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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
----------------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ___________ TO __________.
COMMISSION FILE NUMBER: 0-4829-03
NABI
(Exact name of registrant as specified in its charter)
DELAWARE 59-1212264
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
5800 PARK OF COMMERCE BOULEVARD N.W., BOCA RATON, FL 33487
(Address of principal executive offices, including zip code)
(561) 989-5800
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES [X] NO [ ]
The number of shares outstanding of registrant's common stock at July 28, 2001
was 38,044,796 shares.
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NABI
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INDEX
PAGE NO.
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS ........................................................................3
- Consolidated Balance Sheets, June 30, 2001 and December 30, 2000.......................3
- Consolidated Statements of Income for the three months and six months
ended June 30, 2001 and July 1, 2000...................................................4
- Consolidated Statements of Cash Flows for the six months
ended June 30, 2001 and July 1, 2000..................................................5
- Notes to Consolidated Financial Statements.............................................6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS....................................................................9
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK..................................13
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS...........................................................................14
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.........................................14
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K............................................................15
SIGNATURES..................................................................................16
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NABI
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CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
JUNE 30, DECEMBER 30,
2001 2000
------------- ------------
(Amounts in Thousands, Except per Share Data)
ASSETS
CURRENT ASSETS:
Cash $ 1,954 $ 1,554
Trade accounts receivable, net 34,435 38,315
Inventories, net 30,261 32,602
Prepaid expenses and other current assets 3,312 5,405
--------- ---------
TOTAL CURRENT ASSETS 69,962 77,876
PROPERTY AND EQUIPMENT, NET 124,243 120,188
OTHER ASSETS:
Goodwill 12,145 12,509
Intangible assets, net 6,896 7,091
Other, net 6,535 6,823
--------- ---------
TOTAL ASSETS $ 219,781 $ 224,487
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Trade accounts payable $ 12,921 $ 15,923
Accrued expenses 23,305 21,359
Notes payable 1,000 1,000
--------- ---------
TOTAL CURRENT LIABILITIES 37,226 38,282
NOTES PAYABLE 101,978 108,535
OTHER LIABILITIES 241 276
--------- ---------
TOTAL LIABILITIES 139,445 147,093
--------- ---------
STOCKHOLDERS' EQUITY:
Convertible preferred stock, par value $.10 per share:
5,000 shares authorized; no shares outstanding -- --
Common stock, par value $.10 per share: 75,000 shares
authorized; 38,041 and 37,833 shares issued and
outstanding, respectively 3,804 3,783
Capital in excess of par value 153,363 152,642
Accumulated deficit (76,831) (79,031)
--------- ---------
TOTAL STOCKHOLDERS' EQUITY 80,336 77,394
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 219,781 $ 224,487
========= =========
See accompanying notes to consolidated financial statements
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NABI
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CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED
--------------------------- ---------------------------
JUNE 30, JULY 1, JUNE 30, JULY 1,
2001 2000 2001 2000
--------- --------- --------- ---------
(Amounts in Thousands, Except per Share Data)
SALES $ 65,288 $ 57,581 $ 125,466 $ 113,421
COSTS AND EXPENSES:
Costs of products sold 44,764 39,888 88,941 78,350
Royalty expense 3,113 2,809 5,477 5,730
Selling, general and administrative expense 11,086 8,687 20,015 17,121
Research and development expense 3,900 3,781 6,878 7,777
Other operating expense, principally freight and
amortization 431 457 887 957
--------- --------- --------- ---------
OPERATING INCOME 1,994 1,959 3,268 3,486
INTEREST INCOME 7 10 13 136
INTEREST EXPENSE (410) (980) (944) (2,005)
OTHER INCOME (EXPENSE), NET 3 3 (22) 74
--------- --------- --------- ---------
INCOME BEFORE PROVISION FOR INCOME TAXES
AND EXTRAORDINARY GAIN 1,594 992 2,315 1,691
PROVISION FOR INCOME TAXES (79) (45) (115) (67)
--------- --------- --------- ---------
INCOME BEFORE EXTRAORDINARY GAIN 1,515 947 2,200 1,624
EXTRAORDINARY GAIN, NET OF INCOME TAXES -- 340 -- 340
--------- --------- --------- ---------
NET INCOME $ 1,515 $ 1,287 $ 2,200 $ 1,964
========= ========= ========= =========
BASIC EARNINGS PER SHARE:
INCOME BEFORE EXTRAORDINARY GAIN $ 0.04 $ 0.03 $ 0.06 $ 0.05
EXTRAORDINARY GAIN 0.00 0.01 0.00 0.01
--------- --------- --------- ---------
NET INCOME $ 0.04 $ 0.04 $ 0.06 $ 0.06
========= ========= ========= =========
DILUTED EARNINGS PER SHARE:
INCOME BEFORE EXTRAORDINARY GAIN $ 0.04 $ 0.03 $ 0.06 $ 0.04
EXTRAORDINARY GAIN 0.00 0.01 0.00 0.01
--------- --------- --------- ---------
NET INCOME $ 0.04 $ 0.04 $ 0.06 $ 0.05
========= ========= ========= =========
BASIC WEIGHTED AVERAGE SHARES OUTSTANDING 37,939 35,761 37,889 35,573
========= ========= ========= =========
DILUTED WEIGHTED AVERAGE SHARES OUTSTANDING 39,179 36,735 38,933 36,781
========= ========= ========= =========
See accompanying notes to consolidated financial statements
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NABI
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CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
FOR THE SIX MONTHS ENDED
-----------------------------
JUNE 30, 2001 JULY 1, 2000
------------- ------------
(Dollars in Thousands)
CASH FLOW FROM OPERATING ACTIVITIES:
Net income $ 2,200 $ 1,964
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 5,308 5,036
Provision for doubtful accounts 7 (28)
Provision for slow moving or obsolete inventory 2,096 717
Non-cash compensation 835 --
Extraordinary gain -- (340)
Other 95 14
Changes in assets and liabilities:
Decrease in trade accounts receivable 3,873 1,765
Decrease in inventories 245 1,790
Decrease in prepaid expenses and other assets 2,093 1,262
Increase in other assets (6) (87)
Decrease in accounts payable and accrued liabilities (1,556) (8,386)
-------- --------
Total adjustments 12,990 1,743
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 15,190 3,707
-------- --------
CASH FLOW FROM INVESTING ACTIVITIES:
Capital expenditures (8,406) (9,667)
Expenditures for other assets (199) --
-------- --------
NET CASH USED BY INVESTING ACTIVITIES (8,605) (9,667)
-------- --------
CASH FLOW FROM FINANCING ACTIVITIES:
(Repayments) borrowings under line of credit (6,057) 3,780
Repayments of term debt (500) (167)
Other debt repayments -- (39)
Proceeds from exercise of employee stock options 372 3,166
-------- --------
NET CASH (USED) PROVIDED BY FINANCING ACTIVITIES (6,185) 6,740
-------- --------
NET INCREASE IN CASH 400 780
CASH AT BEGINNING OF PERIOD 1,554 806
-------- --------
CASH AT END OF PERIOD $ 1,954 $ 1,586
======== ========
See accompanying notes to consolidated financial statements
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NABI
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. OVERVIEW
Nabi is focused on the discovery, development and commercialization of products
that prevent and treat infectious and autoimmune diseases. We are nearing
completion of a multi-year transition from being a leading provider of antibody
products into becoming a vertically integrated biopharmaceutical company. We
currently have an extensive pipeline of innovative drugs and vaccines in
clinical and pre-clinical development and have four marketed biopharmaceutical
products: Nabi-HB(TM) [Hepatitis B Immune Globulin (Human)], WinRho SDF(R) [Rho
(D) Immune Globulin Intravenous (Human)], Autoplex(R) T (Anti-Inhibitor
Coagulant Complex, Heat Treated) and Aloprim(TM) [(Allopurinol sodium) for
injection]. We are also one of the largest collectors and suppliers of specialty
and non-specific antibody products in the world. We collect these products from
an extensive donor base in the U.S. Some of these antibodies are used in the
production of our biopharmaceutical products. Most are supplied to other
biopharmaceutical and diagnostic companies for the manufacture of numerous
products.
On June 25, 2001, we signed a definitive agreement to sell the operating assets
of a majority of our antibody collection business to CSL Limited (CSL). The
agreement covers 47 of our total 56 antibody collection centers and the majority
of our testing laboratory. In return, we will receive a cash payment of $152
million from CSL subject to closing adjustments. We will retain accounts
receivable and accounts payable at the closing date and retain certain inventory
that will be used in the production of our biopharmaceutical products. The
transaction is subject to customary closing conditions and is scheduled to close
by the end of the third quarter of 2001.
The consolidated financial statements include the accounts of Nabi and its
subsidiaries. All significant intercompany accounts and transactions were
eliminated during consolidation. These statements should be read in conjunction
with the Consolidated Financial Statements and Notes thereto included in our
Annual Report on Form 10-K for the year ended December 30, 2000.
In the opinion of management, the unaudited consolidated financial statements
include all adjustments, consisting of normal recurring adjustments which, in
the opinion of management, are necessary to present fairly, our consolidated
financial position as of June 30, 2001 and the consolidated results of our
operations for the three months and six months ended June 30, 2001 and July 1,
2000 and our cash flows for the six months ended June 30, 2001 and July 1, 2000.
The interim results of operations are not necessarily indicative of the results
that may occur for the fiscal year.
NOTE 2. INVENTORIES
The components of inventories, stated at the lower of cost or market with cost
determined on the first-in first-out (FIFO) method, are as follows:
JUNE 30, DECEMBER 30,
2001 2000
-------- ------------
(Dollars in Thousands)
Finished goods $26,937 $28,852
Work in process 1,171 1,055
Raw materials 2,153 2,695
------- -------
TOTAL $30,261 $32,602
======= =======
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NOTE 3. EARNINGS PER SHARE
The following is a reconciliation between basic and diluted earnings per share:
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED
------------------------------------------------ --------------------------------------------------
Effect of Effect of
Dilutive Dilutive
Securities: Securities:
Basic EPS Stock Options Diluted EPS Basic EPS Stock Options Diluted EPS
------------- -------------- --------------- ---------------- -------------- ---------------
(Amounts in Thousands,
Except per Share Data)
JUNE 30, 2001
Net income $ 1,515 -- $ 1,515 $ 2,200 -- $ 2,200
Shares 37,939 1,240 39,179 37,889 1,044 38,933
Per share $ 0.04 -- $ 0.04 $ 0.06 -- $ 0.06
------- ------- ------- ------- ------- -------
JULY 1, 2000
Net income $ 1,287 -- $ 1,287 $ 1,964 -- $ 1,964
Shares 35,761 974 36,735 35,573 1,208 36,781
Per share $ 0.04 -- $ 0.04 $ 0.06 -- $ 0.05
======= ======= ======= ======= ======= =======
NOTE 4. OPERATING SEGMENT INFORMATION
The following table presents information related to our two operating business
segments:
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED
---------------------------------- ----------------------------------
JUNE 30, 2001 JULY 1, 2000 JUNE 30, 2001 JULY 1, 2000
------------- ------------ ------------- ------------
(Dollars in Thousands)
SALES:
Biopharmaceutical products $ 18,860 $ 17,781 $ 33,974 $ 34,002
Antibody products 46,428 39,800 91,492 79,419
--------- --------- --------- ---------
TOTAL $ 65,288 $ 57,581 $ 125,466 $ 113,421
========= ========= ========= =========
OPERATING INCOME (LOSS):
Biopharmaceutical products $ 1,827 $ 3,828 $ 3,627 $ 5,753
Antibody products 167 (1,869) (359) (2,267)
--------- --------- --------- ---------
TOTAL $ 1,994 $ 1,959 $ 3,268 $ 3,486
========= ========= ========= =========
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The following summary reconciles reportable segment operating income to income
before provision for income taxes and extraordinary gain:
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED
----------------------------- ----------------------------
JUNE 30, JULY 1, JUNE 30, JULY 1,
2001 2000 2001 2000
------- ------- ------- -------
(Dollars in Thousands)
INCOME BEFORE PROVISION FOR INCOME TAXES AND
EXTRAORDINARY GAIN:
Reportable segment operating income $ 1,994 $ 1,959 $ 3,268 $ 3,486
Unallocated interest income 7 10 13 136
Unallocated interest expense (410) (980) (944) (2,005)
Unallocated other income (expense), net 3 3 (22) 74
------- ------- ------- -------
Income before provision for income taxes and
extraordinary gain $ 1,594 $ 992 $ 2,315 $ 1,691
======= ======= ======= =======
NOTE 5. NEW ACCOUNTING PRONOUNCEMENT
In July 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 141, "Business Combinations," (SFAS No. 141)
and No. 142, "Goodwill and Other Intangible Assets" (SFAS No. 142). SFAS No. 141
eliminated the pooling of interest method of accounting for business
combinations initiated after June 30, 2001. Under SFAS No. 142, goodwill and
indefinite lived intangible assets are no longer amortized but are reviewed
annually (or more frequently if impairment indicators arise) for impairment. The
amortization provisions of SFAS No. 142 apply to goodwill and intangible assets
acquired after June 30, 2001. With respect to goodwill and intangibles acquired
prior to July 1, 2001, companies are required to adopt SFAS No. 142 in their
fiscal year beginning after December 15, 2001. The adoption of SFAS No. 142 for
fiscal year 2002 will result in our discontinuation of amortization of our
goodwill which was $0.4 million for the first six months of 2001. We will be
required to test our goodwill for impairment under the new standard beginning in
the first quarter of 2002.
NOTE 6. OTHER INFORMATION
We have advised Baxter Healthcare Corporation (Baxter) that we are terminating
a contract to supply antibodies to Baxter. The contract, by its terms, extends
until December 31, 2004. We believe the contract permits us to terminate it if
it becomes commercially unreasonable for us to perform under the contract.
Baxter is contesting this termination and has invoked an arbitration provision
in the contract to resolve the controversy. We have asserted counterclaims
against Baxter in the arbitration proceeding. Pending the resolution of the
arbitration, we are continuing to supply antibodies to Baxter as if the
contract had not been terminated.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
On June 25, 2001, we signed a definitive agreement to sell the operating assets
of a majority of our antibody collection business to CSL Limited (CSL). The
agreement covers 47 of our total 56 antibody collection centers and the majority
of our testing laboratory. In return, we will receive a cash payment of $152
million from CSL subject to closing adjustments. We will retain accounts
receivable and accounts payable at the closing date and retain certain inventory
that will be used in the production of our biopharmaceutical products. The
transaction is subject to usual closing conditions and is scheduled to close by
the end of the third quarter of 2001.
The following is a discussion and analysis of the major factors contributing to
our financial condition and results of operations for the three months and six
months ended June 30, 2001 and July 1, 2000. The discussion and analysis should
be read in conjunction with the Consolidated Financial Statements and Notes
thereto. All dollar amounts are expressed in thousands, except per share data.
RESULTS OF OPERATIONS
The following table sets forth our results of operations expressed as a
percentage of sales:
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED
--------------------------- ---------------------------
JUNE 30, JULY 1, JUNE 30, JULY 1,
2001 2000 2001 2000
-------- ------- -------- --------
SALES 100.0% 100.0% 100.0% 100.0%
Costs of products sold 68.5% 69.3% 70.9% 69.1%
Royalty expense 4.8% 4.9% 4.4% 5.0%
Selling, general and administrative expense 17.0% 15.1% 15.9% 15.1%
Research and development expense 6.0% 6.5% 5.5% 6.9%
Other operating expense, principally
amortization and freight 0.7% 0.8% 0.7% 0.8%
----- ----- ----- -----
OPERATING INCOME 3.0% 3.4% 2.6% 3.1%
INTEREST INCOME 0.0% 0.0% 0.0% 0.0%
INTEREST EXPENSE (0.6)% (1.7)% (0.8)% (1.8)%
OTHER INCOME (EXPENSE), NET 0.0% 0.0% 0.0% 0.2%
----- ----- ----- -----
INCOME BEFORE PROVISION FOR INCOME TAXES AND 2.4% 1.7% 1.8% 1.5%
EXTRAORDINARY GAIN
PROVISION FOR INCOME TAXES (0.1)% (0.1)% (0.1)% (0.1)%
----- ----- ----- -----
INCOME BEFORE EXTRAORDINARY GAIN 2.3% 1.6% 1.7% 1.4%
EXTRAORDINARY GAIN, NET 0.0% 0.6% 0.0% 0.3%
----- ----- ----- -----
NET INCOME 2.3% 2.2% 1.7% 1.7%
===== ===== ===== =====
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Information concerning our sales by operating segments is set forth in the
following table:
FOR THE THREE MONTHS ENDED
---------------------------------------------------------
JUNE 30, 2001 JULY 1, 2000
------------------------- -------------------------
(Dollars in Thousands)
BIOPHARMACEUTICAL PRODUCTS $ 18,860 28.9% $ 17,781 30.9%
-------- ------ -------- ------
ANTIBODY PRODUCTS:
-Specialty antibodies 14,961 22.9 15,620 27.1
-Non-specific antibodies 31,467 48.2 24,180 42.0
-------- ------ -------- -----
46,428 71.1 39,800 69.1
-------- ------ -------- ------
Total $ 65,288 100.0% $ 57,581 100.0%
======== ====== ======== ======
FOR THE SIX MONTHS ENDED
---------------------------------------------------------
JUNE 30, 2001 JULY 1, 2000
------------------------- -------------------------
(Dollars in Thousands)
BIOPHARMACEUTICAL PRODUCTS $ 33,974 27.1% $ 34,002 30.0%
-------- ------ -------- ------
ANTIBODY PRODUCTS:
-Specialty antibodies 29,587 23.6 29,829 26.3
-Non-specific antibodies 61,905 49.3 49,590 43.7
-------- ------ -------- ------
91,492 72.9 79,419 0.0
-------- ------ -------- ------
TOTAL $125,466 100.0% $113,421 100.0%
======== ====== ======== ======
FOR THE THREE MONTHS ENDED JUNE 30, 2001 AND JULY 1, 2000
SALES. Sales for the second quarter of 2001 were $65.3 million compared to $57.6
million for the second quarter of 2000, an increase of $7.7 million or 13%.
Biopharmaceutical product sales increased in the second quarter of 2001 by
approximately 6% from the 2000 second quarter due to higher sales of WinRho
SDF(R) [Rho (D) Immune Globulin Intravenous (Human)] and Aloprim(TM)
[(Allopurinol sodium) for injection], offset by lower sales of Nabi-HB(TM)
[Hepatitis B Immune Globulin (Human)]. We believe that lower Nabi-HB sales in
the second quarter of 2001 compared to the second quarter of 2000 primarily
reflect inventory management by our wholesaler customers, including
consolidation within the industry. We believe patient demand has increased for
Nabi-HB based on our review of end user data.
Total antibody sales increased $6.6 million from the comparable quarter in 2000
and was driven by non-specific antibody product sales increases resulting from
almost equal parts higher pricing and increased volume.
GROSS PROFIT MARGIN AFTER ROYALTY EXPENSE. Gross profit and related margin for
the second quarter of 2001 was $17.4 million, or 27% of sales, compared to $14.9
million, or 26% of sales, in the second quarter of 2000. Gross profit increases
reflected sales increases for biopharmaceutical sales and antibody product
sales. Gross profit margin from biopharmaceutical sales in the second quarter of
2000 benefited from a non-performance penalty due to us as a result of
contractual delivery shortfalls by the supplier of Autoplex(R) T (Anti-Inhibitor
Coagulant Complex, Heat Treated). Royalty expense as a percentage of
biopharmaceutical sales was essentially even for the second quarters of 2001 and
2000.
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SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general and administrative
expense was $11.1 million, or 17% of sales, for the second quarter of 2001
compared to $8.7 million, or 15% of sales, in the second quarter of 2000. These
increased expenses reflect one-time costs related to management changes and
certain consulting expenses related to advancing our partnering discussions as
well as other compensation expense.
RESEARCH AND DEVELOPMENT EXPENSE. Research and development expense was $3.9
million, or 6% of sales, for the second quarter of 2001 compared to $3.8
million, or 7% of sales, in the second quarter of 2000. Research and development
expense in the second quarter of 2001 included expenses for initiation of a
booster study and planning for the second Phase 3 clinical trial for Nabi(R)
StaphVAX(R) (STAPHYLOCOCCUS AUREUS Polysaccharide Conjugate Vaccine).
INTEREST EXPENSE. Interest expense for the second quarter of 2001 was $0.4
million, or 1% of sales, compared to $1.0 million, or 2% of sales, in the second
quarter of 2000. The decrease is primarily attributable to lower interest rates
for short term borrowings and a lower average bank borrowing for the quarter.
Capitalized interest relating to construction of our biopharmaceutical
manufacturing facility in Boca Raton, Florida was approximately $1.6 million and
$1.4 million for the quarters ending June 30, 2001 and July 1, 2000,
respectively. Once our Boca Raton, Florida facility is ready for its intended
use, which is the manufacture for sale of Nabi-HB in an FDA approved
environment, interest and other cash costs of operating the plant currently
being capitalized will become expenses. Licensure of the Boca Raton, Florida
facility for the manufacture of Nabi-HB is expected to occur in 2001. At that
time, we will also begin to depreciate the capitalized cost of the plant. The
total capitalized value of the facility was approximately $86.6 million at June
30, 2001.
OTHER FACTORS. The provision for income taxes was $79 thousand for the second
quarter of 2001 compared to a provision of $45 thousand in the second quarter of
2000. The 12% effective tax rate in the second quarter of 2001 differs from the
statutory rate of 35% due to our expectation of realizing a current year benefit
from the use of a portion of our net operating loss carryforwards from prior
years.
FOR THE SIX MONTHS ENDED JUNE 30, 2001 AND JULY 1, 2000
SALES. Sales for the first six months of 2001 were $125.5 million compared to
$113.4 million for the comparable period of 2000, an increase of $12.1 million
or 11%. Biopharmaceutical product sales were essentially even in the first half
of 2001 compared to the first half of 2000. During the 2001 period, the increase
in sales of WinRho SDF and Aloprim was offset by lower sales of Nabi-HB and
Autoplex T. We believe that lower Nabi-HB sales in the first six months of 2001
compared to the first six months of 2000 primarily reflect inventory management
by our wholesaler customers, including consolidation within the industry. We
believe patient demand has increased for Nabi-HB based on our review of end user
data. Sales of Autoplex T continued to be limited by contract production issues
at the manufacturer for this product.
Total antibody sales increased $12.1 million from the comparable first six
months of 2000 driven by non-specific antibody product sales resulting primarily
from higher pricing accounting for approximately two-thirds of the sales
increase, and some increased volumes.
GROSS PROFIT MARGIN AFTER ROYALTY EXPENSE. Gross profit after royalty expense
and related margin for the first half of 2001 was $31.0 million, or 25% of
sales, compared to $29.3 million, or 26% of sales, in the first half of 2000.
Gross profit increases reflected increases in biopharmaceutical sales and
antibody product sales. Gross profit margin from biopharmaceutical sales in the
first six months of 2001 was impacted by an inventory reserve primarily related
to product dating. Gross profit margin from biopharmaceutical sales for the six
months of 2000 benefited from a greater non-performance penalty due to us as a
result of contractual delivery shortfalls by the supplier of Autoplex T than the
first six months of 2001. Royalty expense as a percentage of biopharmaceutical
sales was essentially even for the first six months of 2001 and 2000.
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SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general and administrative
expense was $20.0 million, or 16% of sales, for the first six months of 2001
compared to $17.1 million, or 15% of sales, in the comparable period of 2000.
The increased expenses primarily reflect one-time costs related to management
changes and certain consulting expenses related to advancing our partnering
discussions as well as other compensation expense.
RESEARCH AND DEVELOPMENT EXPENSE. Research and development expense was $6.9
million, or 5% of sales, for the first six months of 2001 compared to $7.8
million, or 7% of sales, in the comparable period of 2000 and included expenses
for initiation of a booster study and planning for the second Phase 3 clinical
trial for Nabi StaphVAX. Research and development expense in the first six
months of 2001 benefited from reimbursement under a grant from the National
Institute of Health for the Nabi(R) NicVAX(TM) (Nicotine Conjugate Vaccine)
program.
INTEREST EXPENSE. Interest expense for the first half of 2001 was $1.0 million,
or 1% of sales, compared to $2.0 million, or 2% of sales, in the first half of
2000. The decrease is attributable to lower interest rates for short term
borrowings, a lower average bank borrowing and higher amounts of interest
capitalized during the first six months of 2001 as compared to the first six
months of 2000. Capitalized interest relating to construction of our
biopharmaceutical manufacturing facility in Boca Raton, Florida was
approximately $3.2 million and $2.7 million for the six months ending June 30,
2001 and July 1, 2000, respectively. Once our Boca Raton, Florida facility is
ready for its intended use, which is the manufacture for sale of Nabi-HB in an
FDA approved environment, interest and other cash costs currently being
capitalized will become expenses. Licensure of the Boca Raton, Florida facility
for the manufacture of Nabi-HB is expected to occur in 2001. At that time, we
will also begin to depreciate the capitalized cost of the plant. The total
capitalized value of the facility was approximately $86.6 million at June 30,
2001.
OTHER FACTORS. The provision for income taxes was $115 thousand for the first
half of 2001 compared to a provision of $67 thousand in the first half of 2000.
The 9% effective tax rate in the first six months of 2001 differs from the
statutory rate of 35% due to our expectation of realizing a current year benefit
from the use of a portion of our net operating loss carryforwards from prior
years.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 2001, our credit agreement provided for a revolving credit facility
of up to $45.0 million subject to certain borrowing base restrictions, and a
$3.8 million term loan. The credit agreement matures in September 2002.
Borrowings under the revolving credit and term loan agreement totaled $24.5
million at June 30, 2001 as compared to $31.0 million at December 30, 2000, and
additional availability was approximately $9.3 million at June 30, 2001. The
credit agreement is secured by substantially all of our assets, requires the
maintenance of certain financial covenants and prohibits the payment of
dividends.
As of June 30, 2001, our current assets exceeded current liabilities by $32.7
million as compared to a net working capital position of $39.6 million at
December 30, 2000. Cash at June 30, 2001 was $2.0 million compared to $1.6
million at December 30, 2000. Cash provided from operations for the six months
ended June 30, 2001 was $15.2 million versus $3.7 million for the six months
ended July 1, 2000. During the first half of each of 2001 and 2000, reductions
in accounts receivable and inventory were offset by a reduction of accounts
payable and accrued liabilities. The primary uses of cash during the six months
ended June 30, 2001 were capital expenditures of $8.4 million principally
associated with our biopharmaceutical manufacturing facility in Boca Raton,
Florida, and a reduction of borrowings under the revolving credit facility and
term loan of $6.6 million. The primary use of cash during the six months ended
July 1, 2000 was capital expenditures of $9.7 million primarily associated with
our biopharmaceutical manufacturing facility in Boca Raton, Florida.
Additionally, in the six months ended July 1, 2000, we realized $3.2 million of
proceeds from the exercise of stock options and had increased borrowings under
the credit facility of $3.8 million.
The biopharmaceutical manufacturing facility requires FDA licensure to produce
biopharmaceutical products for sale in the U.S. Projected capital expenditures
of $8.7 million for the remainder of 2001 include the anticipated costs to
prepare the facility for its intended use of approximately $3.2 million,
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including capitalized interest. We believe that cash flow from operations and
our available bank credit facilities will be sufficient to meet our anticipated
cash requirements for 2001.
On June 25, 2001, we signed a definitive agreement to sell the operating assets
of a majority of our antibody collection business to CSL Limited (CSL). The
agreement covers 47 of our total 56 antibody collection centers and the majority
of our testing laboratory. In return, we will receive a cash payment of $152
million from CSL subject to closing adjustments. We will retain accounts
receivable and accounts payable at the closing date and retain certain inventory
that will be used in the production of our biopharmaceutical products. As a
result of the closing of the transaction, we anticipate a gain, net of taxes, in
the range of $85 million to $90 million and expect to realize net cash in excess
of $120 million before repayment of bank debt. In addition, we expect to realize
approximately $20 million upon liquidation of the retained net current assets.
The funds received from this sale will be used to repay our bank debt and
provide resources for advancing our product pipeline and for the further growth
of our biopharmaceutical business. The transaction is subject to customary
closing conditions and is scheduled to close by the end of the third quarter of
2001.
We are also seeking additional cash to fund the development of our
biopharmaceutical product pipeline from strategic alliances and may seek
additional funding from new or existing credit facilities.
NEW ACCOUNTING PRONOUNCEMENTS
In July 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 141, "Business Combinations," (SFAS No. 141)
and No. 142, "Goodwill and Other Intangible Assets" (SFAS No. 142). SFAS No. 141
eliminated the pooling of interest method of accounting for business
combinations initiated after June 30, 2001. Under SFAS No. 142, goodwill and
indefinite lived intangible assets are no longer amortized but are reviewed
annually (or more frequently if impairment indicators arise) for impairment. The
amortization provisions of SFAS No. 142 apply to goodwill and intangible assets
acquired after June 30, 2001. With respect to goodwill and intangibles acquired
prior to July 1, 2001, companies are required to adopt SFAS No. 142 in their
fiscal year beginning after December 15, 2001. The adoption of SFAS No. 142 for
fiscal year 2002 will result in our discontinuation of amortization of our
goodwill which was $0.4 million for the first six months of 2001. We will be
required to test our goodwill for impairment under the new standard beginning in
the first quarter of 2002.
FORWARD LOOKING STATEMENTS
The parts of this Quarterly Report on Form 10-Q captioned "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Legal Proceedings" contain certain forward-looking statements, which involve
risks and uncertainties. These statements are based on current expectations,
estimates and projections about the industries in which we operate, management's
beliefs and assumptions made by management. Readers should refer to a discussion
under "Factors to be Considered" contained in Nabi's Annual Report on Form 10-K
for the year ended December 30, 2000 concerning certain factors that could cause
our actual results to differ materially from the results anticipated in such
forward-looking statements. Said discussion is hereby incorporated by reference
into this Quarterly Report.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We do not engage in trading market risk sensitive instruments or purchasing
hedging instruments or "other than trading" instruments that are likely to
expose us to market risk, whether interest rate, foreign currency exchange,
commodity price or equity price risk. Our primary market risk exposure is that
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of interest rate risk on borrowings under our credit facility, which are subject
to interest rates based on the bank's base rate.
INTEREST RATE RISK. Our outstanding revolving credit facility and term loan are
sensitive to changes in U.S. interest rates, specifically the U.S. prime lending
rate, and expire in September 2002. Outstanding variable rate debt under the
revolving credit facility at June 30, 2001 was $24.5 million. Based on the
outstanding balance, a change of 1% in the interest rate would cause a change in
interest incurred of approximately $0.1 million for the six months ended June
30, 2001.
At June 30, 2001, we had outstanding debt in the form of convertible
subordinated notes in the amount of $78.5 million, which are due February 1,
2003. The notes bear interest at a fixed rate of 6.5% and have no interest rate
risk.
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We are a party to litigation in the ordinary course of business. We do not
believe that such litigation will have a material adverse effect on our future
business, financial position or results of operations.
We are a co-defendant with various other parties in one suit filed in the U.S.
by, or on behalf of, individuals who claim to have been infected with HIV as a
result of either using HIV-contaminated products made by the defendants other
than us or having familial relations with those so infected. The claims against
us are based on negligence and strict liability. Several similar suits
previously pending against us, including a purported class action, have been
dismissed.
We deny all claims against us in these suits and intend to defend these cases
vigorously. We believe that any such litigation will not have a material adverse
effect on our future business, financial position or results of operations.
We have advised Baxter Healthcare Corporation (Baxter) that we are terminating a
contract to supply antibodies to Baxter. The contract, by its terms, extends
until December 31, 2004. We believe the contract permits us to terminate it if
it becomes commercially unreasonable for us to perform under the contract.
Baxter is contesting this termination and has invoked an arbitration provision
in the contract to resolve the controversy. We have asserted counterclaims
against Baxter in the arbitration proceeding. Pending the resolution of the
arbitration, we are continuing to supply antibodies to Baxter as if the
contract had not been terminated.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The following matter was approved at our annual stockholder's meeting, which was
held on May 18, 2001:
a) Election of the following to the Board of Directors:
VOTES
For Withheld
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David L. Castaldi 34,507,662 144,628
Geoffrey F. Cox 34,494,851 157,438
George W. Ebright 34,492,276 160,013
David J. Gury 34,346,834 305,455
Richard A. Harvey, Jr. 34,529,411 122,878
Linda Jenckes 34,524,608 127,681
Thomas H. McLain 34,396,764 255,525
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
10.40* Amended and Restated By-Laws of Nabi dated May 18, 2001
(b) Reports on Form 8-K:
On July 10, 2001, the Company filed a current report on Form 8-K, reporting
under Item 5 thereof, Other Events.
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* Filed herewith
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NABI
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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.
NABI
Date: August 9, 2001 By: /s/ MARK L. SMITH
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MARK L. SMITH
Senior Vice President, Finance and
Chief Financial Officer
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