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 March 31, 2002
QIAGEN N.V.
Spoorstraat 50
5911 KJ Venlo
The Netherlands
Indicate by check mark whether the registrant files or will file annual reports
under cover Form 20-F or Form 40-F
Form 20-F X Form 40-F
--- --------
Indicate by check mark whether the registrant by furnishing the information
contained in this Form is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934
Yes No X
------- ------
QIAGEN N.V.
Form 6-K
TABLE OF CONTENTS
Financial Information Page
----
Financial Statements:
Condensed Consolidated Balance Sheets as of March 31, 2002 (unaudited)
and December 31, 2001 3
Condensed Consolidated Statements of Income (unaudited)
for the three months ended March 31, 2002 and 2001 4
Condensed Consolidated Statements of Cash Flows (unaudited)
for the three months ended March 31, 2002 and 2001 5
Notes to Condensed Consolidated Financial Statements (unaudited) 6
Operating and Financial Review and Prospects 15
Quantitative and Qualitative Disclosures About Market Risk 25
Signatures 27
QIAGEN N.V., Form 6-K, Quarter ended March 31, 2002 Page 2
QIAGEN N.V.
-----------
CONDENSED CONSOLIDATED BALANCE SHEETS
-------------------------------------
(unaudited)
March 31, December 31,
2002 2001
------------- -------------
Assets
Current Assets:
Cash and cash equivalents $ 42,949,000 $ 56,460,000
Marketable securities 21,328,000 22,512,000
Notes receivable 3,920,000 3,844,000
Accounts receivable, net of allowance of $2,134,000
and $2,048,000 in 2002 and 2001, respectively 46,040,000 39,955,000
Income taxes receivable 2,183,000 2,439,000
Inventories 35,535,000 31,883,000
Deferred income taxes 10,518,000 11,123,000
Prepaid expenses and other 8,967,000 9,115,000
------------- --------------
Total current assets 171,440,000 177,331,000
Property, plant and equipment, net 175,194,000 160,365,000
Long-term marketable securities 2,173,000 2,759,000
Intangible assets, net 7,269,000 7,140,000
Deferred income taxes 1,804,000 1,804,000
Other assets 7,914,000 7,569,000
------------- --------------
Total assets $ 365,794,000 $ 356,968,000
============= ==============
Liabilities and Shareholders' Equity
Current Liabilities:
Lines of credit $ 4,498,000 $ 6,038,000
Short-term debt - 281,000
Current portion of long-term debt 1,114,000 1,138,000
Current portion of capital lease obligations 1,086,000 1,085,000
Accounts payable 22,075,000 20,262,000
Accrued liabilities 21,351,000 20,235,000
Income taxes payable 6,179,000 8,434,000
Deferred income taxes 4,417,000 410,000
------------- --------------
Total current liabilities 60,720,000 57,883,000
------------- --------------
Long-Term Liabilities:
Long-term debt, net of current portion 68,852,000 70,720,000
Capital lease obligations, net of current portion 9,986,000 10,463,000
Other 4,950,000 4,927,000
------------- --------------
Total long-term liabilities 83,788,000 86,110,000
------------- --------------
Commitments and Contingencies
Shareholders' Equity:
Common shares, .01 EUR par value:
Authorized--260,000,000 shares
Issued and outstanding--143,678,771 shares in 2002
and 143,463,800 shares in 2001 1,460,000 1,458,000
Additional paid-in capital 124,295,000 123,117,000
Retained earnings 106,784,000 97,278,000
Accumulated other comprehensive loss (11,253,000) (8,878,000)
------------- --------------
Total shareholders' equity 221,286,000 212,975,000
------------- --------------
Total liabilities and shareholders' equity $ 365,794,000 $ 356,968,000
============= ==============
The accompanying notes are an integral part of these condensed consolidated
balance sheets.
QIAGEN N.V., Form 6-K, Quarter ended March 31, 2002 Page 3
QIAGEN N.V.
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CONDENSED CONSOLIDATED STATEMENTS OF INCOME
-------------------------------------------
(unaudited)
-----------
Three Months Ended March 31,
-------------------------------------
2002 2001
------------- -------------
Net sales $ 70,530,000 $ 63,147,000
Cost of sales 21,045,000 17,291,000
------------- -------------
Gross profit 49,485,000 45,856,000
------------- -------------
Operating Expenses:
Research and development 6,436,000 6,662,000
Sales and marketing 17,859,000 14,572,000
General and administrative 9,478,000 10,107,000
Acquisition and related costs - 3,000,000
------------- -------------
Total operating expenses 33,773,000 34,341,000
------------- -------------
Income from operations 15,712,000 11,515,000
------------- -------------
Other Income (Expense):
Interest income 338,000 702,000
Interest expense (651,000) (520,000)
Research and development grants 136,000 186,000
Losses on equity method investees (381,000) (412,000)
Loss on foreign currency transactions (140,000) (117,000)
Other miscellaneous expense, net (10,000) (74,000)
------------- -------------
Total other expense (708,000) (235,000)
------------- -------------
Income before provision
for income taxes and minority interest 15,004,000 11,280,000
Provision for income taxes 5,498,000 5,315,000
Minority interest - 8,000
------------- -------------
Net income $ 9,506,000 $ 5,957,000
============= =============
Basic and diluted net income per
common share $ 0.07 $ 0.04
============= =============
The accompanying notes are an integral part of these condensed
consolidated financial statements.
QIAGEN N.V., Form 6-K, Quarter ended March 31, 2002 Page 4
QIAGEN N.V.
-----------
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
-----------------------------------------------
(unaudited)
-----------
Three Months Ended March 31,
-------------------------------------
2002 2001
------------- ------------
Cash Flows From Operating Activities:
Net income $ 9,506,000 $ 5,957,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 4,580,000 3,566,000
Provision for losses on accounts receivable 64,000 58,000
Deferred income taxes 4,603,000 (161,000)
Gain on disposition of property and equipment (55,000) -
Realized (gain) loss on marketable securities 2,000 (2,000)
Losses on equity method investees 381,000 412,000
Tax benefit on non-qualified stock options 57,000 3,271,000
Minority interest - 8,000
Decrease (increase) in:
Notes receivable (127,000) 907,000
Accounts receivable (6,552,000) (3,737,000)
Inventories (4,184,000) (2,275,000)
Income tax receivable 258,000 (27,000)
Prepaid expenses and other 4,000 (2,495,000)
Other assets (987,000) (358,000)
Increase (decrease) in:
Accounts payable 2,100,000 (745,000)
Accrued liabilities 1,253,000 4,976,000
Income taxes payable (2,130,000) 1,481,000
Other 38,000 1,695,000
------------- ------------
Net cash provided by operating activities 8,811,000 12,531,000
------------- ------------
Cash Flows From Investing Activities:
Purchases of land, property and equipment (20,579,000) (19,284,000)
Proceeds from sale of property 67,000 -
Purchases of investment - (422,000)
Proceeds from sales of marketable securities 1,187,000 -
Investment in subsidiary - (35,000)
Purchase of intangibles (461,000) (148,000)
------------- ------------
Net cash used in investing activities (19,786,000) (19,889,000)
------------- ------------
Cash Flows From Financing Activities:
Proceeds from lines of credit 6,127,000 6,741,000
Repayment of lines of credit (7,583,000) (3,809,000)
Proceeds from long-term debt - 865,000
Repayment of debt (301,000) (133,000)
Repayment of short-term borrowing (277,000) (849,000)
Proceeds from government grant - 1,100,000
Principal payments on capital leases (244,000) (305,000)
Issuance of common shares 1,123,000 492,000
------------- ------------
Net cash (used in) provided by financing activities (1,155,000) 4,102,000
------------- ------------
Effect of exchange rate changes on cash and cash equivalents (1,381,000) (490,000)
Net decrease in cash and cash equivalents (13,511,000) (3,746,000)
Cash and cash equivalents, beginning of period 56,460,000 24,008,000
------------- ------------
Cash and cash equivalents, end of period $ 42,949,000 $ 20,262,000
============= ============
The accompanying notes are an integral part of these condensed
consolidated financial statements.
QIAGEN N.V., Form 6-K, Quarter ended March 31, 2002 Page 5
QIAGEN N.V.
-----------
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
(unaudited)
---------
1. Summary of Significant Accounting Policies
------------------------------------------
Basis of Presentation
---------------------
The condensed consolidated financial statements include the accounts of
QIAGEN N.V. (the Company), a company incorporated in The Netherlands, and its
wholly and majority owned subsidiaries. All significant intercompany accounts
and transactions have been eliminated. All amounts are presented in U.S. dollars
unless otherwise indicated. Investments in affiliated companies that are 50
percent or less owned and where the Company exercises significant influence over
the operations are accounted for using the equity method. All other investments
are accounted for under the cost method.
In the opinion of management and subject to year-end audit, the
accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with United States generally accepted accounting
principles for interim financial information and 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 generally accepted accounting principles have been condensed or omitted
pursuant to the Securities and Exchange Commission rules and regulations. In the
opinion of management, all adjustments (which include only normal recurring
adjustments) necessary for a fair presentation have been included. The results
of operations for the interim periods 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 consolidated financial statements and notes thereto
included in the Company's Annual Report on Form 20-F for the year ended December
31, 2001.
As discussed in Note 14, the Company acquired the Sawady Group of
companies (Sawady) in March 2001. This transaction was accounted for as pooling
of interests and likewise, all financial information presented includes the
combined balances and results of the Company and Sawady.
QIAGEN N.V., Form 6-K, Quarter ended March 31, 2002 Page 6
2. Net Income Per Common Share
---------------------------
Net income per common share for the three months ended March 31, 2002
and 2001 are based on the weighted average number of common shares outstanding
and the dilutive effect of stock options outstanding.
The following schedule summarizes the information used to compute net
income per common share:
Three Months
Ended March 31,
--------------------------------
2002 2001
------------- -------------
Weighted average number of common shares used
to compute basic net income per common share 143,588,000 142,606,000
Dilutive effect of stock options 1,585,000 2,432,000
------------- -------------
Weighted average number of common shares used
to compute diluted net income per common share 145,173,000 145,038,000
=========== ===========
Outstanding stock options having no dilutive
effect, not included in above calculation 3,984,000 1,592,000
3. Comprehensive Income (Loss)
---------------------------
The components of comprehensive income (loss) for the three-month
periods ended March 31, 2002 and 2001 are as follows:
2002 2001
--------------- ---------------
Net income $ 9,506,000 $ 5,957,000
Net unrealized loss on marketable securities (585,000) (3,395,000)
Net realized (gain) loss on marketable securities 5,000 (2,000)
Foreign currency translation adjustment (1,795,000) (3,426,000)
---------------- ---------------
Comprehensive income (loss) $ 7,131,000 $ (866,000)
================ ===============
The following table is a summary of the components of accumulated other
comprehensive loss as of March 31, 2002 and December 31, 2001:
2002 2001
------------------ --------------
Net unrealized gain on marketable securities $ 484,000 $ 1,064,000
Foreign currency translation adjustment (11,737,000) (9,942,000)
----------------- --------------
Accumulated other comprehensive loss $ (11,253,000) $ (8,878,000)
================== ==============
QIAGEN N.V., Form 6-K, Quarter ended March 31, 2002 Page 7
4. Shareholders' Equity
--------------------
The following tables details the changes in shareholders' equity since
December 31, 2001:
Accumulated
BALANCE AT Common Shares Additional Other
--------------- Paid-In Retained Comprehensive
DECEMBER 31, Shares Amount Capital Earnings Loss Total
---------------------------------------------------------------------------------------------------------------------------
2001 143,463,800 $1,458,000 $123,117,000 $ 97,278,000 $ (8,878,000) $212,975,000
---------------------------------------------------------------------------------------------------------------------------
Net income - - - 9,506,000 - 9,506,000
Unrealized loss, net
on marketable
securities - - - - (585,000) (585,000)
Realized loss, net
on marketable
securities - - - - 5,000 5,000
Translation
adjustment - - - - (1,795,000) (1,795,000)
Exercise of
stock options 214,971 2,000 1,121,000 - - 1,123,000
Tax benefit in connection
with nonqualified
stock options - - 57,000 - - 57,000
BALANCE AT
MARCH 31,
---------------------------------------------------------------------------------------------------------------------------
2002 143,678,771 $1,460,000 $124,295,000 $106,784,000 $(11,253,000) $221,286,000
===========================================================================================================================
5. Provision for Income Taxes
--------------------------
The provision for income taxes for the three months ended March 31,
2002 and 2001 is based upon the estimated annualized rate for each of the
respective years.
6. Supplemental Cash Flow Information
----------------------------------
Non-cash investing and financing activities, which are excluded from
the consolidated statements of cash flows, along with cash paid for interest and
income taxes are as follows:
Three Months
Ended March 31,
-----------------------------------------
2002 2001
----------------- -----------------
Property and equipment purchased
through capital leases $ - $ 447,000
Cash paid for interest $ 1,213,000 $ 379,000
Cash paid for income taxes $ 2,728,000 $ 203,000
QIAGEN N.V., Form 6-K, Quarter ended March 31, 2002 Page 8
7. Inventories
-----------
The components of inventories consist of the following as of March 31,
2002 and December 31, 2001:
2002 2001
-------------- --------------
Raw materials $ 10,488,000 $ 8,786,000
Work in process 9,437,000 8,352,000
Finished goods 15,610,000 14,745,000
-------------- --------------
Total inventories $ 35,535,000 $ 31,883,000
============== ==============
8. Debt
----
The Company has nine separate lines of credit amounting to
approximately $10.1 million with variable interest rates. Approximately $4.5
million was utilized on these credit facilities at March 31, 2002.
At March 31, 2002, long-term debt totaled approximately $70.0 million
consisted primarily of one note payable (EUR 9.6 million, approximately $8.4
million at March 31, 2002) at a 3.75 percent interest rate in addition to
borrowings against the Company's loan facilities committed by a group of banks
led by Deutsche Bank. The EUR 9.6 million note is due in semi-annual payments of
EUR 639,000 (approximately $557,000 at March 31, 2002), with a final payment due
in March 2009. Borrowings against the Deutsche Bank facilities, which are due in
one final payment in May 2003, consisted of EUR 20.4 million (approximately
$17.7 at March 31, 2002) at a variable interest rate of EURIBOR plus 1.2
percent and $43.5 million at a variable interest rate of LIBOR plus 1.28
percent. The credit agreements contain financial and non-financial covenants
including but not limited to the maintenance of certain financial ratios. The
Company was in compliance with these covenants at March 31, 2002. The proceeds
of these facilities are primarily dedicated to the refinancing of previously
made acquisitions of land and the construction of manufacturing, research and
administrative facilities thereon.
9. Stock Options
-------------
In the three-month period ended March 31, 2002, the Company granted
options to purchase 661,000 shares of the Company's common stock. All options
were granted at fair market value at the date of grant. As of March 31, 2002,
options to purchase 8.6 million common shares were outstanding at exercise
prices ranging from $0.97 to $49.75.
10. Financial Instruments
---------------------
At March 31, 2002, the Company had options outstanding to purchase
euros and Swiss francs of $11.8 million. The functional currency of $9.0 million
of the foreign currency exchange options was the euro, with a notional weighted
average exchange rate of 1.0750. The functional currency of the remaining $2.8
million foreign currency exchange options was the Swiss franc, with a notional
weighted average exchange rate of 1.5500. These financial instruments have been
recorded at fair value, which is not significant. Changes in the fair value are
recorded in other miscellaneous income and expense.
QIAGEN N.V., Form 6-K, Quarter ended March 31, 2002 Page 9
11. Intangible Assets
-----------------
In June 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standard (SFAS) No. 141, "Business
Combinations" effective June 30, 2001 for business combinations that are
consummated after July 1, 2001, and SFAS No. 142, "Goodwill and Other Intangible
Assets." SFAS No. 141 eliminates the pooling-of-interests method for business
combinations and requires use of the purchase method. SFAS No. 142 addresses how
intangible assets should be accounted for upon their acquisition as well as how
goodwill and other intangible assets should be accounted for after they have
been initially recognized in the financial statements. With the adoption of this
statement on January 1, 2002, goodwill and indefinite life intangibles are no
longer subject to amortization over its estimated useful life. Goodwill will be
assessed for impairment each year using the fair-value-based test.
The following sets forth the intangible assets by major asset class as
of March 31, 2002 and December 31, 2001:
2002 2001
------------- --------------
Amortized Intangible assets:
Patent and license rights $ 4,697,000 $ 4,323,000
Developed technology 3,200,000 3,200,000
Accumulated amortization (2,871,000) (2,642,000)
Unamortized Intangible assets:
Goodwill 2,243,000 2,259,000
------------- --------------
Net intangible assets $ 7,269,000 $ 7,140,000
============= ==============
The changes in the carrying amount of goodwill for the quarter ended
March 31, 2002 is as follows:
Balance at December 31, 2001 $ 2,259,000
Effect of foreign currency translation (16,000)
-------------
Balance at March 31, 2002 $ 2,243,000
=============
Amortization expense on intangible assets totaled approximately
$256,000 for the three-month period ended March 31, 2002. The Company has
completed the fair-value based test for impairment of goodwill and intangible
assets and no impairment losses have been recorded during the quarter.
Amortization expense for the next five years is expected to be approximately:
2002 $ 1,000,000
2003 $ 1,000,000
2004 $ 800,000
2005 $ 740,000
2006 $ 740,000
QIAGEN N.V., Form 6-K, Quarter ended March 31, 2002 Page 10
The following reconciles reported net income to net income adjusted to reflect
the adoption of SFAS 142 in the quarter ended March 31, 2002:
2002 2001
--------------- --------------
Reported net income $ 9,506,000 $ 5,957,000
Add back: goodwill amortization - 131,000
--------------- --------------
Adjusted net income $ 9,506,000 $ 6,088,000
=============== ==============
Basic and diluted earnings per share $ 0.07 $ 0.04
=============== ==============
12. Segment and Related Information
-------------------------------
Summarized financial information concerning the Company's reportable
segments is shown in the following tables:
Three Months
Ended March 31,
--------------------------------------------
Net Sales 2002 2001
--------- ------------------ -----------------
Germany $ 35,884,000 $ 30,287,000
United States 46,881,000 34,326,000
Switzerland 5,601,000 6,481,000
Japan 8,827,000 9,729,000
United Kingdom 5,275,000 4,099,000
Other Countries 5,221,000 4,192,000
------------------ -----------------
Subtotal 107,689,000 89,114,000
Intersegment Elimination (37,159,000) (25,967,000)
------------------ -----------------
Total $ 70,530,000 $ 63,147,000
================== =================
Net sales are attributed to countries based on the location of the
Company's subsidiary.
Three Months
Ended March 31,
--------------------------------------
Intersegment Sales 2002 2001
------------------ --------------- ---------------
Germany $(25,479,000) $(20,578,000)
United States (8,452,000) (1,193,000)
Switzerland (3,205,000) (4,196,000)
Japan (23,000) -
--------------- ---------------
Total $(37,159,000) $(25,967,000)
=============== ===============
All intersegment sales are accounted for by a formula based on local
list prices and are eliminated in consolidation.
QIAGEN N.V., Form 6-K, Quarter ended March 31, 2002 Page 11
Three Months
Ended March 31,
------------------------------------------
Operating Income (Loss) 2002 2001
----------------------- ---------------- -----------------
Germany $ 10,702,000 $ 6,762,000
United States 1,554,000 3,669,000
Switzerland (19,000) 849,000
Japan 2,209,000 (642,000)
United Kingdom 1,292,000 1,231,000
Other Countries 586,000 572,000
The Netherlands (418,000) (1,007,000)
---------------- -----------------
Subtotal 15,906,000 11,434,000
Intersegment Elimination (194,000) 81,000
---------------- -----------------
Total $ 15,712,000 $ 11,515,000
================ =================
The Netherlands operating loss primarily resulted from general and
administrative expenses. The intersegment elimination represents the elimination
of intercompany profit.
March 31, December 31,
Assets 2002 2001
------ -------------------- -------------------
Germany $ 197,263,000 $ 186,489,000
United States 139,473,000 129,015,000
Switzerland 19,398,000 19,480,000
Japan 22,864,000 21,484,000
United Kingdom 7,845,000 6,475,000
Other Countries 10,114,000 9,601,000
The Netherlands 124,146,000 122,318,000
-------------------- -------------------
Subtotal 521,103,000 494,862,000
Intersegment Elimination (155,309,000) (137,894,000)
-------------------- -------------------
Total $ 365,794,000 $ 356,968,000
==================== ===================
Assets of the Netherlands include cash and cash equivalents,
investments, prepaid assets and certain intangibles. The intersegment
elimination represents intercompany investments and advances.
13. Commitments and Contingencies
-----------------------------
During the first quarter of 2002, construction of an approximately
200,000 square foot facility at QIAGEN Sciences, Inc. (Sciences) located in
Germantown, Maryland was completed. In addition to the main building, an oligo
production facility is under construction for a total estimated cost of
approximately $4.8 million, of which approximately $2.8 million has been
incurred.
QIAGEN N.V., Form 6-K, Quarter ended March 31, 2002 Page 12
During October 2000, the Company began construction of two new
facilities in Germany with estimated completion during the fourth quarter of
2002. The estimated cost for these facilities is approximately EUR 54.0 million
(approximately $47.1 million at March 31, 2002) of which EUR 49.5 million
(approximately $43.1 million) has been incurred.
From time to time the Company may be party to legal proceedings
incidental to its business. Certain claims, suits or complaints arising out of
the normal course of business have been filed or were pending against the
Company. Although it is not possible to predict the outcome of such litigation,
based on the facts known to the Company and after consultation with legal
counsel, management believes that such litigation will not have a material
adverse effect on its financial position or results of operations.
During the normal course of business, the Company is subject to audit
by taxing authorities for varying periods in various tax jurisdictions. During
June 2001, a tax audit in Germany for the years 1994 through 1997 was concluded.
The Company has received notification that the taxing authorities are examining
the treatment of expenses related to stock options, which are required to be
accrued when vested under the German Commercial Code, due to a reimbursement
agreement between QIAGEN N.V. and QIAGEN GmbH which requires that QIAGEN GmbH
make payments to QIAGEN N.V. of an amount equal to the spread on stock option
exercises. Based on the advice received from tax experts and its tax advisors,
the Company has accrued for the expense of the stock options in the statutory
financial statements, but such expenses are not recorded in the consolidated
financial statements prepared under U.S. GAAP. The matter being examined by the
taxing authorities is whether the option expenses are deductible for tax
purposes on an accrual basis or only on a payment basis upon the exercise of the
options. Accordingly, should the taxing authorities ultimately conclude that the
stock option expenses are not deductible for tax purposes on an accrual basis,
there would be no income statement impact to the Company's U.S. GAAP financial
statements although the Company may be required to make additional significant
tax payments. The Company believes its position will be upheld.
14. Acquisitions
------------
On March 31, 2001, the Company completed the acquisition of the Sawady
Group of companies (Sawady) located in Tokyo, Japan. Under the terms of the
agreement QIAGEN N.V. issued 854,987 shares of its common stock, valued at the
time of the closing at approximately $18.0 million, in exchange for all of the
outstanding capital stock of Sawady Technology Co., Ltd., Omgen Co., Ltd. and a
majority position in Accord Co., Ltd., the three companies comprising the Sawady
Group of companies. To date, the minority interest position in Accord Co., Ltd.,
a passive trading company, has not been significant. The Sawady Group of
companies was managed and structured as one organization, but was organized as
three companies to meet the tax planning and other preferences of its
shareholders. In connection with this merger, the Company recorded acquisition
and related charges of approximately $3.0 million, which include approximately
$1.0 million of direct transaction costs, (primarily legal and other
professional fees) and approximately $2.0 million of expenses primarily relating
to the relocation, closure and elimination of leased facilities, such as
duplicate field offices.
QIAGEN N.V., Form 6-K, Quarter ended March 31, 2002 Page 13
The merger was accounted for as a pooling of interests and accordingly,
the accompanying financial statements and footnotes have been restated to
include the operations of Sawady for 2001. For the three-months ended March 31,
2001, the Sawady revenues were approximately $2.8 million, and the Sawady net
income was approximately $144,000.
15. Subsequent events
-----------------
On April 17, 2002, the Company completed the acquisition of Xeragon, Inc.
of Huntsville, Alabama, pursuant to an agreement and plan of merger with Xeragon
dated as of March 28, 2002. In connection with this acquisition, the Company
issued 564,334 common shares to the shareholders of Xeragon in exchange for all
of the outstanding capital stock of Xeragon. The acquisition qualifies as a
tax-free reorganization. Established in 2001, Xeragon is a market and technology
leader for products and services focusing on synthetic nucleic acids,
particularly siRNA.
On May 24, 2002, the Company entered into an agreement to acquire
GenoVision AS of Oslo, Norway. GenoVision was formed in 1998. Subject to the
terms of the acquisition agreement, the Company will pay approximately $14.0
million in cash and will issue approximately 940,000 shares of common stock
(valued at approximately $14.0 million) in exchange for all the capital stock of
GenoVision AS. The Company has agreed to pay an earn-out of up to $3.0 million
based on GenoVision's performance in the twelve months following the
acquisition. The parties anticipate that the closing of the transaction will
occur on or about June 30, 2002. The Company believes that the acquisition will
provide QIAGEN with unique, automated solutions for the purification of nucleic
acids based on GenoVision's proprietary magnetic particle technologies.
QIAGEN N.V., Form 6-K, Quarter ended March 31, 2002 Page 14
OPERATING AND FINANCIAL REVIEW AND PROSPECTS
Note regarding Forward-Looking Statements and Risk Factors
----------------------------------------------------------
The Company's future operating results may be affected by various risk
factors, many of which are beyond the Company's control. Certain of the
statements included in this report may be forward-looking statements within the
meaning of Section 27A of the U.S. Securities Act of 1933, as amended, and
Section 21E of the U.S. Securities Exchange Act of 1934, as amended, including
statements regarding potential future increases in net sales, gross profit, net
income and the Company's liquidity. Such statements are based on management's
current expectations and are subject to a number of factors and uncertainties
that could cause actual results to differ materially from those described in the
forward-looking statements. The Company cautions investors that there can be no
assurance that actual results or business conditions will not differ materially
from those projected or suggested in such forward-looking statements as a result
of various factors. Factors which could cause such results to differ materially
from those described in the forward-looking statements include those set forth
in the risk factors below. As a result, the Company's future development efforts
involve a high degree of risk. For further information, refer to more specific
risks and uncertainties discussed in the Company's Annual Report on Form 20-F
for the year ended December 31, 2001. When considering forward-looking
statements, you should keep in mind that the risk factors could cause our actual
results to differ significantly from those contained in any forward-looking
statement.
Difficulties in managing or an inability to manage our growth or the
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expansion of our operations could adversely affect our business
---------------------------------------------------------------
Our business has grown rapidly, with total net revenues increasing from
$75.4 million in 1997 to $263.8 million in 2001. We have recently opened our new
research and manufacturing facility in Germantown, Maryland, upgraded our
operating and financial systems and expanded the geographic area of our
operations, resulting in substantial growth in the number of our employees, as
well as increased responsibility for both existing and new management personnel.
The rapid expansion of our business and growth in personnel may place a strain
on our management and operational systems. Our future operating results will
depend on the ability of our management to continue to implement and improve our
research, product development, sales and marketing and customer support
programs, enhance our operational and financial control systems, expand, train
and manage our employee base, and effectively address new issues related to our
growth as they arise. There can be no assurance that we will be able to manage
our recent or any future expansion successfully, and any inability to do so
could have a material adverse effect on our results of operations.
QIAGEN N.V., Form 6-K, Quarter ended March 31, 2002 Page 15
We may have difficulty integrating acquisitions of technologies and
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businesses
----------
During the past several years we have consummated a number of
acquisitions of companies, through which we have gained access to technologies
and products that complement our internally developed product lines. In the
future, we may acquire additional technologies, products or businesses to expand
our existing and planned business. We may not be able to achieve the benefits
expected from any potential acquisition in a reasonable time frame, or at all.
Acquisitions would expose us to the risks associated with the:
. assimilation of new technologies, operations, sites and personnel;
. diversion of resources from our existing business and technologies;
. inability to generate revenues to offset associated acquisition
costs;
. inability to maintain uniform standards, controls, and procedures;
. inability to maintain relationships with employees and customers as a
result of any integration of new management personnel;
. issuance of dilutive equity securities;
. incurrence or assumption of debt; or
. additional expenses associated with future amortization or impairment
of acquired intangible assets or potential businesses.
Our failure to address these risks successfully could have a material adverse
effect on our business.
Exchange rate fluctuations may adversely affect our business
-------------------------------------------------------------
Since we currently market our products in over 42 countries throughout
the world, a significant portion of our business is conducted in currencies
other than the U.S. dollar, our reporting currency. As a result, fluctuations in
value relative to the U.S. dollar of the currencies in which we conduct our
business have caused and will continue to cause foreign currency transaction
gains and losses. Foreign currency transaction gains and losses arising from
normal business operations are charged against earnings in the period incurred.
Due to the number of currencies involved, the variability of currency exposures
and the potential volatility of currency exchange rates, we cannot predict the
effects of exchange rate fluctuations upon future operating results. While we
engage in foreign exchange hedging transactions to manage our foreign currency
exposure, there can be no assurance that our hedging strategy will adequately
protect our operating results from the effects of future exchange rate
fluctuations.
QIAGEN N.V., Form 6-K, Quarter ended March 31, 2002 Page 16
We heavily rely on air cargo carriers and other overnight logistics services
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The Company's customers within the scientific research markets typically do
not keep a significant inventory of QIAGEN products and consequently require
overnight delivery of purchases. As such, the Company heavily relies on air
cargo carriers such as FedEx and UPS. If overnight services are suspended or
delayed and other delivery carriers cannot provide satisfactory services,
customers may suspend a significant amount of work requiring nucleic acid
purification. If there are no adequate delivery alternatives available, sales
levels could be negatively affected.
Our continued growth is dependent on the development and success of new
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products
--------
Our continued growth is dependent on new product introductions that are
well received in the market. We focus our product development efforts on
expanding our existing products and developing innovative new products in
selected areas where we have expertise and have identified substantial unmet
market needs. There can be no assurance that we will be able to introduce new
products or that new product releases will be successfully launched and received
by our customers.
Operating Results
-----------------
Net Sales
---------
Net sales for the three months ended March 31, 2002 increased 12% to $70.5
million from $63.1 million in the same period of 2001. Net sales in the United
States increased to $38.4 million in 2002 from $33.1 million in 2001, and net
sales outside the United States increased to $32.1 million in 2002 from $30.0
million in 2001.
Net sales within the United States increased primarily due to net sales at
QIAGEN, Inc., located in Valencia. QIAGEN, Inc. reported an increase of 19% (or
$5.2 million) during the first quarter of 2002 over the comparable period in
2001. The Company's other United States subsidiaries 2002 results were
consistent with reported 2001 results.
Although revenues increased in the first quarter of 2002, revenues were
negatively impacted in the Unites States by delays in approval processes for
research budgets in certain academic market segments. In addition, QIAGEN
believes pharmaceutical companies in the United States slowed research spending.
Outside of the United States, the increase in net sales was primarily due
to growth at QIAGEN Ltd, located in England, which reported an increase of 29%
(or $1.2 million), QIAGEN GmbH, located in Germany, which reported an increase
of 6% (or $616,000) and QIAGEN S.A., located in France, which reported an
increase of 23% ($368,000) for the first quarter of 2002 compared to the
comparable quarter of 2001. Reported net sales at some of the foreign
subsidiaries were lower as a result of changes in the exchange rates. For
example, using identical exchange rates, QIAGEN GmbH net sales experienced an
increase of 12% (or $1.2 million).
QIAGEN N.V., Form 6-K, Quarter ended March 31, 2002 Page 17
While sales of consumable products increased during the quarter, the
Company expects, as disclosed in previous filings, a slower rate of sales growth
for the range of products designed for large-scale plasmid DNA applications as
the market for such products matures. The Company regularly introduces new
products in order to extend the life of its existing product lines as well as to
address new market opportunities. In the first quarter of 2002, QIAGEN released
several new product lines. Among the new releases were the QuantiTect(TM) Probe
PCR and RT-PCR Kits, for highly specific and sensitive quantitative PCR and
RT-PCR using sequence-specific probes. The FlexiGene DNA Kit was launched,
providing a rapid and convenient method for purification of DNA from variable
volumes of whole blood, buffy coat, and cultured cells in a single tube. In
addition, BioMag(R) suspensions for magnetic cell separation, immunoassays, and
binding of immunoglobulins were released.
Changes in exchange rates continued to affect the growth rate of net sales
for the three-month period ended March 31, 2002. A significant portion of the
Company's revenues is denominated in European Union euros. Using identical
foreign exchange rates for both periods, net sales would have increased
approximately 15%. See "Currency Fluctuations."
Gross Profit
------------
Gross profit was $49.5 million or 70% of net sales in the quarter ended
March 31, 2002 as compared to $45.9 million or 73% of net sales for the same
period in 2001. The absolute dollar increase is attributable to the increase in
net sales. The Company's separation and purification consumable products carry a
higher gross profit than many of the Company's other products, such as
instrumentation and synthetic nucleic acid products. Fluctuations in the product
mix can lead to fluctuations in gross profit. The Company continues to develop
additional instrumentation products that meet the needs of the molecular
diagnostic and genomics markets and anticipates future increases in sales of
instrumentation products. Additionally, with the establishment of QIAGEN Operon
GmbH, located in Germany, and the March 31, 2001 acquisition of the Sawady Group
of companies, located in Japan, the Company expects growth in the European and
Japanese markets of its synthetic nucleic acid products through these
subsidiaries. Due to a shift in the product mix in the revenues for the first
quarter 2002 towards consumable products, the gross margin increased compared to
the fourth quarter of 2001.
Research and Development
------------------------
Research and development expenses decreased 3% to $6.4 million (9% of net
sales) in the quarter ended March 31, 2002 compared with $6.7 million (11% of
net sales) for the same period in 2001. As the Company continues expansion of
its research and development facilities and new product development
capabilities, additional research and development expense will be incurred
related to facility costs and obtaining and retaining employees for the research
and development efforts. The Company's U.S. research and development facility
located in Germantown, Maryland, is anticipated to include research and
development activities. The Company has a strong commitment to research and
development, as demonstrated by the recent expansion of the German research
facility along with the new U.S. facility, and anticipates that absolute
research and development expenses will continue to increase significantly.
QIAGEN N.V., Form 6-K, Quarter ended March 31, 2002 Page 18
Sales and Marketing
-------------------
Sales and marketing expenses increased 23% to $17.9 million (25% of net
sales) in the first quarter of 2002 from $14.6 million (23% of net sales) in the
first quarter of 2001. The increase in sales and marketing expenses reflects the
Company's continued expansion of its sales force and advertising efforts in
connection with the sale of its existing products and the introduction of new
products. Such efforts contributed to the growth in net sales in the first
quarter of 2002. Increased sales and marketing costs are primarily associated
with personnel, commissions, advertising, publications, freight and logistics
expenses and other promotional items. Additionally, the Company launched its
Customer Relationship Management system (CRM) during the first quarter of 2002,
and accordingly, began recording amortization. The Company anticipates that
selling and marketing costs will continue to increase along with new product
introductions and continued growth in sales of the Company's products.
General and Administrative
--------------------------
General and administrative expenses decreased 6% to $9.5 million (13% of
net sales) in the first quarter of 2002 from $10.1 million (16% of net sales) in
the first quarter of 2001. General and administrative expenses attributed to
QIAGEN Sciences, Inc., totaled $1.1 million in 2002 compared to $412,000 in
2001. This absolute dollar increase primarily represents the increased costs
related to the support of the Company's growing administrative infrastructure
that is expanding to accommodate the Company's continued growth. This increase
was offset by decreases in general and administrative expenses reported by
Sawady and QIAGEN GmbH in 2002 over 2001. Sawady reported a decrease of
$887,000, primarily as a result of operational improvements made since the March
31, 2001 acquisition. QIAGEN GmbH reported a decrease of 18% (or $511,000)
partially due to changes in exchange rates. Additionally, during the first
quarter of 2001, QIAGEN GmbH had provided for estimated penalties pending the
resolution of an ongoing tax audit in Germany. Using the same exchange rate in
2002 as in 2001, QIAGEN GmbH would have experienced a decrease of 13% (or
$388,000).
Acquisition and Related Costs
-----------------------------
On March 31, 2001, the Company acquired the Sawady Group of companies
located in Tokyo, Japan. Acquisition and related charges were approximately $3.0
million, which include approximately $1.0 million of direct transaction costs,
(primarily legal and other professional fees) and approximately $2.0 million
primarily relating to the relocation, closure and elimination of leased
facilities, such as duplicate field offices.
Other Income (Expense)
----------------------
Other expense was $708,000 in the first quarter of 2002 compared to other
expense of $235,000 in the first quarter of 2001. This increase in expense was
mainly due to increased interest expense, losses on foreign currency
transactions and along with decreased interest income and research and
development grant income. These increases were partially offset by lower losses
on equity method investees.
QIAGEN N.V., Form 6-K, Quarter ended March 31, 2002 Page 19
Interest expense increased to $651,000 in the first quarter of 2002
compared to $520,000 for the same period of 2001. Actual interest costs
increased primarily as a result of the Company's additional long-term borrowings
related to new facility construction and are partially offset by the
capitalization of interest (approximately $180,000 in the first quarter of 2002)
related to the new German and U.S. facility construction in accordance with
Financial Accounting Standard No. 34.
Loss from foreign currency transactions increased to a loss of $140,000 in
the first quarter of 2002 from a loss of $117,000 in the same period of 2001.
Income from foreign currency transactions reflects net effects from conducting
business in currencies other than the U.S. dollar. QIAGEN N.V.'s functional
currency is the U.S. dollar and its subsidiaries' functional currencies are the
European Union euro, the British pound, the Swiss franc, the U.S. dollar, the
Australian dollar, the Canadian dollar, and the Japanese yen. See "Currency
Fluctuations."
In the three-month period ended March 31, 2002, interest income decreased
to $338,000 from $702,000 in the same period of 2001. Interest income is derived
mainly from the Company's investment of funds in investment grade,
interest-bearing marketable securities. As of March 31, 2002, the Company had
approximately $21.3 million invested in such securities. The weighted average
interest rates on the Company's marketable securities portfolio ranged from
1.88% to 2.10% in 2002, compared to 5.70% to 6.95% in 2001.
In the three-month period ended March 31, 2002, research and development
grant income from European as well as German state and federal government grants
decreased to $136,000 from $186,000 in the same period of 2001. The Company
conducts significant research and development activities in Germany, and expects
to continue to apply for such research and development grants in the future.
In the first quarter of 2002, the Company recorded net losses from equity
method investees of $381,000 compared to $412,000 in the first quarter of 2001.
The first quarter 2002 loss represents the Company's share of losses from its
equity investment in PreAnalytiX. PreAnalytiX launched its first product in
2001, and is expected to report net losses for QIAGEN's fiscal 2002. As
previously disclosed, the Company intends to continue to make strategic
investments in complementary businesses as the opportunities arise. Accordingly,
the Company may continue to record losses on equity investments in start-up
companies based on the Company's ownership interest in such companies.
Other miscellaneous expense decreased to $10,000 in the first quarter of
2002 from $74,000 for the same period in 2001.
QIAGEN N.V., Form 6-K, Quarter ended March 31, 2002 Page 20
Provision for Income Taxes
--------------------------
The Company's effective tax rate decreased to 37% in the first quarter of
2002 from 47% in the first quarter of 2001. The decrease is partially due to the
lack of a tax benefit associated with some of the acquisition costs in 2001.
Without the acquisition costs in 2001, the Company's effective tax rate would
have been 44%. The Company's operating subsidiaries are exposed to effective tax
rates ranging from approximately 8% to approximately 42%. Fluctuation in the
distribution of pre-tax income among these entities can lead to fluctuations of
the effective tax rate in the Company's consolidated financial statements.
Additionally, during the first quarter of 2001, the Company provided tax
reserves pending the resolution of an ongoing tax audit in Germany.
Minority Interest
-----------------
Previously, the Company had a 60 percent interest in its Japanese
subsidiary, QIAGEN K.K. The Company acquired the minority shareholders' interest
in QIAGEN K.K. during the first quarter of 2001. The minority interest in income
of $8,000 in 2001 represents the last month of the minority interest's share in
income at QIAGEN K.K.
Critical Accounting Policies
----------------------------
The preparation of our financial statements in accordance with accounting
principles generally accepted in the United States requires management to make
assumptions that affect the reported amounts of assets, liabilities and
disclosure of contingencies as of the date of the financial statements, as well
as the reported amounts of revenues and expenses during the reporting period.
Critical accounting policies are those that require the most complex or
subjective judgments often as a result of the need to make estimates about the
effects of matters that are inherently uncertain. Thus, to the extent that
actual events differ from management's estimates and assumptions, there could be
a material impact to the financial statements. The Company's critical accounting
policies are those related to revenue recognition, accounts receivable,
investments, goodwill and other intangibles, and income taxes.
The below listing is not intended to be a comprehensive list of all our
accounting policies. In many cases, the accounting treatment of a particular
transaction is specifically dictated by generally accepted accounting principles
in the United States, with limited or no need for management's judgment. There
are also areas in which management's judgment in selecting available
alternatives may or may not produce a materially different result. See our
audited December 31, 2001 consolidated financial statements and notes thereto
included in the Company's Annual Report on Form 20-F which contain a description
of accounting policies and other disclosures required by generally accepted
accounting principles in the United States.
Revenue Recognition. The Company recognizes revenue in accordance with SEC
-------------------
Staff Accounting Bulletin No. 101, Revenue Recognition in Financial Statements
(SAB 101), as amended by SAB 101A and 101B. SAB 101 requires that four basic
criteria must be met before revenue can be recognized: (1) persuasive evidence
of an arrangement exists; (2) delivery has occurred or services have been
rendered; (3) the fee is fixed and determinable; and (4) collectibility is
reasonably assured. Determination of criteria (3) and (4) could
QIAGEN N.V., Form 6-K, Quarter ended March 31, 2002 Page 21
require management's judgments regarding the fixed nature of the fee charged for
services rendered and products delivered and the collectibility of those fees.
Should changes in conditions cause management to determine that these criteria
are not met for certain future transactions, revenue recognized for any
reporting period could be adversely affected.
Accounts Receivable. The Company's accounts receivable are unsecured, and
--------------------
the Company is at risk to the extent such amounts become uncollectible. The
Company continually monitors accounts receivable balances, and provides for an
allowance for doubtful accounts at the time collection may become questionable
based on payment history or age of the receivable. Since a significant portion
of our customers are funded through academic or government funding arrangements,
past history may not be representative of the future. As a result, we may have
write-offs of accounts receivable in excess of previously estimated amounts or
may in certain periods increase or decrease the allowance based on management's
current estimates.
Investments. The Company has equity investments accounted for under the
------------
cost method. The Company periodically reviews the carrying value of these
investments for permanent impairment, considering factors such as the most
recent stock transactions, book values from the most recent financial
statements, and forecasts and expectations of the investee. Estimating the fair
value of these non-marketable equity investments in life science companies is
inherently subjective, and if actual events differ from management's
assumptions, it could require a write-down of the investment which could
materially impact our financial position and results of operations. In addition,
generally accepted accounting principles require different methods of accounting
for an investment depending on the level of control that is exerted by the
Company. Assessing the level of control involves subjective judgments. If
management's assumptions with respect to control differ in future periods and
thus require the Company to account for these investments under a method other
than the cost method, it could have a material impact to the financial
statements.
Goodwill and Other Intangible Assets. Through December 31, 2001, goodwill
-------------------------------------
and other intangible assets were amortized over their estimated useful lives.
Until the end of 2001, the Company periodically assessed the recoverability of
goodwill based on projections of the undiscounted future cash flows of the
acquired assets. Based on these assessments there had been no impairment of
these assets. In connection with the adoption of SFAS No. 142, "Goodwill and
Other Intangible Assets", amortization over the previously identified lives of
intangible assets ceased as of December 31, 2001, and indefinite life
intangibles will henceforth be assessed for impairment each year using a
fair-value-based test. Both the previously applied test based on future cash
flows and the newly required fair-value-based tests require that management make
assumptions and estimates. Although the Company believes its assumptions and
estimates are reasonable, they involve inherently subjective judgments. If
actual events differ from management's assumptions and estimates it could
produce a materially different result.
Income Taxes. The calculation of the Company's tax provision is complex due
-------------
to the international operations and multiple taxing jurisdictions in which the
Company operates. The Company has significant deferred tax assets due to net
operating losses (NOL) in the United States and other countries, realization of
which is not assured and is dependent on generating sufficient taxable income in
the future. Management believes it is more likely than not that the
QIAGEN N.V., Form 6-K, Quarter ended March 31, 2002 Page 22
Company will generate sufficient taxable income to utilize all NOL
carryforwards. To the extent that the Company's estimates of future taxable
income are insufficient to utilize all available NOL's, a valuation allowance
will be recorded in the provision for income taxes in the period the
determination is made, and the deferred tax assets will be reduced by this
amount, which could be material. Further, the Company's holding company, located
in The Netherlands, has had a history of losses and thus also has a sizeable
NOL. Due to the history of losses of the holding company, the Company has
recorded a full valuation allowance against this deferred tax asset. Should the
holding company be profitable in the future and lead management to believe that
it is more likely than not that we will realize all or a portion of the NOL,
then the estimated realizable value of the deferred tax asset would be recorded
and we would provide for taxes at the current tax rate. In the event that actual
events differ from management's estimates, or to the extent that these estimates
are adjusted in the future, any changes to the valuation allowance could
materially impact our financial position and results of operations.
Recently Issued Accounting Standards
------------------------------------
In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations". SFAS No. 143 requires entities to record the fair value
of a liability for an asset retirement obligation in the period in which the
obligation is incurred. When the liability is initially recorded, the entity
capitalizes the cost by increasing the carrying amount of the related long-lived
asset. Over time, the liability is accreted to its present value each period,
and the capitalized cost is depreciated over the useful life of the related
asset. This statement is effective on January 1, 2003 with earlier application
encouraged. The Company is currently reviewing this statement and has not yet
determined its impact, if any, on the Company's financial position, results of
operations or cash flows.
Liquidity and Capital Resources
-------------------------------
To date, the Company has funded its business primarily through internally
generated funds, debt and the private and public sales of equity. As of March
31, 2002 and December 31, 2001, the Company had cash and cash equivalents along
with investments in current marketable securities of $64.3 million and $79.0
million, respectively, and working capital of $110.7 million and $119.4 million,
respectively. Cash and cash equivalents are primarily held in U.S. dollars,
other than those cash balances maintained in the local currency of the
subsidiary to meet local working capital needs. In the first quarter, cash and
cash equivalents decreased to $43.0 million at March 31, 2002 from $56.5 million
at December 31, 2001 primarily due to cash used in investing activities of $19.8
million, offset by cash provided by operations of $8.8 million.
For the three-month period ended March 31, 2002 and 2001, the Company
generated net cash from operating activities of $8.8 million and $12.5 million,
respectively. Cash provided by operating activities decreased in the three-month
period ended March 31, 2002 over the same period in 2001 primarily due to higher
increases in accounts receivable and inventories offset by increases in net
income, depreciation and amortization, and deferred taxes. Since the Company
relies heavily on cash generated from operating activities to fund its business,
a decrease in demand for the Company's product or significant technological
advances of competitors would have a negative impact on the Company's liquidity.
QIAGEN N.V., Form 6-K, Quarter ended March 31, 2002 Page 23
Approximately $19.8 million of cash was used in investing activities during
the first quarter of 2002, compared to $19.9 million for the same period of
2001. Investing activities during the three-month period ended March 31, 2002
consisted principally of the purchases of property and equipment in connection
with the expansion of the Company's production operations partially offset by
proceeds from the sale of marketable securities.
Financing activities used $1.2 million in cash during the first quarter of
2002, compared to cash provided of $4.1 million provided in 2001. This use was
primarily due to repayments of borrowings against lines of credit offset by
proceeds from lines of credit along with proceeds from a the issuance of common
shares as a result of stock option exercises.
The Company has credit lines totaling $10.1 million at variable interest
rates of which approximately $4.5 million was utilized as of March 31, 2002. In
addition, as of March 31, 2002 the Company had capital lease obligations in the
amount of $11.1 million. The Company also carries $70.0 million of long-term
debt that consists mainly of three notes payable, two which are due in one
payment in May 2003 totaling approximately $61.2 million, at a variable rates,
and one note due in semi-annual payments through March 2009 of EUR 639,000, at a
fixed rate of 3.75%.
At March 31, 2002, the Company continued the construction on two new German
facilities, with estimated completion in the fourth quarter of 2002. The total
estimated cost for these facilities is approximately EUR 54.0 million
(approximately $47.1 million at March 31, 2002) of which EUR 49.5 million
(approximately $43.1 million) has been incurred. Cash flows from operations and
bank loans will continue to fund the estimated costs to complete these projects.
In May 2001, the Company obtained two new loan facilities (one EUR
denominated, one USD denominated) totaling approximately $93.6 million at March
31, 2002, each with an initial term of two years. The primary intended use of
the proceeds from these facilities is the refinancing of previously made
acquisitions of land and the construction of manufacturing, research and
administrative facilities at these sites. At March 31, 2002, approximately $61.2
million had been drawn against these facilities, and is included in long-term
debt.
The Company believes that funds from operations, together with the proceeds
from its public and private sales of equity, and availability of financing
facilities as needed, will be sufficient to fund the Company's planned
operations and expansion during the coming year.
Employees
---------
At March 31, 2002 the Company had 1,629 employees. There have been no
changes to the Supervisory or Managing Boards since discussed in the Company's
December 31, 2001 Form 20-F.
QIAGEN N.V., Form 6-K, Quarter ended March 31, 2002 Page 24
Quantitative and Qualitative Disclosures About Market Risk
The Company's market risk relates primarily to interest rate exposures on
cash, marketable securities and borrowings and foreign currency exposures on
intercompany transactions. The overall objective of the Company's risk
management is to reduce the potential negative earnings effects from changes in
interest and foreign exchange rates. Exposures are managed through operational
methods and financial instruments. The Company does not use financial
instruments for trading or other speculative purposes.
Interest Rate Risk
------------------
Interest income earned on the Company's investment portfolio is affected by
changes in the relative levels of market interest rates. The Company only
invests in high-grade investment securities. For the quarter ended March 31,
2002, the weighted average interest rate on the Company's marketable securities
portfolio was 1.88% to 2.10%.
Borrowings against lines of credit are at variable interest rates. At March
31, 2002, the Company had $4.5 million of outstanding lines of credit with an
average interest rate of 6.15% at March 31, 2002. A hypothetical adverse 10
percent movement in market interest rates would not have materially impacted the
Company's financial statements.
In May 2001, the Company obtained loan facilities committed by a group of
banks led by Deutsche Bank for long-term borrowings at variable interest rates.
Borrowings against these facilities, which are due in one final payment in May
2003, consisted of EUR 20.4 million (approximately $17.7 at March 31, 2002) at a
variable interest rate of EURIBOR plus 1.2%, and $43.5 million at a variable
interest rate of LIBOR plus 1.28%. A hypothetical adverse 10% movement in market
interest rates would decrease 2002 earnings by approximately $60,000, based on
the quarter-end interest rate, a loan balance consistent with that at
quarter-end and a constant foreign exchange rate.
Currency Fluctuations
---------------------
The Company operates on an international basis. A significant portion of
its revenues and expenses are earned and incurred in currencies other than the
U.S. dollar. The euro is the most significant such currency, with others
including the British pound, Japanese yen, Swiss franc, and Canadian and
Australian dollars. Fluctuations in the value of the currencies in which the
Company conducts its business relative to the U.S. dollar have caused and will
continue to cause U.S. dollar translations of such currencies to vary from one
period to another. Due to the number of currencies involved, the constantly
changing currency exposures, and the potential substantial volatility of
currency exchange rates, the Company cannot predict the effect of exchange rate
fluctuations upon future operating results. However, because the Company has
substantial expenses as well as revenues in each of its principal functional
currencies, the exposure of its financial results to currency fluctuations is
reduced. The Company seeks to mitigate what it believes to be a significant
portion of the remaining risk through hedging transactions. In general terms,
appreciation of the U.S. dollar against the Company's other foreign currencies,
such as occurred in 2001 and 2002 with respect to the euro, will decrease
reported net sales. However, this impact normally will be at least partially
offset in the results of operations by gains or losses from foreign currency
transactions.
QIAGEN N.V., Form 6-K, Quarter ended March 31, 2002 Page 25
Currency Hedging
----------------
In the ordinary course of business, the Company purchases foreign currency
exchange options to manage potential losses from foreign currency exposures.
These options give the Company the right, but not the obligation, to sell
foreign currencies in exchange for U.S. dollars at predetermined exchange rates.
The principle objective of such options is to minimize the risks and/or costs
associated with global financial and operating activities. The Company does not
utilize financial instruments for trading or other speculative purposes. At
March 31, 2002, the Company had options outstanding to purchase European Union
euros and Swiss francs of $11.8 million. The functional currency of $9.0 million
of the foreign currency exchange options was the euro, with a notional weighted
average exchange rate of 1.0750. The functional currency of the remaining $2.8
million foreign currency exchange options was the Swiss franc, with a notional
weighted average exchange rate of 1.5500.
Foreign Currency Exchange Rate Risk
-----------------------------------
The Company's principal production and manufacturing facility is located in
Germany and intercompany sales of inventory expose the Company to foreign
currency exchange rate risk. Intercompany sales of inventory are generally
denominated in the local currency of the subsidiary purchasing the inventory in
order to centralize foreign currency risk with the Company's German subsidiary.
Payment for intercompany purchases of inventory is required within 30 days from
invoice date. The delay between the date the German subsidiary records revenue
and the date when the payment is received from the purchasing subsidiaries
exposes the Company to foreign exchange risk. The exposure results primarily
from those transactions between Germany and the U.S.
The foreign currency exchange rate risk is partially offset by transactions
of the German subsidiary denominated in U.S. dollars. Hedging instruments
include foreign currency put options that are purchased to protect the existing
and/or anticipated receivables resulting from intercompany sales from Germany to
the U.S. These options give the Company the right, but not the obligation, to
sell foreign currencies in exchange for U.S. dollars at predetermined exchange
rates. Management does not believe that the Company's exposure to foreign
currency exchange rate risk is material.
QIAGEN N.V., Form 6-K, Quarter ended March 31, 2002 Page 26
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/ Peer M. Schatz
-----------------------
Peer M. Schatz
Chief Financial Officer
Date: May 31, 2002
QIAGEN N.V., Form 6-K, Quarter ended March 31, 2002 Page 27
EXHIBIT INDEX
-------------
Exhibit No. Exhibit
----------- -------
99.1 Press Release dated January 11, 2002
99.2 Press Release dated February 19, 2002
99.3 Press Release dated April 18, 2002
99.4 Press Release dated May 6, 2002
99.5 Press Release dated May 6, 2002
99.6 Press Release dated May 6, 2002
99.7 Press Release dated May 7, 2002
99.8 Press Release dated May 15, 2002
99.9 Press Release dated May 28, 2002
QIAGEN N.V., Form 6-K, Quarter ended March 31, 2002