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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 JULY 1, 2000
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)
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DELAWARE 59-1212264
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(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)
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(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 July 27, 2000
was 37,672,227 shares.
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QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
NABI
INDEX
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PAGE
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.............................................................................3
Consolidated Balance Sheets, July 1, 2000 and December 31, 1999...........................................3
Consolidated Statements of Operations for the three-month and six-month periods ended
July 1, 2000 and June 30, 1999.......................................................................4
Consolidated Statements of Cash Flows for the six-month periods ended
July 1, 2000 and June 30, 1999.......................................................................5
Notes to Consolidated Financial Statements................................................................6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS...................................................................................10
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS...............................................................................14
ITEM 2. CHANGES IN SECURITIES...........................................................................14
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.............................................15
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K................................................................15
Exhibit 27 - Financial Data Schedule (for S.E.C. use only)...............................................17
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NABI
PART I FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
-------------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
JULY 1, DECEMBER 31,
------------------------------------------
IN THOUSANDS 2000 1999
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<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 1,586 $ 806
Trade accounts receivable, net 32,109 34,019
Inventories, net 33,425 35,932
Prepaid expenses and other assets 6,887 8,149
---------------- ---------------
TOTAL CURRENT ASSETS 74,007 78,906
PROPERTY AND EQUIPMENT, NET 114,810 109,138
OTHER ASSETS:
Goodwill, net 12,873 13,236
Intangible assets, net 5,631 6,028
Other, net 7,097 7,256
---------------- ---------------
TOTAL ASSETS $ 214,418 $ 214,564
================ ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Trade accounts payable $ 13,701 $ 16,025
Accrued expenses 19,856 26,178
Notes payable 1,000 704
---------------- ---------------
TOTAL CURRENT LIABILITIES 34,557 42,907
NOTES PAYABLE 113,574 112,294
OTHER 1,315 1,186
---------------- ---------------
TOTAL LIABILITIES 149,446 156,387
---------------- ---------------
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;
35,989 and 34,961 shares issued and outstanding, respectively 3,599 3,496
Capital in excess of par value 142,799 138,071
Accumulated deficit (81,426) (83,390)
---------------- ---------------
TOTAL STOCKHOLDERS' EQUITY 64,972 58,177
---------------- ---------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 214,418 $ 214,564
================ ===============
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THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
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CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED) (UNAUDITED)
THREE MONTHS ENDED, SIX MONTHS ENDED,
----------------------------------------------------------------------
DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA JULY 1, 2000 JUNE 30, 1999 JULY 1, 2000 JUNE 30, 1999
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SALES $ 57,581 $ 62,198 $ 113,421 $ 120,221
Costs and expenses:
Costs of products sold 39,888 42,669 78,350 87,898
Selling, general and administrative expense 8,687 8,513 17,121 14,996
Research and development expense 3,781 3,868 7,777 7,061
Royalty expense 2,809 3,914 5,730 6,091
Other operating expense, principally
freight and amortization 457 487 957 978
--------- --------- --------- ---------
Operating income 1,959 2,747 3,486 3,197
Interest income 10 54 136 60
Interest expense (980) (980) (2,005) (2,291)
Other, net 3 (13) 74 (54)
--------- --------- --------- ---------
Income before provision for income taxes
and extraordinary gain 992 1,808 1,691 912
Provision for income taxes (45) (756) (67) (374)
--------- --------- --------- ---------
Income before extraordinary gain 947 1,052 1,624 538
Extraordinary gain, net of income taxes of $13 340 -- 340 --
--------- --------- --------- ---------
Net income $ 1,287 $ 1,052 $ 1,964 $ 538
========= ========= ========= =========
Basic earnings per share:
Income before extraordinary gain $ 0.03 $ 0.03 $ 0.05 $ 0.02
Extraordinary gain 0.01 -- 0.01 --
--------- --------- --------- ---------
Net income $ 0.04 $ 0.03 $ 0.06 $ 0.02
========= ========= ========= =========
Diluted earnings per share:
Income before extraordinary gain $ 0.03 $ 0.03 $ 0.04 $ 0.02
Extraordinary gain 0.01 -- 0.01 --
--------- --------- --------- ---------
Net income $ 0.04 $ 0.03 $ 0.05 $ 0.02
========= ========= ========= =========
Basic weighted average shares outstanding 35,761 34,926 35,573 34,916
========= ========= ========= =========
Diluted weighted average shares outstanding 36,735 35,242 36,781 35,159
========= ========= ========= =========
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THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
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CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
SIX MONTHS ENDED,
-------------------------------------
DOLLARS IN THOUSANDS JULY 1, 2000 JUNE 30, 1999
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Cash flow from operating activities:
Net income $ 1,964 $ 538
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 5,036 5,272
Provision for doubtful accounts (28) (10)
Provision for slow moving or obsolete inventory 717 1,162
Deferred income taxes -- 374
Extraordinary gain, net (340) --
Other 14 65
Change in assets and liabilities:
Decrease in trade accounts receivable 1,765 8,128
Decrease in inventories 1,790 4,072
Decrease in prepaid expenses and other assets 1,262 341
Increase in other assets (87) (242)
Decrease in accounts payable and accrued liabilities (8,386) (2,846)
-------- --------
Total adjustments 1,743 16,316
-------- --------
Net cash provided by operating activities 3,707 16,854
-------- --------
Cash flow from investing activities:
Proceeds from sale of antibody centers -- 2,518
Capital expenditures (9,667) (9,804)
-------- --------
Net cash used by investing activities (9,667) (7,286)
-------- --------
Cash flow from financing activities:
Borrowings (repayments) under line of credit, net 3,780 (9,690)
Repayments of term debt (167) --
Other debt (39) 198
Proceeds from the exercise of stock options 3,166 20
-------- --------
Net cash provided (used) by financing activities 6,740 (9,472)
-------- --------
Net increase in cash and cash equivalents 780 96
Cash and cash equivalents at beginning of period 806 1,016
-------- --------
Cash and cash equivalents at end of period $ 1,586 $ 1,112
======== ========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 4,231 $ 4,211
======== ========
Income taxes refunded ($ 43) ($ 111)
======== ========
Non-cash extinguishment of convertible subordinated
debentures in exchange for common stock $ 2,000 --
======== ========
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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
We are nearing completion of a multi-year transition from being a leading
provider of antibody products to other pharmaceutical manufacturers to becoming
a fully integrated biopharmaceutical company, developing, manufacturing and
marketing our own products for the prevention and treatment of infectious
diseases and immunological disorders. We have a portfolio of marketed products
and significant research and development capabilities that are focused on the
development and commercialization of products that prevent and treat infectious
and autoimmune diseases. We currently have several clinical trials underway in
these areas and have four marketed pharmaceutical products.
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,
1999.
In the opinion of management, the unaudited consolidated financial statements
include all adjustments necessary to present fairly our consolidated financial
position at July 1, 2000 and the consolidated results of its operations for the
three and six month periods ended July 1, 2000 and June 30, 1999. 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:
JULY 1, DECEMBER 31,
DOLLARS IN THOUSANDS 2000 1999
-------------------------------------------------------------------------------
Finished goods, net $30,049 $32,779
Work in process, net 1,088 451
Raw materials, net 2,288 2,702
------- -------
TOTAL $33,425 $35,932
======= =======
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NOTE 3. NON-RECURRING CHARGES
During the fourth quarter of 1998, we recorded a non-recurring charge that
included $13.2 million related to a strategic plan to sell or close certain
antibody collection centers and actions to reduce pre-clinical product
development activities at our Rockville, Maryland facility. During 1999, we
reduced staff levels at our Rockville facility, closed or sold seven U.S.
antibody collection centers out of the eight centers specified in the original
plan, and transferred our four German antibody collection centers and related
operations to a third party.
As of July 1, 2000, $3 million of the remaining restructuring accrual
primarily relates to non-cancelable lease obligations associated with the
Rockville facility and $0.9 million associated with unpaid severance benefits
and other costs related to disposition of the remaining antibody collection
center. Resolution of the contemplated actions relating to the remaining
antibody collection center is expected to be completed by the end of the third
quarter of 2000.
A summary of our restructuring activity for the first six months of 2000 and
1999 is presented below:
DOLLARS IN THOUSANDS
----------------------------------------------------------------------------
Balance at December 31, 1999 $4,083
Activity during 2000:
Termination benefit payments (57)
Other (159)
-------
BALANCE AT JULY 1, 2000 $3,867
=======
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-month periods ended July 1, 2000 and June 30, 1999:
7
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THREE MONTHS ENDED, SIX MONTHS ENDED,
-----------------------------------------------------------------------------------------------------------------------------------
EFFECT OF EFFECT OF
DILUTIVE DILUTIVE
SECURITIES; SECURITIES;
(IN THOUSANDS, STOCK STOCK
EXCEPT PER SHARE DATA) BASIC EPS OPTIONS DILUTED EPS BASIC EPS OPTIONS DILUTED EPS
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
July 1, 2000
Net income (loss) $ 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
------- ---- ------- ------- ------- -------
June 30, 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
======= ==== ======= ======= ======= =======
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NOTE 5. COMPREHENSIVE INCOME
The components of comprehensive income for the three and six months ended July
1, 2000 and June 30, 1999 are as follows:
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THREE MONTHS ENDED, SIX MONTHS ENDED,
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DOLLARS IN THOUSANDS JULY 1, 2000 JUNE 30, 1999 JULY 1, 2000 JUNE 30, 1999
------------------------------------------------------------------------------------------------------------------
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Net income $1,287 $1,052 $1,964 $ 538
Foreign currency translation
loss -- (155) -- (297)
------ ------ ------ -----
COMPREHENSIVE INCOME $1,287 $ 897 $1,964 $ 241
====== ====== ====== =====
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NOTE 6. INDUSTRY SEGMENT INFORMATION
The following table presents information related to our two operating business
segments for the three and six-month periods ended July 1, 2000 and June 30,
1999:
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THREE MONTHS ENDED, SIX MONTHS ENDED,
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DOLLARS IN THOUSANDS JULY 1, 2000 JUNE 30, 1999 JULY 1, 2000 JUNE 30, 1999
--------------------------------------------------------------------------------------------------------------
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Sales
Antibody products $39,800 $43,988 $79,419 $90,469
Pharmaceutical products 17,781 18,210 34,002 29,752
------- ------- -------- --------
TOTAL $57,581 $62,198 $113,421 $120,221
======= ======= ======== ========
Operating income (loss)
Antibody products $(1,869) $1,504 $(2,267) $2,220
Pharmaceutical products 3,828 1,243 5,753 977
------- ------- -------- --------
TOTAL $1,959 $2,747 $3,486 $3,197
======= ======= ======== ========
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The following summary reconciles reportable segment operating profit to income
before provision for income taxes and extraordinary gain:
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THREE MONTHS ENDED, SIX MONTHS ENDED,
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DOLLARS IN THOUSANDS JULY 1, 2000 JUNE 30, 1999 JULY 1, 2000 JUNE 30, 1999
--------------------------------------------------------------------------------------------------------------
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INCOME BEFORE PROVISION
FOR INCOME TAXES AND
EXTRAORDINARY GAIN:
Reportable segment
operating income $1,959 $2,747 $ 3,486 $ 3,197
Unallocated interest expense (980) (980) (2,005) (2,291)
Unallocated other income
and expense, net 13 41 210 6
------ ------ ------- -------
Consolidated income before
provision for income taxes
and extraordinary gain $ 992 $1,808 $ 1,691 $ 912
====== ====== ======= =======
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NOTE 7. NOTES PAYABLE
During January 1996, we issued $80.5 million of 6.5% Convertible Subordinated
Notes due February 1, 2003 (the "Notes") in a private placement. The Notes are
convertible into common stock at a conversion price of $14 per share at any time
and may be redeemed for cash at our option without premium. During June 2000, we
accepted an offer and agreed to exchange an aggregate of 241,795 shares of our
common stock for $2 million of the Notes which were subsequently extinguished,
resulting in an extraordinary gain of $0.3 million, net of taxes, which is
included in the results for the second quarter and six-month period ended July
1, 2000.
NOTE 8. SUBSEQUENT EVENT
On July 11, 2000, we completed a private placement of 1,666,667 shares of common
stock to a group of institutional investors and realized net proceeds of
approximately $9.3 million. Proceeds from the equity private placement were used
to reduce borrowings and increase availability under our existing bank line of
credit. In connection with the offering, we issued five-year warrants to
purchase 133,333 shares of common stock at an exercise price of $7.50 per share
to the placement agent.
NOTE 9. NEW ACCOUNTING PRONOUNCEMENTS
In December 1999, the Securities and Exchange Commission ("SEC") issued Staff
Accounting Bulletin ("SAB") No. 101. SAB 101 summarizes certain of the SEC's
views in applying general accepted accounting principles to certain revenue
transactions in financial statements. Implementation of the SAB is required in
the fourth quarter of 2000. We are currently assessing the impact, if any, and
do not currently anticipate that SAB 101 will have a material effect on our
financial position and results of operations.
NOTE 10. RECLASSIFICATIONS
Certain items in the consolidated financial statements for the 1999 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
our financial condition and results of operations for the three and six-month
periods ended July 1, 2000 and June 30, 1999. 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 our results of operations expressed as a
percentage of sales:
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THREE MONTHS ENDED, SIX MONTHS ENDED,
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JULY 1, 2000 JUNE 30, 1999 JULY 1, 2000 JUNE 30, 1999
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Sales 100.0 % 100.0 % 100.0 % 100.0 %
Costs of products sold 69.3 % 68.6 % 69.1 % 73.1 %
----------- ----------- ----------- -----------
Gross profit margin 30.7 % 31.4 % 30.9 % 26.9 %
Selling, general and administrative expense 15.1 % 13.7 % 15.1 % 12.5 %
Research and development expense 6.5 % 6.2 % 6.9 % 5.9 %
Royalty expense 4.9 % 6.3 % 5.0 % 5.1 %
Other operating expense, principally
freight and amortization 0.8 % 0.8 % 0.8 % 0.7 %
----------- ----------- ----------- -----------
Operating income 3.4 % 4.4 % 3.1 % 2.7 %
Interest income 0.0 % 0.1 % 0.0 % 0.0 %
Interest expense (1.7)% (1.6)% (1.8)% (1.9)%
Other, net 0.0 % (0.0)% 0.2 % (0.0)%
----------- ----------- ----------- -----------
Income before provision for income taxes
and extraordinary gain 1.7 % 2.9 % 1.5 % 0.8 %
Provision for income taxes (0.1)% (1.2)% (0.1)% (0.3)%
----------- ----------- ----------- -----------
Income before extraordinary gain 1.6 % 1.7 % 1.4 % 0.5 %
Extraordinary gain, net 0.6 % -- % 0.3 % -- %
----------- ----------- ----------- -----------
Net income 2.2 % 1.7 % 1.7 % 0.5 %
=========== =========== =========== ===========
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Information concerning sales by operating segments for the respective periods,
is set forth in the following table:
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THREE MONTHS ENDED,
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SEGMENT JULY 1, 2000 JUNE 30, 1999
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Pharmaceutical products $17,781 30.9% $18,210 29.3%
Antibody products:
- Non-specific antibodies 24,180 42.0 29,868 48.0
- Specialty antibodies 15,620 27.1 14,120 22.7
------- ----- ------- -----
39,800 69.1 43,988 70.7
------- ----- ------- -----
TOTAL $57,581 100.0% $62,198 100.0%
======= ===== ======= =====
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SIX MONTHS ENDED,
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SEGMENT JULY 1, 2000 JUNE 30, 1999
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Pharmaceutical products $34,002 30.0% $29,752 24.8%
Antibody products:
- Non-specific antibodies 49,590 43.7 61,962 51.5
- Specialty antibodies 29,829 26.3 28,507 23.7
-------- ----- -------- -----
79,419 70.0 90,469 75.2
-------- ----- -------- -----
TOTAL $113,421 100.0% $120,221 100.0%
======== ===== ======== =====
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THREE MONTHS ENDED JULY 1, 2000 AND JUNE 30, 1999
OVERVIEW. Our business strategy is to shift the mix of Nabi's sales from
low-margin non-specific antibody products to higher margin specialty antibody
and pharmaceutical products. Earnings from operations will be used to support
our investment in the development of our product pipeline and manufacturing
capacity.
SALES. Revenues from pharmaceutical products during the second quarter of 2000
were led by Nabi-HB(TM) [Hepatitis B Immune Globulin (Human)], which increased
more than 40% from the second quarter of 1999, while total pharmaceutical
revenues were essentially unchanged from the comparable prior year period. In
the second quarter of 1999, pharmaceutical revenues benefited from the initial
launch of Aloprim(TM) [Allopurinol Sodium for Injection]. Sales of WinRho SDF(R)
[Rho(D) Immune Globulin (Human)] in the second quarter of 2000 were lower than
the comparable period in 1999 based on ordering patterns from distributors and
wholesalers.
Total revenues for the second quarter of 2000 were 7% below 1999, primarily due
to a decrease in non-specific antibody product sales. This decrease was the
result of our strategic decision to exit unprofitable operations through the
sale, transfer or closure of 11 antibody collection centers in the U.S. and
Germany during 1999, and our continuing emphasis on increasing production of
higher margin specialty antibody products in 2000. The decrease in sales of
non-specific antibodies was partially offset by increased specialty antibodies
revenues in the second quarter of 2000. The overall increase in specialty
antibody revenues in the second quarter of 2000 reflected higher sales of
anti-rabies, anti-D and anti-CMV antibody products, and increased revenues from
laboratory testing services, partially offset by a decrease in anti-Hbs sales.
GROSS PROFIT MARGIN. Gross profit and related margin for the second quarter of
2000 was $17.7 million, or 31% of sales, compared to $19.5 million, or 31% of
sales in the second quarter of 1999. The decrease was primarily due to lower
margins from antibody product sales, reflecting higher costs for antibody
production, including costs to attract and retain donors and one-time costs for
the implementation of a new donor management system. In addition, antibody
margins were adversely affected by a decrease in high-margin anti-Hbs sales in
2000. The decrease in antibody margins was partially offset by increased margins
from pharmaceutical revenues, including a benefit from a non-performance penalty
payment due as a result of contractual delivery shortfalls by the supplier of
Autoplex(R) T [Anti-Inhibitor Coagulant Complex, Heat Treated].
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general and administrative
expense was $8.7 million, or 15% of sales, for the second quarter of 2000
compared to $8.5 million, or 14% of sales, in the second quarter of 1999. The
slight increase on a net basis is being driven by a 17% increase in advertising,
marketing and expansion of our pharmaceutical sales force in order to support
our continued growth in the pharmaceutical business for the remainder of 2000.
RESEARCH AND DEVELOPMENT EXPENSE. Research and development expense was $3.8
million, or 7% of revenues in the second quarter of 2000 as compared to $3.9
million, or 6% of revenues, in the second quarter of 1999. Overall, research and
development expense in the second quarter of 2000 reflected continued support
11
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for the Nabi(R)StaphVAX(R) (Staphylococcus aureus Type 5 and Type 8 Capsular
Polysaccharide Conjugate Vaccine) pivotal Phase III clinical trial. Data
collection was completed for the trial in the second quarter of 2000 and we are
in the process of compiling the results which are anticipated to be announced
around the end of the third quarter of 2000.
ROYALTY EXPENSE. Royalty expense was $2.8 million, or 16% of pharmaceutical
sales, in the second quarter of 2000, compared to $3.9 million, or 21% of
pharmaceutical sales, in the second quarter of 1999, reflecting the impact of
the higher mix of Nabi-HB sales in the second quarter of 2000. Royalties to be
paid on Nabi-HB in 2000 were capped under an agreement completed in the third
quarter of 1999.
INTEREST EXPENSE. Interest expense was $1 million, or 2% of revenues for the
second quarter of 2000 and 1999. Although average bank borrowings were higher
during the second quarter of 2000, interest expense did not increase because of
the higher amounts of interest capitalized in the period. Capitalized interest
relating primarily to construction of our biopharmaceutical facility in Boca
Raton, Florida was approximately $1.4 million and $1.2 million for the quarters
ending July 1, 2000 and June 30, 1999, respectively.
OTHER FACTORS. Provision for income taxes was $45,000, recorded at an effective
rate of 5%, in the second quarter of 2000 compared to $756,000, or an effective
rate of 42%, in the second quarter of 1999. The 5% effective tax rate in the
second quarter of 2000 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.
EXTRAORDINARY GAIN. During the second quarter of 2000, we exchanged an aggregate
of 241,795 shares of our common stock for an aggregate of $2 million of our 6.5%
Convertible Subordinated Notes due 2003. The subsequent extinguishment of the
Notes resulted in an extraordinary gain of $0.3 million, net of taxes, that is
included in the results for the second quarter ended July 1, 2000.
SIX MONTHS ENDED JULY 1, 2000 AND JUNE 30, 1999
SALES. Pharmaceutical product revenues increased in the six months of 2000 by
approximately 14% from the comparable 1999 period. Revenues of Nabi-HB were
higher based on a full six months of revenues in 2000, as compared to 1999
revenues which followed approval of the product by the FDA in late March, 1999.
In addition, sales of WinRho SDF were higher in 2000 as compared to 1999 due to
increased distributor demand. Sales of Aloprim in the first half of 1999 had
benefited from the initial launch of the product in June 1999.
Overall revenues for the first half of 2000 decreased 6% from the same period in
1999, primarily due to the decrease in non-specific antibody sales. This
decrease was the result of our strategic decision to exit unprofitable
operations through the sale, transfer or closure of 11 antibody collection
centers in the U.S. and Germany during 1999, and our continuing emphasis on
increasing production of higher margin specialty antibody products in 2000. The
decrease in sales of non-specific antibodies was partially offset by increased
specialty antibodies revenues in the first half of 2000. The overall increase in
specialty antibodies revenues in the first half of 2000 reflected increased
revenues from laboratory testing services, and higher sales of anti-CMV and
rabies antibody products, partially offset by a decrease in anti-Hbs antibody
sales.
GROSS PROFIT MARGIN. Gross profit and related margin for the first half of 2000
was $35.1 million, or 31% of sales, compared to $32.3 million, or 27% of sales,
in the first half of 1999. The increase reflects the benefit from
non-performance penalty payments due as a result of contractual delivery
shortfalls by the supplier of Autoplex T during the first six months of 2000 and
our success in shifting the sales mix toward higher-margin pharmaceutical
products.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general and administrative
expense was $17.1 million, or 15% of sales, for the first half of 2000 compared
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to $15 million, or 13% of sales, in the first half of 1999. The increase is
primarily attributable to higher advertising, marketing and sales force expenses
associated with increasing pharmaceutical product sales.
RESEARCH AND DEVELOPMENT EXPENSE. Research and development expense was $7.8
million, or 7% of sales, for the first half of 2000, compared to $7.1 million,
or 6% of sales, in the first half of 1999. The increase is primarily due to
additional expenditures associated with the development and Phase IV clinical
trials of Hepatitis B immune globulin (Human) for post-exposure prophylaxis of
hepatitis B virus ("HBV") and the advancement of clinical trials to prevent the
reinfection of transplanted livers in HBV positive patients. In addition, we
incurred increased costs related to the ongoing Phase IV clinical trials for
WinRho SDF during the six months of 2000. Overall, research and development
expense in 2000 reflected continued support for Nabi StaphVAX pivotal Phase III
clinical trial. Data collection was completed for the trial in the second
quarter of 2000 and we are in the process of compiling the results which are
anticipated to be announced around the end of the third quarter of 2000.
ROYALTY EXPENSE. Royalty expense for the first half of 2000 was $5.7 million, or
17% of pharmaceutical sales, compared to $6.1 million, or 21% of pharmaceutical
sales, in the first half of 1999. Royalty expense decreased due to an agreement
in the third quarter of 1999 limiting the amount of royalties to be paid on
sales of Nabi-HB.
INTEREST EXPENSE. Interest expense for the first half of 2000 was $2.0 million,
or 2% of sales, compared to $2.3 million, or 2% of sales, in the first half of
1999. The decrease is primarily attributable to higher amounts of interest
capitalized during 2000. Capitalized interest relating primarily to construction
of Nabi's biopharmaceutical manufacturing facility in Boca Raton, Florida was
approximately $2.7 million and $2.3 million for the six months ending July 1,
2000 and June 30, 1999, respectively.
OTHER FACTORS. Provision for income taxes was $67,000 or an effective rate of
4%, in the first half of 2000 compared to $374,000, or an effective rate of 41%,
in the first half of 1999. The 4% effective tax rate in the first half of 2000
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.
EXTRAORDINARY GAIN. During the second quarter of 2000, we exchanged an aggregate
of 241,795 shares of our common stock for an aggregate of $2 million of its 6.5%
Convertible Subordinated Notes due 2003. The subsequent extinguishment of the
Notes resulted in an extraordinary gain of $0.3 million, net of taxes, that is
included in the results for the six months ended July 1, 2000.
LIQUIDITY AND CAPITAL RESOURCES
At July 1, 2000, our credit agreement provided for a revolving credit facility
of up to $45 million subject to certain borrowing base restrictions, and a $4.8
million term loan. The credit agreement matures in September 2002. Borrowings
under the agreement totaled $36.1 million at July 1, 2000 as compared to $32.5
million at December 31, 1999, and additional availability was approximately $7.8
million at July 1, 2000. 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 July 1, 2000, our current assets exceeded current liabilities by $39.5
million as compared to a net working capital position of $36 million at December
31, 1999. Cash and cash equivalents at July 1, 2000 were $1.6 million compared
to $0.8 million at December 31, 1999. Cash provided from operations decreased by
$13.1 million in the six months of 2000 as compared to 1999. During 1999, we
increased cash flow from operations by significantly reducing trade receivables
and inventories. In 2000, we continued our focus on reducing our trade
receivables and inventories while significantly reducing trade payables and
accrued liabilities. In addition, we realized $3.2 million of proceeds from the
exercise of stock options. The primary uses of cash during the six months ended
July 1, 2000 were capital expenditures and reduction of trade payables and
accrued liabilities. Subsequent to the end of the second quarter, we raised $10
million through a private placement of our common stock with a group of
institutional investors improving our overall financial position. Proceeds from
this equity private placement were used to reduce borrowings and increase
availability under our existing bank line of credit.
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Projected capital expenditures for the remainder of 2000 include costs
associated with the Boca Raton manufacturing facility, including capitalized
interest, the development of information systems and related expenditures, and
antibody collection center renovations. During the second quarter of 2000, we
finalized agreements with Collaborative BioAlliance, Inc. ("CBA") for the
contract production and supply of Nabi StaphVAX at CBA's biomanufacturing
facility in Rhode Island and began the investment in its development. We believe
that cash flow from operations and our available bank credit facilities will be
sufficient to meet our anticipated cash requirements for the remainder of 2000.
We are also in the process of seeking additional cash to fund the development of
our pharmaceutical product pipeline from strategic alliances and may seek
additional funding from new or existing credit facilities and equity placements.
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 our Annual Report on Form 10-K for the year ended
December 31, 1999 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.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We are a party to litigation in the ordinary course of business. In addition, 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 Nabi or having familial relations with those so infected. The claims made
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 do not believe that any such litigation will have a material
adverse effect on our business, financial position or results of operations.
ITEM 2. CHANGES IN SECURITIES
During June 2000, we issued 241,795 shares of our common stock in exchange for
an aggregate of $2 million of our 6.5% Convertible Subordinated Notes due 2003.
These shares were issued in an exempt transaction pursuant to Rule 3(a)(9) of
the Securities Act of 1933 relating to an exchange of a security by us with our
existing security holders where no commission or other remuneration was paid or
given directly or indirectly for soliciting such exchange. There was no
underwriter.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The following matters were approved at our annual stockholders' meeting, which
was held on May 26, 2000:
a) Election of the following to the Board of Directors:
VOTES
-------------------------------------------------------------------------------
FOR WITHHELD
-------------------------------------------------------------------------------
David L. Castaldi 32,393,720 233,247
George W. Ebright 32,351,133 275,834
David J. Gury 32,337,018 289,949
Richard A. Harvey, Jr. 32,391,262 235,705
Linda Jenckes 32,388,820 238,147
David A. Thompson 32,393,070 233,897
b) Approval of the 2000 Equity Incentive Plan:
<TABLE>
<CAPTION>
VOTES
--------------------------------------------------------------------------------------------------
FOR AGAINST ABSTAIN BROKER NON-VOTES
----------------------- --------------------- -------------------------- -------------------------
<S> <C> <C> <C>
14,606,462 1,722,095 96,291 16,202,119
----------------------- --------------------- -------------------------- -------------------------
</TABLE>
c) Approval of the 2000 Employee Stock Purchase Plan:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------
VOTES
----------------------- --------------------- -------------------------- -------------------------
FOR AGAINST ABSTAIN BROKER NON-VOTES
----------------------- --------------------- -------------------------- -------------------------
<S> <C> <C> <C>
15,849,879 486,297 88,972 16,202,119
----------------------- --------------------- -------------------------- -------------------------
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) None
b) Reports on Form 8-K:
None
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NABI
------------------------------------------------------------------------------
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 1, 2000 By: /s/ THOMAS MCLAIN
-----------------------------------
THOMAS H. MCLAIN
Senior Vice President, Corporate
Services and Chief Financial
Officer
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