1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED JUNE 30, 1995
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
NORTH AMERICAN BIOLOGICALS, INC.
(Exact name of registrant as specified in its charter)
Delaware 59-1212264
- ------------------------------- ------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5800 Park of Commerce Boulevard N.W., Boca Raton, FL 33487
- ------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code): (407)989-5800
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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 8, 1995
was 19,486,910 shares.
2
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
NORTH AMERICAN BIOLOGICALS, INC.
Page
INDEX No.
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PART I FINANCIAL INFORMATION:
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheet, June 30, 1995
and December 31, 1994 3
Consolidated Statement of Operations
for the three month and six month periods ended
June 30, 1995 and 1994 4
Consolidated Statement of Cash Flows
for the six month periods ended
June 30, 1995 and 1994 5
Notes to Consolidated Financial Statements 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS 8
PART II OTHER INFORMATION:
ITEM 1. LEGAL PROCEEDINGS 12
ITEM 4. SUBMISSION OF MATTERS OF A VOTE OF
SECURITY HOLDERS 12
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 13
Exhibit 11 - Calculation of Earnings per Share 14
Exhibit 27 - Financial Data Schedule (for SEC use only)
Signatures 15
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Part I Financial Information
Item 1 Financial Statements
NORTH AMERICAN BIOLOGICALS, INC.
CONSOLIDATED BALANCE SHEET
($ THOUSANDS, EXCEPT PER SHARE DATA)
JUNE 30, DEC 31,
1995 1994
-------- -------
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash $ 1,863 $ 1,982
Trade accounts receivable, net 26,047 22,875
Inventories 20,167 20,713
Prepaid expenses and other assets 3,055 2,485
-------- -------
TOTAL CURRENT ASSETS 51,132 48,055
PROPERTY AND EQUIPMENT, NET 24,369 14,225
OTHER ASSETS:
Excess of acquisition cost over net assets acquired, net 16,407 16,696
Intangible assets, net 9,908 10,616
Other assets 4,610 4,225
-------- -------
TOTAL ASSETS $106,426 $93,817
======== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Trade accounts payable $ 3,863 $ 6,559
Accrued expenses 10,776 10,465
Notes payable 6,471 5,479
-------- -------
TOTAL CURRENT LIABILITIES 21,110 22,503
NOTES PAYABLE 27,007 19,549
-------- -------
TOTAL LIABILITIES 48,117 42,052
COMMITMENTS AND CONTINGENCIES -- --
STOCKHOLDERS' EQUITY:
Convertible preferred stock, par value $.10 per share:
5,000 shares authorized; no shares outstanding -- --
Common stock, par value $.10 per share: 50,000 shares
authorized; 19,487 and 19,308 shares issued, respectively 1,949 1,931
Capital in excess of par value 37,701 37,781
Retained earnings 18,659 12,179
-------- -------
58,309 51,891
Note receivable from stockholder -- (126)
-------- -------
TOTAL STOCKHOLDERS' EQUITY 58,309 51,765
-------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $106,426 $93,817
======== =======
The accompanying Notes are an integral part of these Financial Statements.
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NORTH AMERICAN BIOLOGICALS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
($ THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED) (UNAUDITED)
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ----------------
1995 1994 1995 1994
---- ---- ---- ----
Sales $46,975 $41,644 $93,452 $77,280
Costs and expenses:
Cost of products sold 37,066 33,208 74,201 61,507
Selling, general and administrative expenses 2,915 3,208 5,941 6,132
Other operating expenses 1,231 895 2,324 1,863
------- ------- ------- -------
Operating income 5,763 4,333 10,986 7,778
Interest expense, net (238) (929) (533) (1,766)
------- ------- ------- -------
Income before provision for income taxes 5,525 3,404 10,453 6,012
Provision for income taxes (2,100) (1,311) (3,973) (2,302)
------- ------- ------- -------
Net income $ 3,425 $ 2,093 $ 6,480 $ 3,710
======= ======= ======= =======
Earnings per share $ 0.17 $ 0.12 $ 0.32 $ 0.22
======= ======= ======= =======
Weighted average number of shares and
common share equivalents (thousands) 20,450 17,077 20,347 16,670
======= ======= ======= =======
The accompanying Notes are an integral part of these Financial Statements.
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NORTH AMERICAN BIOLOGICALS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
($ THOUSANDS)
(UNAUDITED)
Six Months Ended
JUNE 30,
---------------------
1995 1994
---- ----
CASH FLOW FROM OPERATING ACTIVITIES:
Net income $6,480 $3,710
Adjustments to reconcile net income to net cash provided (used)
by operating activities:
Depreciation and amortization 2,229 2,252
Imputed interest and amortization of debt discount 18 568
Provision for doubtful accounts (116) 134
Compensation under employee stock plan 14 26
Change in assets and liabilities:
Decrease (increase) in accounts receivable (3,056) (1,654)
Decrease (increase) in inventories 546 (2,694)
Decrease (increase) in prepaid expenses (581) (1,423)
Decrease (increase) in other assets (742) (258)
Increase (decrease) in accounts payable and accrued liabilities (2,604) (1,171)
------ ------
Total adjustments (4,292) (4,220)
------ ------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES 2,188 (510)
CASH FLOW FROM INVESTING ACTIVITIES:
Cash of businesses acquired, net of transaction costs -- 614
Capital expenditures (11,024) (1,599)
Collection of note receivable from stockholder 126 166
------ ------
NET CASH USED BY INVESTING ACTIVITIES (10,898) (819)
CASH FLOW FROM FINANCING ACTIVITIES:
Borrowings under term debt agreement -- 6,125
Repayments of term debt (1,167) (5,250)
Net repayments under line of credit agreement (1,288) (477)
Borrowings of flexible term notes 9,936 --
Other debt 949 2,007
Contingent purchase price obligation payments -- (612)
Proceeds from the exercise of options 161 113
------ ------
NET CASH PROVIDED BY FINANCING ACTIVITIES 8,591 1,906
------ ------
NET (DECREASE) INCREASE IN CASH (119) 577
CASH AT BEGINNING OF PERIOD 1,982 824
------ ------
CASH AT END OF PERIOD $1,863 $1,401
====== ======
The accompanying Notes are an integral part of these Financial Statements.
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NORTH AMERICAN BIOLOGICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 -- GENERAL
The consolidated financial statements include the accounts of North American
Biologicals, Inc. (the "Company") and its subsidiaries. All significant
intercompany accounts and transactions are eliminated in consolidation. These
statements should be read in conjunction with the consolidated financial
statements and notes thereto included in the Company's Annual Report to
Stockholders for the year ended December 31, 1994.
In the opinion of management, the unaudited consolidated financial statements
include all adjustments consisting only of normal recurring adjustments
necessary to present fairly the Company's consolidated financial position at
June 30, 1995 and the consolidated results of its operations for the three and
six month periods ended June 30, 1995 and 1994 and its consolidated cash flows
for the six months ended June 30, 1995 and 1994. The interim results of
operations are not necessarily indicative of the results which 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,
(In Thousands) 1995 1994
---- ----
Finished goods $13,912 $15,328
Work in process 2,002 1,343
Raw materials 4,253 4,042
------- -------
$20,167 $20,713
======= =======
NOTE 3 -- PROPERTY AND EQUIPMENT
Property and equipment and related allowances for depreciation and amortization
are summarized below:
JUNE 30, DECEMBER 31,
(In Thousands) 1995 1994
---- ----
Land and buildings $3,003 $2,998
Furniture and fixtures 2,437 2,287
Machinery and equipment 10,554 9,635
Leasehold improvements 6,478 5,420
Construction in progress 12,025 3,133
------- -------
Total property and equipment 34,497 23,473
Less accumulated depreciation
and amortization (10,128) (9,248)
------- -------
$24,369 $14,225
======= =======
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Interest capitalized in connection with construction of the Company's
biopharmaceutical facility was approximately $318,000 at June 30, 1995 and
$40,000 at December 31, 1994.
NOTE 4 -- SUBSEQUENT EVENT
Effective July 21, 1995 the Company acquired certain assets including nine
plasma collection centers located in Arizona, Texas and Colorado from Blood
Systems, Inc. for $6 million. The acquisition was funded through bank
borrowings and will be accounted for by the purchase method. The excess of
acquisition cost over net assets acquired arising from the acquisition will be
amortized ratably over 25 years.
NOTE 5 -- OTHER MATTERS
In May 1995, the Company was named as a defendant in a civil action in which
the plaintiffs seek an unspecified amount of damages and also seek class action
status with respect to others similarly situated. The Company denies all
allegations against it, and intends to vigorously defend the case. Management
believes that the ultimate resolution of this matter will not have a material
adverse effect on the Company's financial position or results of operations.
For further information regarding this matter, see Part II - Other Information,
Item I - Legal Proceedings.
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ITEM 2. 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
the Company's financial condition and results of operations for the three and
six month periods ended June 30, 1995 and 1994. The discussion and analysis
should be read in conjunction with the consolidated financial statements and
notes thereto. All amounts are expressed in thousands of dollars, except per
share amounts.
RESULTS OF OPERATIONS
The following table sets forth the Company's results of operations for the
respective periods expressed as a percentage of sales:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- --------------------
1995 1994 1995 1994
---- ---- ---- ----
Sales 100.0% 100.0% 100.0% 100.0%
Cost of products sold 78.9 79.7 79.4 79.6
----- ----- ----- -----
Gross margin 21.1 20.3 20.6 20.4
Selling, general and administrative expenses 6.2 7.7 6.3 7.9
Other operating expenses 2.6 2.2 2.5 2.4
----- ----- ----- -----
Operating income 12.3 10.4 11.8 10.1
Interest expense, net 0.5 2.2 0.6 2.3
----- ----- ----- -----
Income before provision for income taxes 11.8 8.2 11.2 7.8
Provision for income taxes 4.5 3.2 4.3 3.0
----- ----- ----- -----
Net income 7.3% 5.0% 6.9% 4.8%
===== ===== ===== =====
The following tables set forth certain information concerning sales by industry
segment:
THREE MONTHS ENDED JUNE 30,
---------------------------------------------------------------
1995 % 1994 %
---- --- ---- ---
Plasma - Source $25,727 54.8% $25,557 61.4%
- Specialty 14,828 31.5 11,696 28.1
------- ---- ------- -----
40,555 86.3 37,253 89.5
Therapeutic products 3,989 8.5 2,101 5.0
Diagnostic products and services 2,431 5.2 2,290 5.5
------- ---- ------- -----
TOTAL $46,975 100.0% $41,644 100.0%
======= ==== ======= =====
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SIX MONTHS ENDED JUNE 30,
---------------------------------------------------------------
1995 % 1994 %
---- --- ---- ---
Plasma -Source $54,172 58.0% $47,992 62.1%
-Specialty 28,489 30.5 19,958 25.8
------- ----- ------- -----
82,661 88.5 67,950 87.9
Therapeutic products 6,590 7.0 4,142 5.4
Diagnostic products and services 4,201 4.5 5,188 6.7
------- ----- ------- -----
TOTAL $93,452 100.0% $77,280 100.0%
======= ===== ======= =====
THREE MONTHS ENDED JUNE 30, 1995 VS. 1994
The Company achieved record sales, operating income and net income for the
three month period ended June 30, 1995. Operating income rose 33% to $5,763
for the second quarter of 1995 compared to $4,333 in the comparable 1994
quarter. Net income for the second quarter of 1995 was $3,425, or $0.17 per
share, compared to $2,093, or $0.12 per share, in the second quarter of 1994.
SALES
Sales for the second quarter of 1995 rose 13% to $46,975 compared to $41,644
for the second quarter of 1994. Increased volume of specialty plasma shipments
as well as increased sales of the Company's proprietary therapeutic product, H-
BIG(R), were the primary factors for the increase in overall sales.
GROSS MARGIN
The gross margin improved to $9,909 or 21.1% of sales in the second quarter of
1995 compared to a gross margin of $8,436 or 20.3% of sales in the second
quarter of 1994. An improved sales mix resulting from increased sales of
H-BIG(R) and specialty plasma was primarily responsible for the enhanced gross
margin.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE
Selling, general and administrative expenses were $2,915 or 6.2% of sales for
the second quarter of 1995 compared to $3,208 or 7.7% of sales in the second
quarter of 1994. The reduction in these expenses reflects the full integration
and economies associated with the Premier BioResources, Inc. acquisition in
January, 1994 and ongoing cost containment measures.
OTHER OPERATING EXPENSES
Other operating expenses were $1,231 or 2.6% of sales for the 1995 period
compared to $895 or 2.2% of sales for the second quarter of 1994. Additional
royalties associated with increased sales of H-BIG(R) and freight expenses
associated with the increased volume of plasma shipments during the quarter
were primarily responsible for the increase in expenses.
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INTEREST EXPENSE
Interest expense decreased to $238 or 0.5% of sales in the second quarter of
1995 from $929 or 2.2% of sales in the second quarter of 1994 primarily due to
the early retirement of the Company's subordinated and other debt in the fourth
quarter of 1994. As reflected in Note 3, interest associated with borrowings to
finance construction of the Company's biopharmaceutical facility is being
capitalized as project cost until the facility is available for commercial
production.
OTHER FACTORS
The effective income tax rates remained stable at 38% and 38.5% for the
quarters ended June 30, 1995 and 1994, respectively, and differed from the
federal statutory rate principally due to state income taxes and non-deductible
foreign losses in 1995, offset by the effects of foreign trade income.
SIX MONTHS ENDED JUNE 30, 1995 VS. 1994
RESULTS OF OPERATIONS
The Company achieved record sales, operating income and net income for the six
month period ended June 30, 1995. Operating income rose 41% to $10,986 in the
first half of 1995 compared to $7,778 in the comparable 1994 period. Net
income for the first six months of 1995 was $6,480, or $0.32 per share versus
$3,710 or $0.22 per share in the first six months of 1994.
SALES
Sales for the first half of 1995 rose 21% to $93,452 compared to $77,280 for
the first half of 1994. The increase was primarily attributable to increased
plasma shipments, primarily specialty plasma, and an increase in H-BIG(R)
sales.
GROSS MARGIN
The gross margin of $19,251 or 20.6% of sales in the first half of 1995
compared favorably to a gross margin of $15,773 or 20.4% of sales in the first
half of 1994. An improved sales mix resulting from increased sales of H-BIG(R)
and specialty plasma accounted for the improved gross margin.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE
Selling, general and administrative expenses were $5,941 or 6.3% of sales for
the first half of 1995 compared to $6,132 or 7.9% of sales in the first half of
1994. The reduction in these expenses reflects the full integration and
economies associated with the Premier BioResources, Inc. acquisition in
January, 1994 and ongoing cost containment measures.
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OTHER OPERATING EXPENSES
Other operating expenses were $2,324 or 2.5% of sales for the first half of
1995 compared to $1,863 or 2.4% of sales for the first half of 1994 primarily
as a result of higher royalty expenses associated with increased sales of
H-BIG(R) and additional freight expenses associated with the increased volume
of sales during the period.
INTEREST EXPENSE
Interest expense decreased to $533 or 0.6% of sales in the first six months of
1995 from $1,766 or 2.3% of sales in the first six months of 1994 primarily due
to the early retirement of the Company's subordinated and other debt in the
fourth quarter of 1994. As reflected in Note 3, interest associated with
borrowings to finance construction of the Company's biopharmaceutical facility
is being capitalized as project cost until the facility is available for
commercial production.
OTHER FACTORS
The effective income tax rates remained stable at 38% and 38.3% for the first
half of 1995 and 1994, respectively, and differed from the federal statutory
rate principally due to state income taxes and non-deductible foreign losses in
1995, offset by the effects of foreign trade income.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1995, the Company's current assets exceeded current liabilities
by $30 million as compared to a net working capital position of $25.6 million
at December 31, 1994. Approximately $8.7 million in a term loan and $6.1
million in revolving credit loans, under the existing $12 million revolving
credit facility, were outstanding under a credit agreement with the Company's
principal lender at June 30, 1995. On July 27, 1995, the Company amended its
existing credit agreement with its principal lender, increasing the
availability under the revolving line of credit to $18 million through December
31, 1995. In addition, the Company had $15 million in flexible term notes
outstanding, the proceeds of which were used to finance the construction of a
new biopharmaceutical facility. The flexible term note agreement provides for
a maximum outstanding principal amount of $18 million.
Projected capital expenditures for the remainder of 1995 include the completion
of construction of the new biopharmaceutical manufacturing facility, which also
includes the Company's executive offices; plasma center renovations and
relocations; and recurring improvements and continued automation of the
Company's laboratories and warehouse facilities. The Company expects that
these expenditures and the Company's working capital requirements will be
furnished by a combination of funds on hand, borrowings under the term note
agreement, cash flow from operations and bank borrowings, as required, under
the Company's credit agreement.
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PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On May 23, 1995 a civil action was filed in the Circuit Court of the 11th
Judicial Circuit of Dade County Florida (Case No. 95-10489 CA 02) against Bayer
Corporation, Armour Pharmaceutical Company, Rhone-Poulenc Rorer Inc., Baxter
Healthcare Corporation and Alpha Therapeutic Corporation (the "Drug
Companies"), the Company and The National Hemophilia Foundation. The
plaintiffs in the case are ten individuals alleging the Company, the Drug
Companies and The National Hemophilia Foundation were responsible for the
production, sale/or and promotion of defective "coagulation products" used by
persons with hemophilia, and that the persons who used such coagulation
products consequently developed AIDs. The plaintiffs seek an unspecified
amount of damages. The plaintiffs also seek class action status with respect
to others similarly situated. On June 23, 1995, the case was removed to the
United States District Court for the Southern District of Florida, Miami
Division, by the Drug Companies on the theory that the Company was improperly
joined as a defendant in this litigation only to circumvent federal diversity
jurisdiction. Currently pending is the plaintiffs' motion to remand the case
to state court. The Company has not filed an Answer or otherwise responded in
the case, but it denies all claims made against the Company, and intends to
vigorously defend the case. The Company believes that the claims will not have
a material adverse effect on the Company's financial position or results of
operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The following matters were approved at the Company's annual stockholders'
meeting, which was held on May 26, 1995:
a) Election of the following Board of Directors:
VOTES
-----------------------------------
FOR WITHHELD
---------- --------
Paul Bogikes 17,910,254 524,842
David L. Castaldi 17,911,004 524,092
David J. Gury 17,911,754 523,342
Richard A. Harvey, Jr. 17,910,354 524,742
David A. Thompson 17,909,554 525,542
b) Adoption of a Stock Plan for Non-Employee Directors:
VOTES
-------------------------------------------------------------
FOR AGAINST ABSTAINED
---------- -------- ---------
16,355,448 1,628,187 451,461
c) Amendment to the Company's 1990 Equity Incentive Plan to increase the total
number of shares of Common Stock which may be awarded under such plan by
775,000 shares:
VOTES
-------------------------------------------------------------
FOR AGAINST ABSTAINED
---------- -------- ---------
12,559,055 5,748,422 127,619
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits:
11 Calculations of Earnings Per Share Page 14
27 Financial Data Schedule (for SEC use only)
b. Reports on Form 8-K:
NONE
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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.
NORTH AMERICAN BIOLOGICALS, INC.
DATE: August 11, 1995 By:/s/ ALFRED J. FERNANDEZ
-----------------------------
ALFRED J. FERNANDEZ
Vice President, Finance and
Chief Financial Officer
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EXHIBIT 11
NORTH AMERICAN BIOLOGICALS, INC.
CALCULATION OF EARNINGS PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Three Months Ended Six Months Ended
JUNE 30, JUNE 30,
------------------- -------------------
1995 1994 1995 1994
---- ---- ---- ----
Net Income $ 3,425 $ 2,093 $ 6,480 $ 3,710
Weighted average number of common
shares outstanding during the period 19,464 15,557 19,428 15,147
Add dilutive effect of common
stock equivalents:
Stock options and warrants
(as determined by the application
of the treasury stock method) 986 1,520 919 1,523
------- ------- ------- -------
Weighted average number of shares
and common share equivalents used
in primary earnings per share
computations 20,450 17,077 20,347 16,670
======= ======= ======= =======
Earnings per share $ 0.17 $ 0.12 $ 0.32 $ 0.22
======= ======= ======= =======
14
5
1,000
6-MOS
DEC-31-1995
JAN-01-1995
JUN-30-1995
1,863
0
26,047
0
20,167
51,132
24,369
0
106,426
21,110
27,007
1,949
0
0
56,360
106,426
93,452
93,452
74,201
74,201
8,265
0
533
10,453
3,973
6,480
0
0
0
6,480
0.32
0
Receivables and PP&E represent net amounts.
Loss provision included in other expenses.
