Gains and Losses on Derivative Instruments
Level 1 Level 2 Level 3 Total Level 2 Level 3 Total
15. Lines of Credit and Debt
Our credit facilities available at December 31, 2013 total € 436.6 million (approximately $ 602.1 million). This includes a € 400.0 million syndicated multi-currency revolving credit facility expiring December 2016 of which no amounts were utilized at December 31, 2013, and four other lines of credit amounting to € 36.6 million with no expiration date, none of which were utilized as of December 31, 2013. The € 400.0 million facility can be utilized in euro, U.K pound or U.S. dollar and bears interest of 0.8 % to 2.35 % above three months EURIBOR, or LIBOR in relation to any loan not in euro, and is offered with interest periods of one, two, three, six or twelve months. The commitment fee is calculated based on 35 % of the applicable margin. In
2013 and 2012, $ 1.3 million and $ 1.1 million of commitment fees were paid, respectively. The revolving facility agreement contains certain financial and non-financial covenants, including but not limited to, restrictions on the encumbrance of assets and the maintenance of certain financial ratios. We were in compliance with these covenants at December 31, 2013. The credit facilities are for general corporate purposes.
In October 2012, we completed a private placement through the issuance of new senior unsecured notes at a total amount of $ 400.0 million with a weighted average interest rate of 3.66 % (settled on October 16, 2012). The notes were issued in three series: (1) $ 73.0 million 7-year term due in 2019 (3.19 %); (2) $ 300.0 million 10-year term due in 2022 (3.75 %); and (3) $ 27.0 million
12-year term due in 2024 (3.90 %). We paid $ 2.1 million in debt issue costs which will be am- ortized through interest expense over the lifetime of the notes. Approximately € 170.0 million (approximately $ 220 million) of proceeds from the notes were used to repay amounts outstanding under our short-term revolving credit facility in 2012. The remainder of the proceeds provides additional resources to support our longer-term business expansion. The note purchase agreement contains certain financial and non-financial covenants, including but not limited to, restrictions on priority indebtedness and the maintenance of certain financial ratios. We were in compliance with these covenants at December 31, 2013. Based on an estimation using the changes in the U.S. Treasury rates, the fair value of these senior notes as of December 31, 2013 was approximately $ 373.5 million.
At December 31, 2013, total long-term debt was approximately $ 845.5 million, $ 0.2 million of which is current. We believe that funds from operations, existing cash and cash equivalents, short-term investments and availability of financing facilities as needed, will be sufficient to fund our debt repayments coming due in 2014.
[30] Total Long-term Debt As of December 31
$ 1,000
2013 2012
Notes payable to QIAGEN Euro Finance bearing interest at an effective rate of 3.7% due in May 2026
300,000 300,000 Notes payable to QIAGEN Finance bearing interest at an effective rate of 1.8%
due in February 2024
145,000 145,000
3.19% Series A Senior Notes due October 16, 2019 73,000 73,000
3.75% Series B Senior Notes due October 16, 2022 300,000 300,000
3.90% Series C Senior Notes due October 16, 2024 27,000 27,000
Other notes payable bearing interest up to 6.28% and due through November 2015 483 1,992
Total long-term debt 845,483 846,992
Less current portion 207 948
Long-term portion 845,276 846,044
[31] Future Principal Maturities of Long-term Debt As of December 31
$ 1,000
Years ending December 31
2014 207 2015 276 2016 — 2017 — 2018 — Thereafter 845,000 845,483
Interest expense on long-term debt was $ 28.4 million, $ 17.4 million and $ 22.1 million for the years ended December 31, 2013, 2012 and 2011, respectively.
In May 2006, we completed the offering of $ 300 million of 3.25 % Senior Convertible Notes due in 2026 (2006 Notes) through an unconsolidated subsidiary, QIAGEN Euro Finance. The net proceeds of the 2006 Notes were loaned by Euro Finance to consolidated subsidiaries and at December 31, 2013 and 2012, $ 300 million was included in long-term debt for the loan amounts payable to Euro Finance. These long-term notes payable to Euro Finance have an effec- tive interest rate of 3.7 % and were originally due in December 2014. In 2012, we refinanced the $ 300 million note with QIAGEN Euro Finance and under the new terms the debt is due in May
2026. Interest is payable semi-annually in May and November. The 2006 Notes were issued at
100 % of principal value, and are convertible into 15.0 million common shares at the option of the holders upon the occurrence of certain events, at a price of $ 20.00 per share, subject to ad-
justment. QIAGEN N.V. has an agreement with QIAGEN Euro Finance to issue shares to the in- vestors in the event of conversion. This subscription right, along with the related receivable, is recorded at fair value in the equity of QIAGEN N.V. as paid-in capital. The 2006 Notes cannot be called for the first seven years and are callable thereafter subject to a provisional call trigger of
130 % of the conversion price. In addition, the holders of the 2006 Notes may require QIAGEN
to repurchase all or a portion of the outstanding Notes for 100 % of the principal amount, plus accrued interest, on May 16, 2017 and / or May 16, 2022. Based on an estimation using available over-the-counter market information on the convertible bond issued by QIAGEN Euro Finance, the fair value of the 2006 Notes at December 31, 2013 was $ 381.9 million. We have reserved 15.0
million common shares for issuance in the event of conversion.
In August 2004, we completed the sale of $ 150 million of 1.5 % Senior Convertible Notes due in 2024 (2004 Notes), through our unconsolidated subsidiary QIAGEN Finance. The net pro- ceeds of the 2004 Notes were loaned by QIAGEN Finance to consolidated subsidiaries with an effective interest rate of 1.8 % and at December 31, 2013 and 2012, $ 145 million was included in long-term debt for the loan amounts payable to QIAGEN Finance. The 2004 Notes are due in February 2024. Interest is payable semi-annually in February and August. The 2004 Notes were issued at 100 % of principal value, and are convertible into 11.5 million common shares at the option of the holders upon the occurrence of certain events at a price of $ 12.6449 per share, subject to adjustment. QIAGEN N.V. has an agreement with QIAGEN Finance to issue shares to the investors in the event of conversion. This subscription right, along with the related receivable, is recorded at fair value in the equity of QIAGEN N.V. as paid-in capital. The 2004
Notes may be redeemed, in whole or in part, at QIAGEN’s option at 100 % of the principal amount, provided that the actual trading price of our common shares exceeds 120 % of the conversion price for twenty consecutive trading days. In addition, the holders of the 2004 Notes may require QIAGEN to repurchase all or a portion of the outstanding 2004 Notes for 100 % of the principal amount, plus accrued interest, on August 18, 2014 and 2019. Based on an esti- mation using available over-the-counter market information on the convertible bond issued by
QIAGEN Finance, the fair value of the 2004 Notes at December 31, 2013 was $ 267.5 million. We have reserved 11.5 million common shares for issuance in the event of conversion of the 2004
16. Income Taxes
[32] Income Before Provision for Income Taxes Years ended December 31
$ 1,000
2013 2012 2011
Pretax income in The Netherlands 24,135 27,222 30,232
Pretax income from foreign operations 13,203 117,931 65,980
37,338 145,153 96,212
[33] Provisions for Income Taxes Years ended December 31
$ 1,000
2013 2012 2011
Current – The Netherlands 2,874 3,271 6,752
Foreign 33,452 35,112 26,372
36,326 38,383 33,124
Deferred – The Netherlands — — —
Foreign (68,086) (22,767) (31,861)
(68,086) (22,767) (31,861)
The Netherlands statutory income tax rate was 25 % for the years ended December 31, 2013,
2012 and 2011. The principal items comprising the differences between income taxes computed at the Netherlands statutory rate and the effective tax rate for the years ended December 31, 2013,
2012 and 2011 are as follows:
[34] Principal Items Comprising Differences Between Computed and Effective Taxes Years ended December 31
2013 2012 2011
$ 1,000 Amount Percent Amount Percent Amount Percent
Income taxes at The Netherlands statutory rate 9,334 25.0 36,288 25.0 24,053 25.0
Earnings of subsidiaries taxed at different rates (5,732) (15.4) 5,180 3.6 3,204 3.3
Tax impact from permanent items 6,219 16.7 4,854 3.4 5,989 6.2
Tax impact from tax exempt income (38,371) (102.8) (36,969) (25.5) (23,382) (24.3)
Tax contingencies, net 1,986 5.3 2,729 1.9 (1,675) (1.7)
Taxes due to changes in tax rates (1,640) (4.4) (1,086) (0.8) (3,521) (3.7)
Taxes due to changes in tax laws — — 2,697 1.9 — —
Research and development (2,211) (5.9) (1,181) (0.8) (714) (0.7)
Restructuring (872) (2.3) — — — —
Prior year taxes (888) (2.4) 2,805 1.9 (2,632) (2.7)
Other items, net 415 1.1 299 0.2 (59) (0.1)
Total provision for income taxes (31,760) (85.1) 15,616 10.8 1,263 1.3
We conduct business globally and, as a result, file numerous consolidated and separate income tax returns in the Netherlands, Germany, Switzerland and the U.S. federal jurisdiction, as well as in various other state and foreign jurisdictions. In the normal course of business, we are subject to examination by taxing authorities throughout the world. Tax years in the Netherlands are open since 2001 for income tax examinations by tax authorities. Our subsidiaries, with few exceptions, are no longer subject to income tax examinations by tax authorities for years before 2009. The U.S. consolidated group is subject to federal and most state income tax examinations by tax authorities beginning the year ending December 31, 2009 through the current period.
During 2013, we were contacted by the US tax authorities (Internal Revenue Service) and notified of their intent to examine the US federal tax return for 2011. The audit will commence early in 2014. In 2012, we established a reserve related to withholding tax on a specific intercompany transaction for $ 3.9 million including penalty. During 2013, we settled on this issue with the relevant tax author- ities, which resulted in a release of the remaining $ 1.9 million reserve in the fourth quarter of 2013. We do not currently anticipate that our existing reserves related to uncertain tax positions as of December 31, 2013 will significantly increase or decrease during the twelve-month period ending December 31, 2014; however, various events could cause our current expectations to change in
the future. The majority of these uncertain tax positions, if ever recognized in the financial state- ments, would be recorded in the statement of operations as part of the income tax provision.
[35] Changes in Gross Amount of Unrecognized Tax Benefits
$ 1,000
Unrecognized tax benefits
Balance at December 31, 2011 6,935
Additions based on tax positions related to the current year 819
Additions for tax positions of prior years 3,608
Reductions due to lapse of statute of limitations (691)
Increase from currency translation 104
Balance at December 31, 2012 10,775
Additions based on tax positions related to the current year 2,024
Additions for tax positions of prior years 1,244
Settlements with taxing authorities (1,891)
Reductions due to lapse of statute of limitations (296)
Decrease from currency translation (271)
Balance at December 31, 2013 11,585
At December 31, 2013 and 2012, our net unrecognized tax benefits totaled approximately $ 11.6 million and $ 8.8 million, respectively, of which $ 11.6 million and $ 8.8 million in benefits, if recognized, would favorably, affect our effective tax rate in any future period. It is possible that approximately $ 0.8 million of the unrecognized tax benefits may be released during the next 12 months due to lapse of statute of limitations or settlements with tax authorities.
Our policy is to recognize interest accrued related to unrecognized tax benefits in interest expense and penalties within tax provision expense. At December 31, 2013 and 2012, we had net interest (income) expense and penalties of $ (1.7) million and $ 2.8 million, respectively. At Decem- ber 31, 2013 and 2012, we have accrued interest of $ 1.3 million and $ 3.0 million, respectively, which are not included in the table above.
We have recorded net deferred tax liabilities of $ 101.6 million and $ 165.0 million at De- cember 31, 2013 and 2012, respectively.
[36] Components of Net Deferred Tax Liability
2013 2012 $ 1,000 Deferred tax assets Deferred tax liability Deferred tax assets Deferred tax liability
Net operating loss carry forwards 43,108 – 17,664 –
Accrued and other liabilities 21,520 – 21,412 (552)
Inventories 5,117 (1,304) 2,991 (1,410)
Allowance for bad debts 2,351 (1,016) 687 (600)
Currency revaluation 399 (57) 266 (746)
Depreciation and amortization 2,132 (7,260) 606 (10,027)
Capital lease 1,925 — 2,149 —
Tax credits 1,774 — 611 —
Unremitted profits and earnings — (1,150) — (1,215)
Intangibles 4,698 (211,435) 5,270 (220,880) Equity awards 11,812 — 10,082 — Interest 25,801 — 9,471 — Other 2,687 (2,063) 989 (1,314) Valuation allowance (621) — (442) — 122,703 (224,285) 71,756 (236,744) Net deferred tax liabilities (101,582) (164,988)
At December 31, 2013 and 2012, we had $ 201.1 million and $ 58.7 million in total foreign net operating loss (NOL) carryforwards. At December 31, 2013 and 2012, we had $ 99.1 million and $ 13.5 million of U.S. federal (NOL) carryforwards. At December 31, 2013, the entire NOLs in the U.S. are subject to limitations under Section 382 of the Internal Revenue Code. In 2013, the U.S. NOL increases significantly due to the acquisition of Ingenuity Systems, Inc., which carried over $ 96.0 million NOL. Approximately $ 66.0 million of NOL will be limited under IRC 382 and we anticipate that we will only be able to utilize about $ 31.0 million of the total NOL. The remaining NOL is not expected to be utilized before expiration. The NOLs in the U.S. will expire beginning December 31, 2020 through December 31, 2030. As of December 31, 2013
and 2012, we had other foreign NOL carryforwards totaling approximately $ 102.0 million and $ 45.2 million, respectively. These NOLs were primarily generated in Germany, acquisitions and operating losses from our subsidiaries. In 2013, Germany generated approximately $ 60.7 million
NOL due to restructuring charges and we are expecting to fully utilize the NOL in Germany in
2014. A portion of the foreign NOLs will be expiring beginning December 31, 2014. The valuation allowance amounts for the years ended December 31, 2013 and 2012 are $ 0.6 million and $ 0.4 million, respectively. In 2013, we established additional valuation allowance of $ 0.2 million.
As of December 31, 2013, a provision has not been made for residual Netherlands income taxes on the undistributed earnings of the majority of our foreign subsidiaries as these earnings are considered to be either permanently reinvested or can be repatriated tax free. These earnings retained by subsidiaries and equity accounted investments amounted to $ 259.4 million at Decem- ber 31, 2013. We have $ 17.6 million of undistributed earnings that we do not consider permanently reinvested and have recorded deferred income taxes or withholding taxes at December 31, 2013
and December 31, 2012, of approximately $ 1.2 million. There are no income tax consequences regarding payment of dividends to our shareholders. To date, we have never paid dividends.