1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 ---------------------------- FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2001 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM __________ TO __________ . COMMISSION FILE NUMBER: 0-4829-03 NABI (Exact name of registrant as specified in its charter) DELAWARE 59-1212264 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 5800 PARK OF COMMERCE BOULEVARD N.W., BOCA RATON, FL 33487 (Address of principal executive offices, including zip code) (561) 989-5800 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [ ] The number of shares outstanding of registrant's common stock at April 28, 2001 was 37,897,116 shares.
2 NABI - ------------------------------------------------------------------------------ INDEX PAGE NO. -------- PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS ........................................................................3 - Consolidated Balance Sheets, March 31, 2001 and December 30, 2000..........................3 - Consolidated Statements of Operations for the three months ended March 31, 2001 and April 1, 2000.......................................................4 - Consolidated Statements of Cash Flows for the three months ended March 31, 2001 and April 1, 2000.......................................................5 - Notes to Consolidated Financial Statements.................................................6 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.................................................................8 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK..................................11 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS...........................................................................11 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K............................................................11 SIGNATURES..................................................................................12 2
3 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS NABI - -------------------------------------------------------------------------------- CONSOLIDATED BALANCE SHEETS (UNAUDITED) (Amounts in Thousands, Except per Share Data) MARCH 31, 2001 DECEMBER 30, 2000 - --------------------------------------------------------------------------------------------------------------------- ASSETS CURRENT ASSETS: Cash $ 2,270 $ 1,554 Trade accounts receivable, net 30,262 38,315 Inventories, net 29,898 32,602 Prepaid expenses and other current assets 5,410 5,405 ----------------- ----------------- TOTAL CURRENT ASSETS 67,840 77,876 PROPERTY AND EQUIPMENT, NET 122,105 120,188 OTHER ASSETS: Goodwill 12,327 12,509 Intangible assets, net 6,896 7,091 Other, net 6,697 6,823 ----------------- ----------------- TOTAL ASSETS $ 215,865 $ 224,487 ================= ================= LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Trade accounts payable $ 13,921 $ 15,923 Accrued expenses 15,177 21,359 Notes payable 1,000 1,000 ----------------- ----------------- TOTAL CURRENT LIABILITIES 30,098 38,282 NOTES PAYABLE 107,369 108,535 OTHER LIABILITIES 263 276 ----------------- ----------------- TOTAL LIABILITIES 137,730 147,093 ----------------- ----------------- STOCKHOLDERS' EQUITY: Convertible preferred stock, par value $.10 per share: 5,000 shares authorized; no shares outstanding -- -- Common stock, par value $.10 per share: 75,000 shares authorized; 37,866 and 37,833 shares issued and outstanding, respectively 3,787 3,783 Capital in excess of par value 152,694 152,642 Accumulated deficit (78,346) (79,031) ----------------- ----------------- TOTAL STOCKHOLDERS' EQUITY 78,135 77,394 ----------------- ----------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 215,865 $ 224,487 ================= ================= See accompanying notes to consolidated financial statements 3
4 NABI - -------------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) FOR THE THREE MONTHS ENDED ----------------------------------------- (Amounts in Thousands, Except per Share Data) MARCH 31, 2001 APRIL 1, 2000 - ---------------------------------------------------------------------------------------------------------------------- SALES $ 60,178 $ 55,840 COSTS AND EXPENSES: Costs of products sold 44,177 38,462 Royalty expense 2,364 2,921 Selling, general and administrative expense 8,929 8,435 Research and development expense 2,978 3,995 Other operating expense, principally freight and amortization 456 500 ------------------ ---------------- OPERATING INCOME 1,274 1,527 INTEREST INCOME 6 126 INTEREST EXPENSE (534) (1,025) OTHER (EXPENSE) INCOME, NET (25) 71 ------------------ ---------------- INCOME BEFORE PROVISION FOR INCOME TAXES 721 699 PROVISION FOR INCOME TAXES (36) (22) ------------------ ---------------- NET INCOME $ 685 $ 677 ================== ================ BASIC EARNINGS PER SHARE $ 0.02 $ 0.02 ================== ================ DILUTED EARNINGS PER SHARE $ 0.02 $ 0.02 ================== ================ BASIC WEIGHTED AVERAGE SHARES OUTSTANDING 37,840 35,386 ================== ================ DILUTED WEIGHTED AVERAGE SHARES OUTSTANDING 38,687 36,828 ================== ================ See accompanying notes to consolidated financial statements 4
5 NABI - -------------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) FOR THE THREE MONTHS ENDED ------------------------------------- (Dollars in Thousands) MARCH 31, 2001 APRIL 1, 2000 - ------------------------------------------------------------------------------------------------------------------------ CASH FLOW FROM OPERATING ACTIVITIES: Net income $ 685 $ 677 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 2,674 2,528 Provision for doubtful accounts -- 224 Provision for slow-moving or obsolete inventory 1,617 455 Other 23 14 Changes in assets and liabilities: Decrease in trade accounts receivable 8,053 11,032 Decrease in inventories 1,087 813 (Increase) decrease in prepaid expenses and other assets (5) 1,620 Increase in other assets (9) (172) Decrease in accounts payable and accrued liabilities (8,197) (13,887) --------------- -------------- Total adjustments 5,243 2,627 --------------- -------------- NET CASH PROVIDED BY OPERATING ACTIVITIES 5,928 3,304 --------------- -------------- CASH FLOW FROM INVESTING ACTIVITIES: Capital expenditures (4,061) (3,958) Expenditures for other assets (41) -- --------------- -------------- NET CASH USED BY INVESTING ACTIVITIES (4,102) (3,958) --------------- -------------- CASH FLOW FROM FINANCING ACTIVITIES: Repayments under line of credit (916) (306) Repayments of term debt (250) -- Other debt repayments -- (38) Proceeds from exercise of employee stock options 56 3,066 --------------- -------------- NET CASH (USED) PROVIDED BY FINANCING ACTIVITIES (1,110) 2,722 --------------- -------------- NET INCREASE IN CASH 716 2,068 CASH AT BEGINNING OF PERIOD 1,554 806 --------------- -------------- CASH AT END OF PERIOD $ 2,270 $ 2,874 =============== ============== See accompanying notes to consolidated financial statements 5
6 NABI - -------------------------------------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 1 OVERVIEW Nabi is focused on the discovery, development and commercialization of products that prevent and treat infectious and autoimmune diseases. We are nearing completion of a multi-year transition from being a leading provider of antibody products into becoming a vertically integrated biopharmaceutical company. We currently have an extensive pipeline of innovative drugs and vaccines in clinical and pre-clinical development and have four marketed biopharmaceutical products: Nabi-HB(TM) [Hepatitis B Immune Globulin (Human)], WinRho SDF(R) [Rho (D) Immune Globulin Intravenous (Human)], Autoplex(R) T [Anti-Inhibitor Coagulant Complex, Heat Treated] and Aloprim(TM) [(Allopurinol sodium) for Injection]. We are also one of the largest collectors and suppliers of specialty and non-specific antibody products in the world. We collect these products from an extensive donor base in the U.S. Some of these antibodies are used in the production of our biopharmaceutical products. Most are supplied to other biopharmaceutical and diagnostic companies for the manufacture of numerous products. The consolidated financial statements include the accounts of Nabi and its subsidiaries. All significant intercompany accounts and transactions were eliminated during consolidation. These statements should be read in conjunction with the Consolidated Financial Statements and Notes thereto included in our Annual Report on Form 10-K for the year ended December 30, 2000. In the opinion of management, the unaudited consolidated financial statements include all adjustments necessary to present fairly, our consolidated financial position as of March 31, 2001 and the consolidated results of our operations and cash flows for the three months ended March 31, 2001 and April 1, 2000. The interim results of operations are not necessarily indicative of the results that may occur for the fiscal year. NOTE 2 INVENTORIES The components of inventories, stated at the lower of cost or market with cost determined on the first-in first-out (FIFO) method, are as follows: (Dollars in Thousands) MARCH 31, 2001 DECEMBER 30, 2000 - ---------------------------------------------------------------------------------------------- Finished goods $ 26,849 $ 28,852 Work in process 1,013 1,055 Raw materials 2,036 2,695 ----------------- ---------------------- TOTAL $ 29,898 $ 32,602 ================= ====================== 6
7 NOTE 3 EARNINGS PER SHARE The following is a reconciliation between basic and diluted earnings per share: EFFECT OF DILUTIVE SECURITIES: (Amounts in Thousands, Except per Share Data) BASIC EPS STOCK OPTIONS DILUTED EPS - ----------------------------------------------------------------------------------------------------------------- FOR THE THREE MONTHS ENDED MARCH 31, 2001 Net income $ 685 $ -- $ 685 Shares 37,840 847 38,687 Per share $ 0.02 $ -- $ 0.02 ------------------ -------------- ----------------- FOR THE THREE MONTHS ENDED APRIL 1, 2000 Net income $ 677 $ -- $ 677 Shares 35,386 1,442 36,828 Per share $ 0.02 $ -- $ 0.02 ================== ============== ================= NOTE 4 OPERATING SEGMENT INFORMATION The following table presents information related to our two operating business segments: FOR THE THREE MONTHS ENDED ------------------------------------- (Dollars in Thousands) MARCH 31, 2001 APRIL 1, 2000 - --------------------------------------------------------------------------------------------- SALES: Biopharmaceutical products $ 15,114 $ 16,221 Antibody products 45,064 39,619 ---------------- --------------- TOTAL $ 60,178 $ 55,840 ================ =============== OPERATING INCOME (LOSS): Biopharmaceutical products $ 1,800 $ 1,925 Antibody products (526) (398) ---------------- --------------- TOTAL $ 1,274 $ 1,527 ================ =============== 7
8 The following summary reconciles reportable segment operating income to income before provision for income taxes: FOR THE THREE MONTHS ENDED ----------------------------------- (Dollars in Thousands) MARCH 31, 2001 APRIL 1, 2000 - -------------------------------------------------------------------------------------------------- INCOME BEFORE PROVISION FOR INCOME TAXES: Reportable segment operating income $ 1,274 $ 1,527 Unallocated interest income 6 126 Unallocated interest expense (534) (1,025) Unallocated other (expense) income, net (25) 71 ----------------- --------------- Income before provision for income taxes $ 721 $ 699 ================= =============== 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 our financial condition and results of operations for the three months ended March 31, 2001 and April 1, 2000. The discussion and analysis should be read in conjunction with the Consolidated Financial Statements and Notes thereto. All dollar amounts are expressed in thousands, except per share data. RESULTS OF OPERATIONS The following table sets forth our results of operations expressed as a percentage of sales: FOR THE THREE MONTHS ENDED --------------------------------------- MARCH 31, 2001 APRIL 1, 2000 ---------------------------------------- SALES 100.0% 100.0% Costs of products sold 73.4 68.9 Royalty expense 3.9 5.2 Selling, general and administrative expense 14.8 15.1 Research and development expense 5.0 7.2 Other operating expense 0.8 0.9 -------- -------- OPERATING INCOME 2.1 2.7 INTEREST INCOME -- -- INTEREST EXPENSE (0.9) (1.8) OTHER (EXPENSE) INCOME, NET -- 0.3 -------- -------- INCOME BEFORE PROVISION FOR INCOME TAXES 1.2 1.2 PROVISION FOR INCOME TAXES (0.1) -- -------- -------- NET INCOME 1.1% 1.2% ======== ======== 8
9 Information concerning our sales by operating segments is set forth in the following table: FOR THE THREE MONTHS ENDED ------------------------------------------------------------ (Dollars in Thousands) MARCH 31, 2001 APRIL 1, 2000 - --------------------------------------------------------------------------------------------------------------------- Biopharmaceutical products $ 15,114 25.1% $ 16,221 29.0% ------------- -------------- -------------- -------------- Antibody products: -Specialty antibodies 14,626 24.3 14,209 25.5 -Non-specific antibodies 30,438 50.6 25,410 45.5 ------------- -------------- -------------- -------------- 45,064 74.9 39,619 71.0 ------------- -------------- -------------- -------------- TOTAL $ 60,178 100.0% $ 55,840 100.0% ============= ============== ============== ============== FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND APRIL 1, 2000 SALES. Sales for the first quarter of 2001 were $60.2 million compared to $55.8 million for the first quarter of 2000, an increase of $4.4 million or 8%. Biopharmaceutical product sales decreased in the first quarter of 2001 by approximately 7% from the 2000 first quarter due to lower sales of Autoplex(R) T [Anti-Inhibitor Coagulant Complex, Heat Treated] which continue to be limited by contract production issues at the manufacturer for this product and lower sales of WinRho SDF(R) [Rho (D) Immune Globulin Intravenous (Human)]. Total antibody sales increased by almost 14% from the comparable quarter in 2000. Non-specific antibody product sales increased 20%, due primarily to higher pricing combined with increased volume. Sales of specialty antibodies increased 3% led by Anti-Tetanus and Anti-Rabies sales. These results were offset by planned decreases in sales of Anti-D and Anti-HBs specialty antibodies. GROSS PROFIT MARGIN AFTER ROYALTY EXPENSE. Gross profit and related margin for the first quarter of 2001 was $13.6 million, or 23% of sales, compared to $14.5 million, or 26% of sales, in the first quarter of 2000. Gross profit margin in the first quarter of 2001 was impacted by an inventory reserve primarily related to product dating. Gross profit margin benefited from a non-performance penalty due to us as a result of contractual delivery shortfalls by the supplier of Autoplex T. Royalty expense in the first quarter of 2001 was $2.4 million, or 4% of biopharmaceutical product sales, compared to $2.9 million, or 5% of biopharmaceutical product sales in the first quarter of 2000. The decrease in royalty expense in 2001 resulted from lower royalties for Nabi-HB, since our royalty obligation to Abbott Laboratories ended December 31, 2000. SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general and administrative expense was $8.9 million, or 15% of sales, for the first quarter of 2001 compared to $8.4 million, or 15% of sales, in the first quarter of 2000. The increase primarily reflects an increase in sales and marketing expenses for sales force expansion to support anticipated growth in the biopharmaceutical business in 2001. RESEARCH AND DEVELOPMENT EXPENSE. Research and development expense was $3.0 million, or 5% of sales, for the first quarter of 2001 compared to $4.0 million, or 7% of sales, in the first quarter of 2000. The decrease is due primarily to the completion of the pivotal Phase 3 clinical trial for Nabi(R) StaphVAX(R) [STAPHYLOCOCCUS AUREUS Polysaccharide Conjugate Vaccine] during 2000. First 9
10 quarter results also benefited from reimbursement under a grant from the National Institute of Health for the Nabi(R) NicVAX(TM) [Nicotine Conjugate Vaccine] program. INTEREST EXPENSE. Interest expense for the first quarter of 2001 was $0.5 million, or 1% of sales, compared to $1.0 million, or 2% of sales, in the first quarter of 2000. The decrease is primarily attributable to higher amounts of interest capitalized during the first quarter of 2001. Capitalized interest relating to construction of our biopharmaceutical manufacturing facility in Boca Raton, Florida was approximately $1.6 million and $1.3 million for the quarters ending March 31, 2001 and April 1, 2000, respectively. Once our Boca Raton, Florida facility is ready for its intended use, interest and other costs currently being capitalized will become expenses. Licensure of the Boca Raton, Florida facility for the manufacture of Nabi-HB is expected to occur in 2001. At that time, we will also begin to depreciate the capitalized cost of the plant. The total capitalized value of the facility was approximately $83.0 million at March 31, 2001. OTHER FACTORS. The provision for income taxes was $36 thousand for the first quarter of 2001 compared to a provision of $22 thousand in the first quarter of 2000. The 5% effective tax rate in the first quarter of 2001 differs from the statutory rate of 35% due to our expectation of realizing a current year benefit from the use of a portion of our net operating loss carryforwards from prior years. LIQUIDITY AND CAPITAL RESOURCES At March 31, 2001, our credit agreement provided for a revolving credit facility of up to $45.0 million subject to certain borrowing base restrictions, and a $4.1 million term loan. The credit agreement matures in September 2002. Borrowings under the revolving credit and term loan agreement totaled $29.7 million at March 31, 2001 as compared to $31.0 million at December 30, 2000, and additional availability was approximately $5.0 million at March 31, 2001. The credit agreement is secured by substantially all of our assets, requires the maintenance of certain financial covenants and prohibits the payment of dividends. As of March 31, 2001, our current assets exceeded current liabilities by $37.7 million as compared to a net working capital position of $39.6 million at December 30, 2000. Cash at March 31, 2001 was $2.3 million compared to $1.6 million at December 30, 2000. Cash provided from operations for the three months ended March 31, 2001 was $5.9 million versus $3.3 million for the three months ended April 1, 2000. During the first quarter of each of 2001 and 2000, reductions in accounts receivable and inventory were offset by a reduction of accounts payable and accrued liabilities. The primary uses of cash during the three months ended March 31, 2001 and April 1, 2000 were capital expenditures, $4.1 million and $4.0 million, respectively, principally associated with our biopharmaceutical manufacturing facility in Boca Raton, Florida, and a reduction of borrowings under the revolving credit facility and term loan, $1.2 million and $0.3 million, respectively. Additionally, in the three months ended April 1, 2000, we realized $3.1 million of proceeds from the exercise of stock options. The biopharmaceutical manufacturing facility requires FDA licensure to produce biopharmaceutical products for sale in the U.S. Projected capital expenditures for 2001 include the anticipated costs of completion to prepare the facility for its intended use of approximately $11.3 million, including capitalized interest and antibody collection center renovations. We believe that cash flow from operations and our available bank credit facilities will be sufficient to meet our anticipated cash requirements for 2001. We are also in the process of seeking additional cash to fund the development of our biopharmaceutical product pipeline from strategic alliances and may seek additional funding from new or existing credit facilities and equity placements. 10
11 FORWARD LOOKING STATEMENTS The parts of this Quarterly Report on Form 10-Q captioned "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Legal Proceedings" contain certain forward-looking statements, which involve risks and uncertainties. These statements are based on current expectations, estimates and projections about the industries in which we operate, management's beliefs and assumptions made by management. Readers should refer to a discussion under "Factors to be Considered" contained in Nabi's Annual Report on Form 10-K for the year ended December 30, 2000 concerning certain factors that could cause our actual results to differ materially from the results anticipated in such forward-looking statements. Said discussion is hereby incorporated by reference into this Quarterly Report. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK There have not been any material changes in our exposure to market risk during the three months ended March 31, 2001 which would require an update to the disclosures provided in our Annual Report on Form 10-K for the fiscal year ended December 30, 2000. PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS We are a party to litigation in the ordinary course of business. We do not believe that such litigation will have a material adverse effect on our future business, financial position or results of operations. We are a co-defendant with various other parties in one suit filed in the U.S. by, or on behalf of, individuals who claim to have been infected with HIV as a result of either using HIV-contaminated products made by the defendants other than us or having familial relations with those so infected. The claims against us are based on negligence and strict liability. Several similar suits previously pending against us, including a purported class action, have been dismissed. We deny all claims against us in these suits and intend to defend these cases vigorously. We believe that any such litigation will not have a material adverse effect on our future business, financial position or results of operations. We have advised Baxter Healthcare Corporation (Baxter) that we are terminating a contract to supply antibodies to Baxter. The contract, by its terms, extends until December 31, 2004. We believe the contract permits us to terminate it if it becomes commercially unreasonable for us to perform under the contract. Baxter is contesting this termination and has invoked an arbitration provision in the contract to resolve the controversy. We have asserted counterclaims against Baxter in the arbitration proceeding. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K We did not file any Exhibits or reports on Form 8-K during the three months ended March 31, 2001. 11
12 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: May 2, 2001 By: /s/ MARK L. SMITH ----------------------------------- MARK L. SMITH Senior Vice President, Finance Chief Financial Officer 12