
ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash, requires entities to show the changes in the total of cash, cash equivalents, restricted cash and restricted cash equivalents in the statement of cash flows. As a result, entities will no longer present transfers between cash and cash equivalents and restricted cash and restricted cash equivalents in the statement of cash flows. We adopted ASU 2016-18 on January 1, 2018 using a retrospective transition method to each period presented. There is no impact from the adoption of ASU 2016-18 on our condensed consolidated financial statements.
ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business, clarifies and provides a more robust framework to use in determining when a set of assets and activities is a business. The amendments in this update should be applied prospectively on or after the effective date. We adopted this update beginning January 1, 2018 without impact.
ASU 2017-09, Compensation-Stock Compensation (Topic 718): Scope of Modification Accounting, clarifies when to account for a change to the terms or conditions of a share-based payment award as a modification. Under the new guidance, modification accounting is required only if the fair value, the vesting conditions, or the classification of the award (as equity or liability) changes as a result of the change in terms or conditions. The guidance is effective prospectively and we adopted ASU 2017-09 as of January 1, 2018.
ASU 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, permits companies to reclassify the stranded tax effects of the U.S. Tax Cuts and Jobs Act on items within accumulated other comprehensive income to retained earnings. This ASU is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. We early adopted ASU 2018-02 as of April 1, 2018 with no impact as we have no stranded tax effects.

New Accounting Standards Not Yet Adopted
The following new FASB Accounting Standards Updates, which are not yet adopted, have been grouped by their required effective dates:
First Quarter of 2019
ASU 2016-02, Leases (Topic 842) aims to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. ASU 2016-02 will become effective for us beginning in the first quarter of 2019 and we will evaluate the use of optional practical expedients related to the reporting at adoption. We will not early adopt this standard and are in the process of implementing changes to our systems, processes and disclosures. We expect this standard to increase total assets and total liabilities, however, we are currently evaluating the potential impact that ASU 2016-02 may have on our consolidated financial statements.
ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities, will make more financial and nonfinancial hedging strategies eligible for hedge accounting. It also amends the presentation and disclosure requirements and changes how companies assess effectiveness. It is intended to more closely align hedge accounting with companies’ risk management strategies, simplify the application of hedge accounting, and increase transparency as to the scope and results of hedging programs. The new guidance will become effective for us beginning on January 1, 2019 by applying a modified retrospective approach to existing hedging relationship as of the adoption date. Under the modified retrospective approach, entities with cash flow or net investment hedges will make (1) a cumulative-effect adjustment to accumulated other comprehensive income so that the adjusted amount represents the cumulative change in the hedging instruments’ fair value since hedge inception (less any amounts that should have been recognized in earnings under the new accounting model) and (2) a corresponding adjustment to opening retained earnings as of the most recent period presented on the date of adoption. We are currently evaluating the potential impact ASU 2017-12 may have on our consolidated financial statements.
ASU 2018-07, Compensation-Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting, largely aligns the accounting for share-based payment awards issued to employees and nonemployees. ASU 2018-07 is effective for annual periods beginning January 1, 2019. Early adoption is permitted. We do not expect a material impact from the adoption of ASU 2018-07.


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First Quarter of 2020
ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. provides financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. To achieve this objective, the amendments in ASU 2016-13 replace the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The new guidance will become effective for us by applying the standard's provisions as a cumulative-effect adjustment to retained earnings beginning on January 1, 2020. We are currently evaluating the potential impact ASU 2016-13 may have on our consolidated financial statements.
ASU 2017-04, Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, removes Step 2 of the goodwill impairment test. A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. ASU 2017-04 is effective for us for annual periods beginning January 1, 2020 and early adoption is permitted. The new guidance is required to be applied on a prospective basis. We are currently evaluating the impact the adoption of this new standard will have on our financial position and results of operations.

3.
Acquisitions and Divestitures
Acquisitions
Acquisitions have been accounted for as business combinations, and the acquired companies’ results have been included in the accompanying condensed consolidated statements of income from their respective dates of acquisition. Our acquisitions have historically been made at prices above the fair value of the acquired net assets, resulting in goodwill, due to expectations of synergies of combining the businesses. These synergies include use of our existing infrastructure, such as sales force, shared service centers, distribution channels and customer relations; to expand sales of an acquired business' products; use of the infrastructure of the acquired businesses to cost-effectively expand sales of our products; and elimination of duplicative facilities, functions and staffing.
2018 Acquisitions
On April 27, 2018, we acquired all shares in STAT-Dx Life, S.L. (STAT-Dx), a privately-held company located in Barcelona, Spain, which is developing the next generation of multiplex diagnostics for one-step, fully integrated molecular analysis of common syndromes using a novel system based on real-time PCR technology and proven QIAGEN chemistries.
The cash consideration totaled $148.8 million. The acquisition included contingent consideration which is recorded as part of the purchase price based on the acquisition date fair value. Under the purchase agreement, potential contingent payments through 2023 total $44.3 million, of which the fair value of $36.8 million was recorded as purchase price using a probability-weighted analysis of the future milestones using discount rates between 8.2% and 8.8%. Acquisition related costs of $1.3 million and $2.0 million were incurred during the three- and six-month periods ended June 30, 2018, respectively, and are included in general and administrative, restructuring, integration and other expenses, net in the accompanying condensed consolidated statements of income.
The allocation of the purchase price is preliminary and is not yet finalized. The preliminary allocation of the purchase price is based upon preliminary estimates which used information that was available to management at the time the condensed consolidated financial statements were prepared and these estimates and assumptions are subject to change within the measurement period, up to one year from the acquisition date. Accordingly, the allocation may change. We continue to gather information about the fair value of all assets and liabilities, including intangible assets acquired, and the related deferred taxes. The preliminary purchase price allocation for STAT-Dx is as follows:

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(in thousands)
 
STAT-Dx acquisition
 
 
 
Purchase Price:
 
 
Cash consideration
 
$
148,780

Fair value of contingent consideration
 
36,751

 
 
$
185,531

 
 
 
Preliminary Allocation:
 
 
Cash and cash equivalents
 
$
7,357

Prepaid expenses and other current assets
 
1,432

Inventories
 
1,868

Income tax receivables
 
2,213

Accounts payable
 
(1,412
)
Accruals and other current liabilities
 
(560
)
Fixed and other long-term assets
 
6,434

Developed technology
 
80,100

Goodwill
 
97,268

Deferred tax liability on fair value of identifiable intangible assets acquired
 
(9,169
)
 
 
$
185,531

The weighted average amortization period for the intangible assets is 10.0 years. The goodwill acquired is not deductible for tax purposes.
Revenue and earnings in the reporting periods since the acquisition date have not been significant. No pro forma financial information has been provided herein as the acquisition of STAT-Dx did not have a material impact to net sales, net income or earnings per share on a pro forma basis.
Other 2018 Acquisition
On April 19, 2018, we acquired all remaining shares of a privately held entity in which we held a minority interest. The allocation of the purchase price is preliminary and is based upon preliminary estimates which used information that was available to management at the time the financial statements were prepared and these estimates and assumptions are subject to change within the measurement period, up to one year from the acquisition date. This acquisition was not significant to the overall consolidated financial statements and as of June 30, 2018, the allocation of the purchase price was preliminary. The acquisition did not have a material impact to net sales, net income or earnings per share and therefore no pro forma information has been provided herein.
2017 Acquisition
On January 6, 2017, we acquired OmicSoft Corporation, a leading provider of omics data management solutions located in Cary, North Carolina (U.S.). This acquisition was not significant to the overall consolidated financial statements and as of December 31, 2017, the allocation of the purchase price was final. The acquisition did not have a material impact to net sales, net income or earnings per share and therefore no pro forma information has been provided herein.
Divestitures
2018 Divestitures
In April 2018, we sold a portfolio of veterinary testing products for $16.4 million and recorded a $6.6 million gain on the sale to other income (expense), net in the accompanying condensed consolidated statement of income.

4.
Restructuring
2017 Restructuring
During the fourth quarter of 2017, we initiated restructuring initiatives to mitigate the negative impacts stemming from the U.S. tax reform as further discussed in Note 10. Total pre-tax costs are expected to be between $23 million and $25 million, of which $21 million was incurred through June 30, 2018. Future pre-tax costs between $2 million to $4 million are expected to be incurred in the remainder of 2018 primarily related to personnel and other costs.

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Since 2017, we have incurred costs related to this restructuring program that have been recorded as follows:
(in thousands)
Personnel Related
 
Contract and Other Costs
 
Inventory Write-offs & Asset Impairments
 
Total
Cost of sales
$
—

 
$
—

 
$
3,039

 
$
3,039

General and administrative, restructuring, integration and other, net
6,174

 
4,583

 
—

 
10,757

Total 2017 costs
6,174

 
4,583

 
3,039

 
13,796

Cost of sales
389

 
—

 
—

 
389

General and administrative, restructuring, integration and other, net
2,430

 
2,851

 
1,610

 
6,891

Total 2018 costs
2,819

 
2,851

 
1,610

 
7,280

Total cumulative costs
$
8,993

 
$
7,434

 
$
4,649

 
$
21,076

The following table summarizes the cash components of the restructuring activity.
(in thousands)
Personnel Related
 
Contract and Other Costs
 
Total
Costs incurred in 2017
$
6,174

 
$
4,583

 
$
10,757

Foreign currency translation adjustment
48

 
2

 
50

Liability at December 31, 2017
6,222

 
4,585

 
10,807

Additional costs in 2018
3,221

 
2,980

 
6,201

Release of excess accrual
(402
)
 
(129
)
 
(531
)
Payments
(4,268
)
 
(5,709
)
 
(9,977
)
Foreign currency translation adjustment
(59
)
 
29

 
(30
)
Liability at June 30, 2018
$
4,714

 
$
1,756

 
$
6,470

During the second quarter of 2018, fixed asset impairments of $1.6 million were recorded in connection with this initiative and are included within general and administration, restructuring, integration and other in the accompanying consolidated statements of income. As of June 30, 2018 and December 31, 2017, liabilities of $6.5 million and $10.8 million, respectively, are included in accrued and other current liabilities in the accompanying condensed consolidated balance sheets.
2016 Restructuring
During the fourth quarter of 2016, we initiated a series of targeted actions to support faster sales momentum and improve efficiency and accountability. The objective with these actions is to ensure that we grow sustainably and consistently in the coming years. Measures include simplifying our geographic presence with site reductions, focusing resources to shared service centers, and streamlining selected organizational structures. No additional costs will be incurred related to this program. Cumulative costs for this program are as follows:
(in thousands)
Personnel Related
 
Facility Related
 
Contract and Other Costs
 
Asset Impairments & Disposals
 
Total
Cost of sales
$
1,222

 
$
205

 
$
43

 
$
10,490

 
$
11,960

General and administrative, restructuring, integration and other, net
17,998

 
6,960

 
8,272

 
22,963

 
56,193

Other income (expense), net
—

 
—

 
—

 
10,946

 
10,946

Total 2016 costs
19,220

 
7,165

 
8,315

 
44,399

 
79,099

Cost of sales
1,141

 
—

 
238

 
—

 
1,379

General and administrative, restructuring, integration and other, net
8,399

 
350

 
9,612

 
—

 
18,361

Total 2017 costs
9,540

 
350

 
9,850

 
—

 
19,740

General and administrative, restructuring, integration and other, net
(72
)
 
(838
)
 
(90
)
 
—

 
(1,000
)
Total 2018 releases
(72
)
 
(838
)
 
(90
)
 
—

 
(1,000
)
Total cumulative costs
$
28,688

 
$
6,677

 
$
18,075

 
$
44,399

 
$
97,839


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Personnel Related expenses during 2017 and 2016 include reductions in costs of $0.7 million and $2.0 million, respectively, as a result of forfeitures of share-based compensation in connection with terminations. During the year ended December 31, 2016, Asset Impairments and Disposals include $21.4 million for intangible asset impairments, $10.9 million for fixed asset abandonments, and $1.1 million primarily in connection with the write-off of prepaid contract costs. The total $10.9 million of expense included in other income (expense), net is composed of $8.3 million associated with an impairment of an equity method investment and a disposal of goodwill of $2.6 million.
The following table summarizes the cash components of the restructuring activity.
(in thousands)
Personnel Related
 
Facility Related
 
Contract and Other Costs
 
Total
Liability at December 31, 2016
$
18,480

 
$
7,882

 
$
5,943

 
$
32,305

Additional costs in 2017
13,357

 
1,798

 
9,883

 
25,038

Release of excess accrual
(3,083
)
 
(1,448
)
 
(30
)
 
(4,561
)
Payments
(25,586
)
 
(7,478
)
 
(14,887
)
 
(47,951
)
Facility deferred rent reclassified to restructuring liability
—

 
241

 
—

 
241

Foreign currency translation adjustment
1,126

 
57

 
157

 
1,340

Liability at December 31, 2017
4,294

 
1,052

 
1,066

 
6,412

Release of excess accrual
(72
)
 
(838
)
 
(90
)
 
(1,000
)
Payments
(2,506
)
 
(214
)
 
(88
)
 
(2,808
)
Foreign currency translation adjustment
(8
)
 
—

 
(34
)
 
(42
)
Liability at June 30, 2018
$
1,708

 
$
—

 
$
854

 
$
2,562

At June 30, 2018, $2.6 million of the liability is included in accrued and other current liabilities in the accompanying consolidated balance sheet. At December 31, 2017, $5.6 million of the liability is included in accrued and other current liabilities and $0.8 million is included in other-long term liabilities in the accompanying condensed consolidated balance sheet.

5.
Investments
We have made strategic investments in certain companies that are accounted for using the equity- or cost-method of accounting. The method of accounting for an investment depends on the level of influence. We monitor changes in circumstances that may require a reassessment of the level of influence. We periodically review the carrying value of these investments for impairment, considering factors such as the most recent stock transactions and book values from the recent financial statements. The fair value of cost and equity-method investments is estimated when there are identified events or changes in circumstances that may have an impact on the fair value of the investment. Our cost-method investments do not have readily determinable fair values and are therefore measured at cost, less any impairment, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. Additionally, we hold investments in marketable equity securities that have readily determinable fair values that are classified as available-for-sale. These investments are reported at fair value and with gains and losses recorded in earnings beginning in January 2018 upon adoption of ASU 2016-01.
Equity Method Investments
As of June 30, 2018 and December 31, 2017, we had a total of equity-method investments in non-publicly traded companies of $10.9 million and $18.5 million, respectively, which are included in other long-term assets in the accompanying condensed consolidated balance sheets.
During the second quarter of 2018, we recorded impairments of $6.1 million in other income (expense), net in the accompanying condensed consolidated statements of income, following changes in the investee's circumstances that indicated the carrying value was no longer recoverable. Accordingly, the investments were fully impaired.
During 2017, we acquired a 40% interest in MAQGEN Biotechnology Co., Ltd. for $4.0 million and contributed an additional $3.2 million during the three months ended June 30, 2018. We have a commitment to contribute an additional $4.8 million in future periods. In connection with the 2016 restructuring activities discussed in Note 4, in 2016, we transferred the research and development activities of our instrumentation business to a new company, Hombrechtikon Systems Engineering AG (HSE), in which we acquired a 19.0% interest for a total obligation of $9.8 million payable over three years. As of June 30, 2018, $3.0 million was included in accrued and other current liabilities and as of December 31, 2017, $3.1 million was included in accrued and other current liabilities and $3.1 million was included in other long-term liabilities in the accompanying consolidated balance sheets. HSE is a variable interest entity and we are not the primary beneficiary as we do not hold the power to direct the activities that most significantly impact the economic performance of HSE. Therefore, HSE is not consolidated. As of June 30, 2018 and December 31, 2017, the investment

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had a carrying value of $0.9 million and $1.2 million, respectively, which is included in other long-term assets in the consolidated balance sheets, representing our maximum exposure to loss.
Cost Method Investments
At June 30, 2018 and December 31, 2017, we had a total of cost-method investments in non-publicly traded companies with carrying amounts of $64.0 million and $33.6 million, respectively, which are included in other long-term assets in the consolidated balance sheets.
During the second quarter of 2018, we made an additional investment in a non-publicly traded company of $9.3 million. This equity interest acquired was considered similar to an existing equity interest in the company and as a result, the existing equity interest in the company was adjusted by $11.7 million during the three months ended June 30, 2018 and a corresponding gain was recorded in other income (expense), net in the accompanying condensed statements of income. Also during the second quarter of 2018, we acquired all remaining shares of a privately held entity in which we held a minority interest as discussed in Note 3. The value of the minority interest investment was revalued in connection with the acquisition by $7.9 million and a corresponding gain was recorded in general and administrative, restructuring, integration and other, net in the accompanying condensed statements of income.
During the first quarter of 2018, we converted a note receivable from a non-publicly traded company, considered a related party, into an equity interest in that company. This note held a balance of $11.4 million including principal balance and accrued interest at conversion. As a result of an orderly transaction for a similar investment of the same issuer, this investment was adjusted by $0.8 million and a corresponding gain was recorded in other income (expense), net in the accompanying condensed statement of income for the six-months ended June 30, 2018.
Marketable Equity Securities
At June 30, 2018 and December 31, 2017, we held 833,333 shares in HTG Molecular Diagnostics, Inc. (HTGM), a publicly traded company. The investment has a cost basis of $2.0 million with fair values of $2.7 million and $1.7 million as of June 30, 2018 and December 31, 2017, respectively. During the three and six months ended June 30, 2018, the fair market value of these shares decreased $0.3 million and increased $1.0 million, respectively, and were recognized in other income (expense), net. The total unrealized gain as of June 30, 2018 totaled $0.7 million as compared to the total unrealized loss of $0.3 million as of December 31, 2017. These marketable securities are included in other long-term assets in the accompanying consolidated balance sheets.
At June 30, 2018 and December 31, 2017, we held 204,000 shares and 320,424 shares, respectively of Curetis N.V., a publicly traded company. The investment had a cost basis of $1.4 million and $2.3 million as of June 30, 2018 and December 31, 2017, respectively, with fair values of $1.1 million and $1.5 million as of June 30, 2018 and December 31, 2017, respectively. The total unrealized losses were $0.3 million and $0.8 million as of June 30, 2018 and December 31, 2017, respectively. During the three and six months ended June 30, 2018, the fair market value of these shares decreased $0.3 million and increased $0.2 million, respectively, and were recognized in other income (expense), net. During the six months ended June 30, 2018, we sold 116,424 shares of Curetis N.V. and recognized a gain of $0.3 million in other income (expense), net in the accompanying condensed statement of income in connection with the sale of these shares. This investment is included in short-term investments in the accompanying consolidated balance sheet as of June 30, 2018.

6.
Intangible Assets
The following sets forth the intangible assets by major asset class as of June 30, 2018 and December 31, 2017:
 
 
June 30, 2018
 
December 31, 2017
(in thousands) 
 
Gross
Carrying
Amount
 
Accumulated
Amortization 
 
Gross
Carrying
Amount 
 
Accumulated
Amortization 
Amortized Intangible Assets:
 
 
 
 
 
 
 
 
Patent and license rights
 
$
456,765

 
$
(294,348
)
 
$
407,635

 
$
(280,434
)
Developed technology
 
834,706

 
(557,321
)
 
771,893

 
(544,633
)
Customer base, non-compete agreements and trademarks
 
432,202

 
(306,626
)
 
437,213

 
(292,356
)
 
 
$
1,723,673

 
$
(1,158,295
)
 
$
1,616,741

 
$
(1,117,423
)
Unamortized Intangible Assets:
 
 
 
 
 
 
 
 
Goodwill
 
$
2,101,461

 
 
 
$
2,012,904

 
 

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The changes in intangible assets in 2018 are summarized as follows:
(in thousands)
 
Intangibles
 
Goodwill
Balance at December 31, 2017
 
$
499,318

 
$
2,012,904

Additions
 
26,639

 
—

Acquisitions
 
115,700

 
119,182

Amortization
 
(62,020
)
 
—

Disposals
 
(4,410
)
 
(5,098
)
Foreign currency translation adjustments
 
(9,849
)
 
(25,527
)
Balance at June 30, 2018
 
$
565,378

 
$
2,101,461

Cash paid for purchases of intangible assets during the six months ended June 30, 2018 totaled $23.5 million, of which $6.1 million is related to current year payments for licenses that were accrued as of December 31, 2017 and $1.2 million is related to prepayments recorded in other long-term assets in the accompanying consolidated balance sheet. Intangible asset additions of $26.6 million includes $16.2 million of cash paid during the six months ended June 30, 2018, together with $8.4 million of additions that were accrued as of June 30, 2018 and $2.0 million of additions which were previously recorded as prepayments.
The changes in the carrying amount of goodwill for the six months ended June 30, 2018 resulted from acquisitions and divestitures as discussed in Note 3 and changes in foreign currency translation.
For the three- and six-month periods ended June 30, 2018 and 2017, amortization expense on intangible assets totaled approximately $31.6 million and $62.0 million and $35.9 million and $71.3 million, respectively. Amortization of intangibles for the next five years is expected to be approximately:
Year 
 
Annual
Amortization
(in millions)
2019
 
$
103.8

2020
 
$
76.6

2021
 
$
67.8

2022
 
$
53.0

2023
 
$
50.1


7.
Derivatives and Hedging
In the ordinary course of business, we use derivative instruments, including swaps, forwards and/or options, to manage potential losses from foreign currency exposures and interest bearing assets or liabilities. The principal objective of such derivative instruments is to minimize the risks and/or costs associated with our global financial and operating activities. We do not utilize derivative or other financial instruments for trading or other speculative purposes. We recognize all derivatives as either assets or liabilities on the balance sheet on a gross basis, measure those instruments at fair value and recognize the change in fair value in earnings in the period of change, unless the derivative qualifies as an effective hedge that offsets certain exposures. We have agreed with almost all of our counterparties with whom we had entered into cross-currency swaps, interest rate swaps or foreign exchange contracts, to enter into bilateral collateralization contracts under which we will receive or provide cash collateral, as the case may be, for the net position with each of these counterparties. As of June 30, 2018, cash collateral positions consisted of $3.8 million recorded in accrued and other current liabilities and $39.3 million recorded in prepaid expenses and other assets in the accompanying condensed consolidated balance sheet. As of December 31, 2017, we had cash collateral positions consisting of $3.0 million recorded in accrued and other current liabilities and $21.9 million recorded in prepaid expenses and other current assets in the accompanying condensed consolidated balance sheet.
In 2017, we entered into a foreign currency non-derivative hedging instrument that is designated and qualifies as net investment hedge. The objective of the hedge is to protect part of the net investment in foreign operations against adverse changes in the exchange rate between the Euro and the functional currency of the U.S. dollar. The non-derivative hedging instrument is the German private corporate bond ("Schuldschein") which was issued in the total amount of $331.1 million as described in Note 9 "Debt." Of the $331.1 million, which is held in both U.S. dollars and Euros, €255.0 million is designated as the hedging instrument against a portion of our Euro net investments in our foreign operations. The relative changes in both the hedged item and hedging instrument are calculated by applying the change in spot rate between two assessment dates against the respective notional amount. The effective portion of the hedge is recorded in the cumulative translation adjustment account within other accumulated comprehensive income (loss). Based on the spot rate method, the unrealized loss recorded in equity was $11.2 million and $19.8 million as of June 30, 2018 and December 31,

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2017, respectively. Since we are using the debt as the hedging instrument, which is also remeasured based on the spot rate method, there is no hedge ineffectiveness related to the net investment hedge as of June 30, 2018 and December 31, 2017.
As of June 30, 2018 and December 31, 2017, we held derivative instruments that are designated and qualify as cash flow hedges, where the effective portion of the gain or loss on the derivative is reported as a component of other comprehensive income (loss) and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. Gains and losses on the derivative representing either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness are recognized in current earnings. In 2018 and in 2017, we did not record any hedge ineffectiveness related to any cash-flow hedges in earnings. Based on their valuation as of June 30, 2018, we expect approximately $13.5 million of derivative losses included in accumulated other comprehensive loss will be reclassified into income during the next 12 months. The cash flows derived from derivatives are classified in the condensed consolidated statements of cash flows in the same category as the condensed consolidated balance sheet account of the underlying item.
As of June 30, 2018 and December 31, 2017, we held derivative instruments that qualify for hedge accounting as fair value hedges. For derivative instruments that are designated and qualify as a fair value hedge, the effective portion of the gain or loss on the derivative is reflected in earnings. This effect on earnings is offset by the change in the fair value of the hedged item attributable to the risk being hedged that is also recorded in earnings. In 2018 and in 2017, there was no ineffectiveness. The cash flows derived from derivatives are classified in the condensed consolidated statements of cash flows in the same category as the condensed consolidated balance sheet account of the underlying item.
Interest Rate Derivatives
We use interest rate derivative contracts to align our portfolio of interest bearing assets and liabilities with our risk management objectives. During 2015, we entered into five cross currency interest rate swaps through 2025 for a total notional amount of €180.0 million which qualify for hedge accounting as cash flow hedges. We determined that no ineffectiveness exists related to these swaps. As of June 30, 2018, the €180.0 million notional swap amount had a fair value of $26.6 million recorded in other long-term liabilities and a related interest receivable of $1.3 million which is recorded in prepaid expenses and other current assets, respectively, in the accompanying condensed consolidated balance sheet. As of December 31, 2017, these swaps had a fair value of $28.9 million and related interest receivable of $1.2 million which are recorded in other long-term liabilities and prepaid expenses and other current assets, respectively, in the accompanying condensed consolidated balance sheet.
We hold interest rate swaps which effectively fix the fair value of $200.0 million of our fixed rate private placement debt and qualify for hedge accounting as fair value hedges. We determined that no ineffectiveness exists related to these swaps. As of June 30, 2018, the $200.0 million notional swap amount had a fair value of $3.1 million and related interest payable of $0.1 million which are recorded in other long-term liabilities and accrued and other current liabilities, respectively, in the accompanying condensed consolidated balance sheet. As of December 31, 2017, these swaps had a fair value of $0.9 million and accrued and unpaid interest of $0.3 million which are recorded in other long-term assets and prepaid expenses and other current assets, respectively, in the accompanying condensed consolidated balance sheet.
Call Options
We entered into Call Options in 2014 which, along with the sale of the Warrants, represent the Call Spread Overlay entered into in connection with the 2019 and 2021 Cash Convertible Notes and which are more fully described in Note 9, “Debt.” We used $105.2 million of the proceeds from the issuance of the 2019 and 2021 Cash Convertible Notes to pay the premium for the Call Options, and simultaneously received $68.9 million, (net of issuance costs) from the sale of the Warrants, for a net cash outlay of $36.3 million for the Call Spread Overlay.
During 2017, we used $73.6 million of the proceeds from the issuance of the 2023 Cash Convertible Notes to pay the premium for the Call Option, and simultaneously received $45.4 million from the sale of the Warrants, for a net cash outlay of $28.3 million for the Call Spread Overlay. Issuance costs in connection with the Warrant and the Call Option were $0.3 million and $0.1 million respectively.
In both transactions, the Call Options are intended to address the equity price risk inherent in the cash conversion feature of each instrument by offsetting cash payments in excess of the principal amount due upon any conversion of the Cash Convertible Notes.
Aside from the initial payment of a premium of $105.2 million (2019 and 2021 Notes) and $73.6 million (2023 Notes) for the Call Options, we will not be required to make any cash payments under the Call Options. We will, however, be entitled to receive under the terms of the Call Options an amount of cash generally equal to the amount by which the market price per share of our common stock exceeds the exercise price of the Call Options during the relevant valuation period. The exercise price under the Call Options is equal to the conversion price of the Cash Convertible Notes.
The Call Options, for which our common stock are the underlying security, are a derivative asset that requires mark-to-market accounting treatment due to the cash settlement features until the Call Options settle or expire. The Call Options are measured and reported at fair value on a recurring basis, within Level 2 of the fair value hierarchy. For further discussion of the inputs used to determine the fair value of the Call Options, refer to Note 8, “Financial Instruments and Fair Value Measurements.” The fair value of

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the Call Options at June 30, 2018 was approximately $430.8 million, of which $278.7 million and $152.1 million was recorded in other long-term assets and prepaid expenses and other current assets, respectively. As of December 31, 2017, the fair value of the Call Options was approximately $223.2 million which was recorded in other long-term assets in the accompanying condensed consolidated balance sheet.
The Call Options do not qualify for hedge accounting treatment. Therefore, the change in fair value of these instruments is recognized immediately in our condensed consolidated statements of income in other income (expense), net. For the three- and six-month periods ended June 30, 2018 and June 30, 2017, the change in the fair value of the Call Options resulted in gains of $194.5 million and $207.6 million and $59.3 million and $38.3 million, respectively. Because the terms of the Call Options are substantially similar to those of the Cash Convertible Notes' embedded cash conversion option, discussed below, we expect the effect on earnings from the two derivative instruments to mostly offset each other.
Cash Convertible Notes Embedded Cash Conversion Option
The embedded cash conversion option within the Cash Convertible Notes is required to be separated from the Cash Convertible Notes and accounted for separately as a derivative liability, with changes in fair value reported in our condensed consolidated statements of income in other income (expense), net until the cash conversion option settles or expires. For further discussion of the Cash Convertible Notes, refer to Note 9, “Debt.” The initial fair value liability of the embedded cash conversion option for the 2019 and 2021 Notes was $105.2 million and for the 2023 Notes was $74.5 million, which simultaneously reduced the carrying value of the Cash Convertible Notes (effectively an original issuance discount). The embedded cash conversion option is measured and reported at fair value on a recurring basis, within Level 2 of the fair value hierarchy. For further discussion of the inputs used to determine the fair value of the embedded cash conversion option, refer to Note 8, “Financial Instruments and Fair Value Measurements.” The fair value of the embedded cash conversion options at June 30, 2018 was approximately $434.0 million, of which $152.4 million and $281.6 million are recorded in other long-term liabilities and accrued and other current liabilities, respectively. As of December 31, 2017, the fair value of the embedded cash conversion options was approximately $224.3 million which is recorded in other long-term liabilities in the accompanying condensed consolidated balance sheet. For the three- and six-month periods ended June 30, 2018 and June 30, 2017, the change in the fair value of the embedded cash conversion option resulted in losses of $196.1 million and $209.7 million, and $59.2 million and $37.6 million, respectively, recognized in our condensed consolidated statements of income in other income (expense), net.
Foreign Currency Derivatives
As a globally active enterprise, we are subject to risks associated with fluctuations in foreign currencies in our ordinary operations. This includes foreign currency-denominated receivables, payables, debt, and other balance sheet positions including intercompany items. We manage balance sheet exposure on a group-wide basis using foreign exchange forward contracts, foreign exchange options and cross-currency swaps.
Undesignated Derivative Instruments
We are party to various foreign exchange forward, option and swap arrangements which had, at June 30, 2018, an aggregate notional value of $446.8 million and fair value of $1.3 million included in prepaid expenses and other current assets and $13.1 million included in accrued and other current liabilities, which expire at various dates through September 2018. We were party to various foreign exchange forward and swap arrangements which had, at December 31, 2017, an aggregate notional value of $587.3 million and fair values of $7.5 million included in prepaid expenses and other current assets and $2.4 million included in accrued and other current liabilities, which expired at various dates through December 2017. The transactions have been entered into to offset the effects from short-term balance sheet exposure to foreign currency exchange risk. Changes in the fair value of these arrangements have been recognized in other income (expense), net.

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Fair Values of Derivative Instruments
The following table summarizes the fair value amounts of derivative instruments reported in the condensed consolidated balance sheets as of June 30, 2018 and December 31, 2017:
 
 
Derivatives in Asset Positions Fair value
 
Derivatives in Liability Positions Fair value 
(in thousands)
 
6/30/2018
 
12/31/2017
 
6/30/2018
 
12/31/2017
Derivative instruments designated as hedges
 
 
 
 
 
 
 
 
Interest rate contracts(1)
 
$
1,317

 
$
2,409

 
$
(29,770
)
 
$
(28,942
)
Total derivative instruments designated as hedges
 
$
1,317

 
$
2,409

 
$
(29,770
)
 
$
(28,942
)
Undesignated derivative instruments
 
 
 
 
 
 
 
 
Call spread overlay
 
$
430,794

 
$
223,164

 
$
(433,990
)
 
$
(224,286
)
Foreign exchange contracts
 
1,278

 
7,480

 
(13,148
)
 
(2,424
)
Total undesignated derivative instruments
 
$
432,072

 
$
230,644

 
$
(447,138
)
 
$
(226,710
)
_________________
(1) The fair value amounts for the interest rate contracts include accrued interest.
Gains and Losses on Derivative and Non-derivative Instruments

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The following tables summarize the locations and gains and losses on derivative and non-derivative instruments for the three and six months ended June 30, 2018 and 2017:
Three months ended June 30, 2018 (in thousands)
 
Gain/(loss)
recognized in AOCI
 
Location of
gain / loss in
income statement
 
(Gain) loss
reclassified
from AOCI into
income
 
Gain (loss) recognized in income
Non-derivative instruments
 
 
 
 
 
 
 
 
Net investment hedge
 
$
16,902

 
Other income (expense), net
 
—

 
n/a

 
 
 
 
 
 
 
 
 
Cash flow hedges
 
 
 
 
 
 
 
 
Interest rate contracts
 
$
14,164

 
Other income (expense), net
 
$
(11,934
)
 
n/a

 
 
 
 
 
 
 
 
 
Fair value hedges
 
 
 
 
 
 
 
 
Interest rate contracts
 
$
—

 
Other income (expense), net
 
$
—

 
$
(994
)
 
 
 
 
 
 
 
 
 
Undesignated derivative instruments
 
 
 
 
 
 
 
 
Call spread overlay
 
n/a

 
Other income (expense), net
 
n/a

 
$
(1,617
)
Foreign exchange contracts
 
n/a

 
Other income (expense), net
 
n/a

 
(16,519
)
 
 
 
 
 
 
 
 
$
(18,136
)
 
 
 
 
 
 
 
 
 
Three months ended June 30, 2017 (in thousands)
 
Gain/(loss)
recognized in AOCI
 
Location of
gain / loss in
income statement
 
(Gain) loss
reclassified
from AOCI into
income
 
Gain (loss) recognized in income
Non-derivative instruments
 
 
 
 
 
 
 
 
Net investment hedge
 
$
(6,228
)
 
Other income (expense), net
 
—

 
n/a
 
 
 
 
 
 
 
 
 
Cash flow hedges
 
 
 
 
 
 
 
 
Interest rate contracts
 
$
(13,851
)
 
Other income (expense), net
 
$
12,978

 
n/a

 
 
 
 
 
 
 
 
 
Fair value hedges
 
 
 
 
 
 
 
 
Interest rate contracts
 
$
—

 
Other income (expense), net
 
$
—

 
$
742

 
 
 
 
 
 
 
 
 
Undesignated derivative instruments
 
 
 
 
 
 
 
 
Call spread overlay
 
n/a

 
Other income (expense), net
 
n/a

 
$
138

Foreign exchange contracts
 
n/a

 
Other income (expense), net
 
n/a

 
744

 
 
 
 
 
 
 
 
$
882


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Six months ended June 30, 2018 (in thousands)
 
Gain/(loss)
recognized in AOCI
 
Location of
(gain) loss in
income statement
 
(Gain) loss
reclassified
from AOCI into
income
 
Gain (loss) recognized in income
Non-derivative instruments
 
 
 
 
 
 
 
 
Net investment hedge
 
$
8,538

 
Other income (expense), net
 
—

 
n/a
 
 
 
 
 
 
 
 
 
Cash flow hedges
 
 
 
 
 
 
 
 
Interest rate contracts
 
$
2,369

 
Other income (expense), net
 
$
(6,030
)
 
n/a
 
 
 
 
 
 
 
 
 
Fair value hedges
 
 
 
 
 
 
 
 
Interest rate contracts
 
$
—

 
Other income (expense), net
 
$
—

 
$
(3,991
)
 
 
 
 
 
 
 
 
 
Undesignated derivative instruments
 
 
 
 
 
 
 
 
Call spread overlay
 
n/a
 
Other income (expense), net
 
n/a
 
$
(2,072
)
Foreign exchange contracts
 
n/a
 
Other income (expense), net
 
n/a
 
(14,042
)
 
 
 
 
 
 
 
 
$
(16,114
)
 
 
 
 
 
 
 
 
 
Six months ended June 30, 2017 (in thousands)
 
Gain/(loss)
recognized in AOCI
 
Location of
(gain) loss in
income statement
 
(Gain) loss
reclassified
from AOCI into
income
 
Gain (loss) recognized in income
Non-derivative instruments
 
 
 
 
 
 
 
 
Net investment hedge
 
$
(6,228
)
 
Other income (expense), net
 
—

 
n/a
 
 
 
 
 
 
 
 
 
Cash flow hedges
 
 
 
 
 
 
 
 
Interest rate contracts
 
$
(13,841
)
 
Other income (expense), net
 
$
15,678

 
n/a
 
 
 
 
 
 
 
 
 
Fair value hedges
 
 
 
 
 
 
 
 
Interest rate contracts
 
$
—

 
Other income (expense), net
 
$
—

 
$
110

 
 
 
 
 
 
 
 
 
Undesignated derivative instruments
 
 
 
 
 
 
 
 
Call spread overlay
 
n/a
 
Other income (expense), net
 
n/a
 
$
671

Foreign exchange contracts
 
n/a
 
Other income (expense), net
 
n/a
 
6,534

 
 
 
 
 
 
 
 
$
7,205

The amounts noted in the table above for accumulated other comprehensive income (AOCI) do not include any adjustment for the impact of deferred income taxes.

8.
Financial Instruments and Fair Value Measurements
Assets and liabilities are measured at fair value according to a three-tier fair value hierarchy which prioritizes the inputs used in measuring fair value as follows:
Level 1. Observable inputs, such as quoted prices in active markets;
Level 2. Inputs, other than the quoted price in active markets, that are observable either directly or indirectly; and
Level 3. Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.
Our assets and liabilities measured at fair value on a recurring basis consist of marketable securities, as discussed in Note 5, and short-term investments, derivative contracts used to hedge currency and interest rate risk, derivative financial instruments entered into in connection with the Cash Convertible Notes discussed in Note 9, and contingent consideration accruals and are shown in the tables below. There have been no transfers between levels during the periods ending June 30, 2018.

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In determining fair value for Level 2 instruments, we apply a market approach, using quoted active market prices relevant to the particular instrument under valuation, giving consideration to the credit risk of both the respective counterparty to the contract and the Company, unless there are collateral agreements for the respective transactions in place. To determine our credit risk, we estimated our credit rating by benchmarking the price of outstanding debt to publicly-available comparable data from rated companies. Using the estimated rating, our credit risk was quantified by reference to publicly-traded debt with a corresponding rating. The Level 2 derivative financial instruments include the Call Options asset and the embedded conversion option liability. See Note 9, "Debt", and Note 7, "Derivatives and Hedging," for further information. The derivatives are not actively traded and are valued based on an option pricing model that uses observable market data for inputs. Significant market data inputs used to determine fair values as of June 30, 2018 included our common stock price, the risk-free interest rate, and the implied volatility of our common stock. The Call Options asset and the embedded cash conversion option liability were designed with the intent that changes in their fair values would substantially offset, with limited net impact to our earnings. Therefore, the sensitivity of changes in the unobservable inputs to the option pricing model for such instruments is substantially mitigated.
Our Level 3 instruments include contingent consideration liabilities. We value contingent consideration liabilities using unobservable inputs, applying the income approach, such as the discounted cash flow technique, or the probability-weighted scenario method. Contingent consideration arrangements obligate us to pay the sellers of an acquired entity if specified future events occur or conditions are met such as the achievement of technological or revenue milestones. We use various key assumptions, such as the probability of achievement of the milestones (0% to 100%) and the discount rate (8-10%), to represent the non-performing risk factors and time value when applying the income approach. We regularly review the fair value of the contingent consideration and reflect any change in the accrual in the condensed consolidated statements of income in the line items commensurate with the underlying nature of milestone arrangements.
The following table presents our hierarchy for our financial assets and liabilities measured at fair value on a recurring basis as of June 30, 2018 and December 31, 2017:
 
 
As of June 30, 2018
 
As of December 31, 2017
(in thousands)
 
Level 1
 
Level 2
 
Level 3
 
Total 
 
Level 1
 
Level 2
 
Level 3
 
Total 
Assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Short-term investments
 
$
1,089

 
$
224,685

 
$
—

 
$
225,774

 
$
—

 
$
359,198

 
$
—

 
$
359,198

Marketable securities
 
2,717

 
—

 
—

 
2,717

 
3,208

 
—

 
—

 
3,208

Call option
 
—

 
430,794

 
—

 
430,794

 
—

 
223,164

 
—

 
223,164

Foreign exchange contracts
 
—

 
1,278

 
—

 
1,278

 
—

 
7,480

 
—

 
7,480

Interest rate contracts
 
—

 
1,317

 
—

 
1,317

 
—