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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, 1999
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 #0-4829-03
NABI
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(Exact name of registrant as specified in its charter)
DELAWARE 59-1212264
- --------------------------------------------- ------------------------------------
(State or other jurisdiction of incorporation (I.R.S. Employer Identification No.)
or organization)
5800 Park of Commerce Boulevard N.W., Boca Raton, FL 33487
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(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code): (561) 989-5800
---------------------------
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 12 months, 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 August 10, 1999
was 34,940,366 shares.
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QUARTERLY REPORT UNDER SECTION 13 OR 15 (D)
NABI
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INDEX
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PART I. FINANCIAL INFORMATION PAGE
ITEM 1. FINANCIAL STATEMENTS..............................................................................3
Consolidated Balance Sheets, June 30, 1999 and December 31, 1998..........................................3
Consolidated Statements of Operations for the three-month and six-month periods ended
June 30, 1999 and 1998...............................................................................4
Consolidated Statements of Cash Flows for the six-month periods ended
June 30, 1999 and 1998...............................................................................5
Notes to Consolidated Financial Statements................................................................6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS........................................................................................9
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS................................................................................13
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS..............................................14
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.................................................................14
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NABI(R)
PART I Financial Information
Item 1 Financial Statements
- --------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
JUNE 30, DECEMBER 31,
----------------------------
DOLLARS IN THOUSANDS 1999 1998
- ----------------------------------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 1,112 $ 1,016
Trade accounts receivable, net 31,911 40,029
Inventories, net 32,969 38,203
Prepaid expenses and other assets 3,757 6,227
--------- ---------
TOTAL CURRENT ASSETS 69,749 85,475
PROPERTY AND EQUIPMENT, NET 102,174 99,018
OTHER ASSETS:
Excess of acquisition cost over net assets acquired, net 13,600 16,165
Intangible assets, net 6,432 7,032
Other, net 10,250 10,610
--------- ---------
TOTAL ASSETS $ 202,205 $ 218,300
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Trade accounts payable $ 12,716 $ 14,964
Accrued expenses 24,156 28,466
Notes payable 5,279 81
--------- ---------
TOTAL CURRENT LIABILITIES 42,151 43,511
NOTES PAYABLE 103,273 117,963
OTHER 2,287 2,637
--------- ---------
TOTAL LIABILITIES 147,711 164,111
--------- ---------
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;
34,938 and 34,903 shares issued and outstanding, respectively 3,494 3,490
Capital in excess of par value 137,971 137,911
Accumulated deficit (86,196) (86,734)
Accumulated other comprehensive loss (775) (478)
--------- ---------
TOTAL STOCKHOLDERS' EQUITY 54,494 54,189
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 202,205 $ 218,300
========= =========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
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NABI(R)
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED) (UNAUDITED)
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
----------------------------------------------------------
DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA 1999 1998 1999 1998
- ------------------------------------------------------------------------------------------------------------------
SALES $ 62,198 $ 61,178 $ 120,221 $ 119,792
COSTS AND EXPENSES:
Costs of products sold 42,669 43,542 87,898 88,131
Selling, general and administrative expense 8,513 8,178 14,996 16,173
Research and development expense 3,868 5,621 7,061 10,388
Royalty expense 3,914 3,118 6,091 5,863
Other operating expense, principally
freight and amortization 487 577 978 1,159
--------- --------- --------- ---------
OPERATING INCOME (LOSS) 2,747 142 3,197 (1,922)
INTEREST INCOME 54 3 60 12
INTEREST EXPENSE (980) (1,401) (2,291) (3,177)
OTHER, NET (13) 187 (54) 47
--------- --------- --------- ---------
INCOME (LOSS) BEFORE BENEFIT (PROVISION)
FOR INCOME TAXES 1,808 (1,069) 912 (5,040)
BENEFIT (PROVISION) FOR INCOME TAXES (756) 552 (374) 2,605
--------- --------- --------- ---------
NET INCOME (LOSS) $ 1,052 ($ 517) $ 538 ($ 2,435)
========= ========= ========= =========
BASIC AND DILUTED EARNINGS (LOSS) PER SHARE $ 0.03 ($ 0.01) $ 0.02 ($ 0.07)
========= ========= ========= =========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
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NABI(R)
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
SIX MONTHS ENDED JUNE 30,
DOLLARS IN THOUSANDS 1999 1998
- -----------------------------------------------------------------------------------------------------
CASH FLOW FROM OPERATING ACTIVITIES:
Net income (loss) $ 538 ($ 2,435)
Adjustments to reconcile net income (loss) to net cash provided
(used) by operating activities:
Depreciation and amortization 5,272 5,640
Provision for doubtful accounts (10) (75)
Deferred income taxes 374 (2,605)
Other 65 136
Change in assets and liabilities:
Decrease (increase) in trade accounts receivable 8,128 2,544
Decrease (increase) in inventories 5,234 6,835
Decrease (increase) in prepaid expenses and other assets 341 5,178
Decrease (increase) in other assets (242) 79
Increase (decrease) in accounts payable and accrued liabilities (2,846) (5,194)
-------- --------
Total adjustments 16,316 12,538
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 16,854 10,103
-------- --------
CASH FLOW FROM INVESTING ACTIVITIES:
Proceeds from sale of antibody centers 2,518 --
Capital expenditures (9,804) (9,227)
-------- --------
NET CASH USED BY INVESTING ACTIVITIES (7,286) (9,227)
-------- --------
CASH FLOW FROM FINANCING ACTIVITIES:
Repayments under line of credit, net (9,690) (6,646)
Borrowings under term loan -- 5,000
Other debt 198 (938)
Proceeds from the exercise of options 20 113
-------- --------
NET CASH USED BY FINANCING ACTIVITIES (9,472) (2,471)
-------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 96 (1,595)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,016 3,397
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,112 $ 1,802
======== ========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
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NABI
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 GENERAL
Nabi(R) (the "Company") is a fully-integrated biopharmaceutical company that
develops and commercializes pharmaceutical products used for the prevention and
treatment of infectious and autoimmune diseases and supplies specialty and
non-specific antibody products to pharmaceutical companies worldwide.
The consolidated financial statements include the accounts of Nabi and its
subsidiaries. All significant intercompany accounts and transactions were
eliminated during the consolidation. These statements should be read in
conjunction with the consolidated financial statements and notes thereto
included in Nabi's Annual Report to Stockholders for the year ended December 31,
1998.
In the opinion of management, the unaudited consolidated financial statements
include all adjustments necessary to present fairly Nabi's consolidated
financial position at June 30, 1999 and the consolidated results of its
operations for the three and six month periods ended June 30, 1999 and 1998. 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 (FIFO) or market, are
as follows:
JUNE 30, DECEMBER 31,
------------------------------------------
DOLLARS IN THOUSANDS 1999 1998
---------------------------------------------------------------------------
Finished goods $31,904 $36,975
Work in process 944 1,964
Raw materials 3,230 3,772
------------------ --------------------
36,078 42,711
Less: reserves (3,109) (4,508)
------------------ --------------------
TOTAL $32,969 $38,203
================== ====================
NOTE 3 NON-RECURRING CHARGES
During the fourth quarter of 1998, Nabi recorded a non-recurring charge that
included $13.2 million related to a strategic plan to sharpen the Company's
focus. The plan commenced during late 1998 and will be substantially completed
during 1999.
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A summary of the Company's restructuring activity for the first six months of
1999 is presented below:
DOLLARS IN THOUSANDS
----------------------------------------------------------------------
Balance at December 31, 1998 $ 13,214
Activity during 1999:
Termination benefit payments (585)
Non-cash write-downs of fixed and intangible assets (4,295)
Non-cancelable lease obligation payments
and other cash outflows (145)
--------
BALANCE AT JUNE 30, 1999 $ 8,189
========
NOTE 4 EARNINGS PER SHARE
The following is a reconciliation between basic and diluted earnings per share
for the three and six months ended June 30, 1999 and 1998:
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
--------------------------------------- ----------------------------------------
Effect of Effect of
Dilutive Dilutive
Securities: Securities:
Stock Stock
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) Basic EPS Options Diluted EPS Basic EPS Options Diluted EPS
- ------------------------------------------------------------------------------------------------------------------------------------
1999
Net income (loss) $1,052 -- $ 1,052 $ 538 -- $ 538
Shares 34,926 316 35,242 34,916 243 35,159
Per share $0.03 -- $ 0.03 $ 0.02 -- $ 0.02
- ------------------------------------------------------------------------------------------------------------------------------------
1998
Net income (loss) ($517) -- ($ 517) ($ 2,435) -- ($ 2,435)
Shares 34,889 -- 34,889 34,870 -- 34,870
Per share ($0.01) -- ($ 0.01) ($ 0.07) -- ($ 0.07)
====================================================================================================================================
NOTE 5 COMPREHENSIVE INCOME
The components of comprehensive income for the three and six months ended June
30, 1999 and 1998 are as follows:
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
--------------------------------------------------------------------------
DOLLARS IN THOUSANDS 1999 1998 1999 1998
- ------------------------------------------------------------------------------------------------------------------
Net income (loss) $1,052 ($517) $538 ($2,435)
Foreign currency translation
gain (loss) (155) 35 (297) (9)
------------------ ---------------- ------------------ ---------------
COMPREHENSIVE INCOME (LOSS) $897 ($482) $241 ($2,444)
================== ================ ================== ===============
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NOTE 6 INDUSTRY SEGMENT INFORMATION
The following table presents information related to Nabi's two operating
business segments for the three and six months ended June 30, 1999 and 1998:
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
-----------------------------------------------------------------------
DOLLARS IN THOUSANDS 1999 1998 1999 1998
- ------------------------------------------------------------------------- ------------------------------------
Sales
Antibody products $43,988 $45,618 $90,469 $91,580
Pharmaceutical products 18,210 15,560 29,752 28,212
---------------- --------------- ---------------- --------------
TOTAL 62,198 61,178 120,221 119,792
================ =============== ================ ==============
Operating income (loss)
Antibody products 1,504 (230) 2,220 (1,316)
Pharmaceutical products 1,243 372 977 (606)
---------------- --------------- ---------------- --------------
TOTAL $2,747 $142 $3,197 ($1,922)
================ ================ ================ ================
The following summary reconciles reportable segment operating profit (loss) to
income (loss) before benefit (provision) for income taxes:
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
-----------------------------------------------------------------------
DOLLARS IN THOUSANDS 1999 1998 1999 1998
- ------------------------------------------------------------------------- ------------------------------------
INCOME (LOSS) BEFORE BENEFIT
(PROVISION) FOR INCOME TAXES:
Reportable segment
operating income (loss) $2,747 $142 $3,197 ($1,922)
Unallocated interest expense (980) (1,401) (2,291) (3,177)
Unallocated other income
and expense, net 41 190 6 59
---------------- ---------------- ---------------- ----------------
Consolidated income (loss)
before benefit (provision)
for income taxes $1,808 ($1,069) $912 ($5,040)
================ ================ ================ ================
NOTE 7 RECLASSIFICATIONS
Certain items in the consolidated financial statements for the 1998 period have
been reclassified for comparative purposes.
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ITEM 2
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is a discussion and analysis of the major factors contributing to
Nabi's financial condition and results of operations for the three and six month
periods ended June 30, 1999 and 1998. The discussion and analysis should be read
in conjunction with the condensed consolidated financial statements and notes
thereto. All dollar amounts are expressed in thousands, except per share
amounts.
RESULTS OF OPERATIONS
The following table sets forth Nabi's results of operations expressed as a
percentage of sales:
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
---------------------------------------------------------------------
1999 1998 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
SALES 100.0 % 100.0 % 100.0 % 100.0 %
Costs of products sold 68.6 % 71.2 % 73.1 % 73.6 %
------------- ------------ ------------ -------------
GROSS PROFIT MARGIN 31.4 % 28.8 % 26.9 % 26.4 %
Selling, general and administrative expense 13.7 % 13.4 % 12.5 % 13.5 %
Research and development expense 6.2 % 9.2 % 5.9 % 8.7 %
Royalty expense 6.3 % 5.1 % 5.1 % 4.9 %
Other operating expense, principally
freight and amortization 0.8 % 0.9 % 0.7 % 0.9 %
------------- ------------ ------------ -------------
OPERATING INCOME (LOSS) 4.4 % 0.2 % 2.7 % (1.6)%
Interest income 0.1 % 0.0 % 0.0 % 0.0 %
Interest expense (1.6)% (2.2)% (1.9)% (2.6)%
Other, net (0.0)% 0.3 % (0.0)% 0.0 %
------------- ------------ ------------ -------------
Income (loss) before benefit (provision)
for income taxes 2.9 % (1.7)% 0.8 % (4.2)%
Benefit (provision) for income taxes (1.2)% 0.9 % (0.3)% 2.2 %
------------- ------------ ------------ -------------
NET INCOME (LOSS) 1.7 % (0.8)% 0.5 % (2.0)%
============= ============ ============ =============
Information concerning Nabi's sales by operating segments for the respective
periods, is set forth in the following table:
THREE MONTHS ENDED JUNE 30,
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SEGMENT 1999 1998
- ---------------------------------------------------------------------------------------------------------------------
Antibody products:
- Non-specific antibodies $29,868 48.0% $32,686 53.4%
- Specialty antibodies 14,120 22.7% 12,932 21.1%
------------- ------------- ------------- --------------
43,988 70.7% 45,618 74.6%
Pharmaceutical products 18,210 29.3% 15,560 25.4%
------------- ------------- ------------- --------------
TOTAL $62,198 100.0% $61,178 100.0%
============= ============= ============= ==============
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SIX MONTHS ENDED JUNE 30,
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SEGMENT 1999 1998
- ---------------------------------------------------------------------------------------------------------------------
Antibody products:
- Non-specific antibodies $61,962 51.5% $66,694 55.7%
- Specialty antibodies 28,507 23.7% 24,886 20.8%
------------- ------------- ------------- --------------
90,469 75.2% 91,580 76.5%
Pharmaceutical products 29,752 24.8% 28,212 23.5%
------------- ------------- ------------- --------------
TOTAL $120,221 100.0% $119,792 100.0%
============= ============= ============= ==============
THREE MONTHS ENDED JUNE 30, 1999 AND 1998
SALES. Sales for the second quarter of 1999 increased by $1 million to $62.2
million, compared to $61.2 million for the second quarter of 1998.
Pharmaceutical sales increased 17% from the 1998 second quarter. This increase
reflected increased sales of existing products, WinRho SDF(TM) and Autoplex(R)T,
and sales of ALOPRIM(TM), a new pharmaceutical product that Nabi in-licensed and
launched at the end of the second quarter in 1999. Total antibody sales
decreased by $1.6 million from the 1998 second quarter. Consistent with the
Company's objectives for 1999 to shift revenues toward specialty products and
improve antibody margins, specialty antibody product sales increased almost 10%,
reflecting higher volumes for most products, including tetanus, anti-CMV and
rabies products, which more than offset the cessation of anti-RSV product sales.
Non-specific antibody sales decreased 9% from the comparable 1998 period due to
lower production, reflecting in part the effect of the sale of six antibody
collection centers in April 1999.
GROSS PROFIT MARGIN. Gross profit and related margin for the second quarter of
1999 was $ 19.5 million, a record level of 31.4% of sales, compared to $17.6
million, or 28.8% of sales, in the second quarter of 1998. The gains in gross
profit and related margin reflects the Company's success in improving sales mix
toward higher-margin specialty antibody products and pharmaceutical products. In
addition, the 1999 results reflect management's efforts to manage costs and
optimize production in the antibody business.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general and administrative
expense was $8.5 million, or 13.7% of sales, for the second quarter of 1999
compared to $8.2 million, or 13.4% of sales, in the second quarter of 1998. This
increase resulted from higher sales and marketing expenses associated with
increasing pharmaceutical product sales, the launch of Nabi-HB(TM), and
increased system costs related to Year 2000 readiness. This increase was
partially offset by a reduction in other general and administrative expenses for
the 1999 quarter.
RESEARCH AND DEVELOPMENT EXPENSE. Research and development expense was $3.9
million, or 6.2% of sales, for the second quarter of 1999 compared to $5.6
million, or 9.2% of sales, in the second quarter of 1998. Nabi incurred
significant expenditures during 1998 related to the advancement of clinical
trials for Nabi-HB(TM) which was approved by the FDA in March 1999. In 1999,
Nabi has reduced pre-clinical product development activities and has focused its
ongoing research and development efforts to support currently marketed products
and those in later stages of development. At the same time, the Company is
actively seeking corporate and government partners to fund the significant cost
of further development for the products in its research and development
pipeline.
ROYALTY EXPENSE. Royalty expense was $3.9 million, or 6.3% of sales, in the
second quarter of 1999, compared to $3.1 million, or 5.0% of sales, in the
second quarter of 1998. The increase is attributable to higher sales of
pharmaceutical products and Nabi-HB(TM) royalties payable to the New York Blood
Center based on the reformulated product.
INTEREST EXPENSE. Interest expense for the second quarter of 1999 was $1
million, or 1.6% of sales, compared to $1.4 million, or 2.2% of sales, in the
second quarter of 1998. The decrease is primarily
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attributable to higher amounts of interest capitalized during the 1999 second
quarter. Capitalized interest relating primarily to construction of Nabi's
biopharmaceutical manufacturing facility in Boca Raton, Florida was
approximately $1.2 million in the 1999 second quarter as compared to $0.8
million during the 1998 period.
OTHER FACTORS. Provision for income taxes was $0.8 million, recorded at an
effective rate of 41.8%, in the second quarter of 1999 compared to a $0.6
million benefit, or an effective rate of 52%, in the second quarter of 1998. The
41.8% effective tax rate for the second quarter of 1999 differs from the
statutory rate of 35% primarily due to foreign income, non-deductible goodwill
and state income taxes.
SIX MONTHS ENDED JUNE 30, 1999 AND 1998
SALES. Sales for the first half of 1999 increased by $0.4 million to $120.2
million compared to $119.8 million for the first half of 1998. The increase
resulted primarily from a 15% increase in sales of specialty antibody products,
reflecting higher volumes for most products, including hepatitis B, tetanus,
anti-CMV, rabies and anti-D products, partially offset by the cessation of
anti-RSV product sales. Non-specific antibody sales decreased by $4.7 million
due to lower production in 1999. This is in part due to the impact of the sale
of six centers in April 1999 and, the Company believes, low unemployment levels
which has made it difficult to attract potential donors. Pharmaceutical product
sales increased by $1.5 million primarily due to increased sales of Autoplex(R)T
and sales of ALOPRIM(TM), a new pharmaceutical product that Nabi in-licensed and
launched at the end of the second quarter in 1999.
GROSS PROFIT MARGIN. Gross profit and related margin for the first half of 1999
was $32.3 million, or 26.9% of sales, compared to $31.7 million, or 26.4% of
sales, in the first half of 1998. The $0.7 million increase in gross profit and
related margin resulted from an improved sales mix of higher-margin specialty
antibody products and pharmaceutical products. In addition, the 1999 results
reflect management's efforts to manage costs and optimize production in the
antibody business.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general and administrative
expense was $15 million, or 12.5% of sales, for the first half of 1999 compared
to $16.2 million, or 13.5% of sales, in the first half of 1998. This $1.2
million decrease reflects the impact of higher general and administrative
expense in 1998 due to costs associated with reorganizational measures initiated
in the first half of 1998. This reduction was partially offset by increased
sales and marketing expenses in 1999 associated with increased pharmaceutical
product sales, the launch of Nabi-HB(TM), and increased system costs related to
Year 2000 readiness.
RESEARCH AND DEVELOPMENT EXPENSE. Research and development expense was $7.1
million, or 5.9% of sales, for the first half of 1999, compared to $10.4
million, or 8.7% of sales, in the first half of 1998. Nabi incurred significant
expenditures during 1998 related to the advancement of clinical trials for
Nabi-HB(TM) which was approved by the FDA in March 1999. In 1999, Nabi has
reduced pre-clinical product development activities and has focused its ongoing
research and development efforts to support currently marketed products and
those in later stages of development. At the same time, the Company is actively
seeking corporate and government partners to fund the significant cost of
further development for the products in its research and development pipeline.
ROYALTY EXPENSE. Royalty expense for the first half of 1999 was $6.1 million, or
5.1% of sales, compared to $5.9 million, or 4.9% of sales, in the first half of
1998. The increase is attributable to higher sales of pharmaceutical products
and Nabi-HB(TM) royalties payable to the New York Blood Center based on the
reformulated product.
INTEREST EXPENSE. Interest expense for the first half of 1999 was $2.3 million,
or 1.9% of sales, compared to $3.2 million, or 2.6% of sales, in the first half
of 1998. The decrease is primarily attributable to higher
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amounts of interest capitalized during the first half of 1999. Capitalized
interest relating primarily to construction of Nabi's biopharmaceutical
manufacturing facility in Boca Raton, Florida was approximately $2.3 million
during the first six months of 1999 as compared to $1.6 million during the 1998
period.
OTHER FACTORS. Provision for income taxes was $0.4 million or an effective rate
of 41%, in the first half of 1999 compared to a $2.6 million benefit, or an
effective rate of 52%, in the first half of 1998. The 41% effective tax rate for
1999 differs from the statutory rate of 35% primarily due to foreign income,
non-deductible goodwill and state income taxes.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1999, Nabi's credit agreement provided for a $45 million revolving
credit facility subject to certain borrowing base restrictions as defined in the
agreement which matures in September 2002, and a $5.0 million term loan due in
March 2000. Borrowings under the agreement totaled $27.8 million and additional
availability was approximately $8 million at June 30, 1999. The credit agreement
is secured by substantially all of Nabi's assets, requires the maintenance of
certain financial covenants and prohibits the payment of dividends.
As of June 30, 1999, Nabi's current assets exceeded current liabilities by $27.6
million as compared to a net working capital position of $42 million at December
31, 1998. Cash and cash equivalents at June 30, 1999 were $1.1 million compared
to $1 million at December 31, 1998. The primary source of cash during 1999 was
operations, including a reduction of trade receivables and inventories. Net cash
provided by operating activities was $16.9 million representing an improvement
of $6.8 million from the comparable 1998 six months. The primary uses of cash
during the first half of 1999 were capital expenditures, principally associated
with the Company's manufacturing facility in Boca Raton, Florida, and a $9.7
million reduction of borrowings under the revolving credit agreement.
Projected capital expenditures for the remainder of 1999 include costs
associated with the Boca Raton manufacturing facility, including capitalized
interest, development of information systems and related expenditures, and
antibody collection center renovations. Nabi believes that cash flow from
operations and its available bank credit facilities will be sufficient to meet
its anticipated cash requirements for 1999. The Company is also in the process
of seeking additional cash to fund the development of its pharmaceutical product
pipeline from strategic alliances and additional funding from new or existing
credit facilities.
YEAR 2000
Nabi continues to assess the potential impact of the Year 2000 computer
processing issue on its management and information systems. Key financial and
operational systems have been evaluated for Year 2000 compliance. During 1998, a
cross-functional team was established to identify and address Year 2000 issues
for other information systems, equipment, other business systems and external
supplier and customer relationships.
The Company's program to address Year 2000 readiness has four overlapping
phases. Phase I, the identification and assessment of systems, equipment and
business relationships associated with Nabi's business critical processes, has
been completed. For these business critical processes, the Company is focusing
its efforts on Phase II, the testing of Year 2000 readiness for the associated
internal systems and equipment and the inquiry/audit of Year 2000 readiness for
external suppliers and customers, Phase III, the renovation or replacement of
the associated systems, equipment or business relationships that will not be
Year 2000 ready, including re-testing as required, and Phase IV, contingency
planning to mitigate the potential effect of issues which may be so deeply
embedded in the identified business critical processes that they are beyond the
Company's ability to identify and control.
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As indicated above, Nabi has completed its initial assessment phase of
addressing Year 2000 issues. For its business critical processes, the Company is
currently testing systems and equipment, and is concurrently renovating or
replacing any systems or equipment as needed. In addition, Nabi has initiated
communications with any associated key external suppliers and customers and is
assessing the responses received. Nabi's goal is to complete all significant
required testing of changes to systems, equipment or processes and contingency
planning by the end of the third quarter of 1999.
The Company will utilize both internal and external resources in its Year 2000
efforts. The additional cost to achieve Year 2000 readiness is currently
estimated at $3 to $5 million dollars, including expense and capital
expenditures, not all of which are incremental to the Company's operations.
These expenditures will primarily be incurred during 1999 and will be funded by
a combination of operating cash flows, bank credit facilities, and operating and
capital lease agreements. Approximately 25% of Nabi's 1999 information
technology planned expenditures will be directly attributable to Year 2000
remediation efforts. Year 2000 related expenditures were approximately $620,000
in the second quarter of 1999.
The Company's efforts in these areas are ongoing. As of June 1999, based on the
work completed to date, Nabi believes that the software, equipment and other
systems related to its business critical processes are Year 2000 ready or that
it will be able to renovate or replace, in a timely manner, any element, which
if not Year 2000 ready could be expected to have a significant, adverse effect
on Nabi's ability to deliver products or services. However, there can be no
assurance that the Company's efforts will be successful. If they are not, the
Company's operations or financial condition may be materially and adversely
affected.
FACTORS TO BE CONSIDERED
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. 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 31, 1998 concerning certain factors that could cause Nabi's 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.
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Nabi is a party to litigation in the ordinary course of business. In addition,
Nabi is a co-defendant with various other parties in several suits 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 Nabi or having familial relations with those so infected. Nabi does
not believe that any such litigation will have a material adverse effect on its
business, financial position or results of operations.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The following matters were approved at Nabi's annual stockholders' meeting,
which was held on May 28, 1999:
a) Election of the following to the Board of Directors:
VOTES
----------------------------------------------------
FOR WITHHELD
- --------------------------------------------------------------------------------------------------
David L. Castaldi 31,441,424 358,444
Joseph C. Cook, Jr. 31,463,924 335,944
George W. Ebright 31,433,799 366,069
David J. Gury 31,405,880 393,988
Richard A. Harvey, Jr. 31,454,319 345,549
Linda Jenckes 31,457,077 342,791
David A. Thompson 31,438,974 360,894
b) Approval of the Stock Plan for Non-Employee Directors, as amended:
VOTES
- ------------------------------------------------------------------------
For Against Abstain
- ----------------------- --------------------- --------------------------
30,700,809 908,195 190,864
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibit
10.23 Amended and Restated By-Laws of Nabi dated
May 28, 1999
27 Financial Data Schedule (for S.E.C. use only)
b. Reports on Form 8-K:
None
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NABI(R)
- --------------------------------------------------------------------------------
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(R)
Date: August 11, 1999 By: /s/ Thomas H. Mclain
---------------------------------------
THOMAS H. MCLAIN
Senior Vice President, Corporate Services and
Chief Financial Officer
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