1 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, 1996 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 ------------------------------------------------------ (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 -------------------------- 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 May 13, 1996 was 34,216,934 shares.
2 QUARTERLY REPORT UNDER SECTION 13 OR 15 (D) NABI ================================================================================ INDEX <TABLE> <CAPTION> PAGE # PART I. FINANCIAL INFORMATION ------ <S> <C> ITEM 1. FINANCIAL STATEMENTS.................................................................. 3 Consolidated Balance Sheet, March 31, 1996 and December 31, 1995............................... 3 Consolidated Statement of Operations for the three month periods ended March 31, 1996 and 1995.................................................................... 4 Consolidated Statement of Cash Flows for the three month periods ended March 31, 1996 and 1995.................................................................... 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.................................................................... 11 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K..................................................... 11 Exhibit 10.24 - Amendment No. 5 to Third Amended and Restated Revolving Credit Term Loan and Reimbursement Agreement between NationsBank and NABI dated March 31, 1996................. 14 Exhibit 11 - Calculation of Earnings per Share................................................ 23 </TABLE> 2
3 PART I FINANCIAL INFORMATION ITEM 1 FINANCIAL STATEMENTS NABI CONSOLIDATED BALANCE SHEET (IN THOUSANDS, EXCEPT PER SHARE DATA) <TABLE> <CAPTION> (UNAUDITED) March 31, December 31, 1996 1995 =========== ============ <S> <C> <C> ASSETS CURRENT ASSETS: Cash and cash equivalents $ 22,267 $ 3,991 Investments 16,240 -- Trade accounts receivable, net 37,081 28,213 Inventories, net 21,756 22,646 Prepaid expenses and other assets 1,698 2,380 -------- -------- TOTAL CURRENT ASSETS 99,042 57,230 PROPERTY AND EQUIPMENT, NET 45,351 42,697 OTHER ASSETS: Excess of acquisition cost over net assets acquired, net 18,654 18,882 Intangible assets, net 10,743 11,048 Other, net 10,239 8,118 -------- -------- TOTAL ASSETS $184,029 $137,975 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Trade accounts payable $ 5,046 $ 6,758 Accrued expenses 18,129 18,618 Notes payable 8,689 17,164 -------- -------- TOTAL CURRENT LIABILITIES 31,864 42,540 NOTES PAYABLE 81,370 25,730 OTHER 281 263 -------- -------- TOTAL LIABILITIES 113,515 68,533 -------- -------- 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, 34,126 and 33,942 shares issued and outstanding, respectively 3,413 3,394 Capital in excess of par value 133,668 133,100 Accumulated deficit (66,567) (67,052) -------- -------- TOTAL STOCKHOLDERS' EQUITY 70,514 69,442 -------- -------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $184,029 $137,975 ======== ======== </TABLE> The accompanying Notes are an integral part of these Financial Statements. 3
4 NABI CONSOLIDATED STATEMENT OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE DATA) <TABLE> <CAPTION> (UNAUDITED) THREE MONTHS ENDED MARCH 31, -------------------------- 1996 1995 ------- ------- <S> <C> <C> SALES $59,495 $48,128 COSTS AND EXPENSES: Costs of products sold 44,839 37,010 Research and development expense 5,333 5,518 Selling, general and administrative expense 5,131 4,549 Royalty expense 1,248 449 Other operating expense, principally freight and amortization 903 644 ------- ------- OPERATING INCOME (LOSS) 2,041 (42) INTEREST AND OTHER INCOME 326 459 INTEREST AND OTHER EXPENSE (891) (374) ------- ------- INCOME BEFORE PROVISION FOR INCOME TAXES AND EXTRAORDINARY CHARGE 1,476 43 PROVISION FOR INCOME TAXES (59) (1,873) ------- ------- INCOME (LOSS) BEFORE EXTRAORDINARY CHARGE 1,417 (1,830) EXTRAORDINARY CHARGE (932) --- ------- ------- NET INCOME (LOSS) $ 485 $(1,830) ======= ======= EARNINGS (LOSS) PER SHARE: Income (loss) before extraordinary charge $ 0.04 $ (0.05) Extraordinary charge (0.03) --- ------- ------- Net income (loss) $ 0.01 $ (0.05) ======= ======= WEIGHTED AVERAGE NUMBER OF SHARES AND COMMON SHARE EQUIVALENTS 35,710 33,393 ======= ======= </TABLE> The accompanying Notes are an integral part of these Financial Statements. 4
5 NABI CONSOLIDATED STATEMENT OF CASH FLOWS ($ IN THOUSANDS) <TABLE> <CAPTION> (UNAUDITED) THREE MONTHS END MARCH 31, ----------------------- 1996 1995 ------- ------- <S> <C> <C> CASH FLOW FROM OPERATING ACTIVITIES: Net income (loss) $ 485 $(1,830) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 1,955 1,558 Gain on market value of trading securities -- (93) Provision for doubtful accounts 60 (5) Purchase of trading securities -- (4,036) Sales and redemptions of trading securities -- 6,912 Extraordinary charge 932 -- Other 21 28 Change in assets and liabilities: Decrease (increase) in accounts receivable (8,928) (1,385) Decrease (increase) in inventories 890 434 Decrease (increase) in prepaid expenses and other assets 679 (1,187) Decrease (increase) in other assets (793) (472) Increase (decrease) in accounts payable and accrued liabilities (2,090) (832) ------- ------- Total adjustments (7,274) 922 ------- ------- NET CASH USED BY OPERATING ACTIVITIES (6,789) (908) ------- ------- CASH FLOW FROM INVESTING ACTIVITIES: Net purchase of investments held to maturity (16,217) -- Collection on note receivable from stockholder -- 126 Capital expenditures (3,732) (4,032) ------- ------- NET CASH USED BY INVESTING ACTIVITIES (19,949) (3,906) ------- ------- CASH FLOW FROM FINANCING ACTIVITIES: Net proceeds from issuance of convertible subordinated debentures 77,884 -- Repayments of flexible term notes (14,500) -- Repayments of term debt (10,172) (702) Repayments under line of credit, net (6,760) (585) Other debt (1,894) 1,589 Proceeds from the exercise of options and warrants 456 84 ------- ------- NET CASH PROVIDED BY FINANCING ACTIVITIES 45,014 386 ------- ------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 18,276 (4,428) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 3,991 12,132 ------- ------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $22,267 $ 7,704 ======= ======= </TABLE> The accompanying Notes are an integral part of these Financial Statements. 5
6 NABI NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 1 -- GENERAL NABI (formerly North American Biologicals, Inc.) is a vertically integrated biopharmaceutical company that supplies human blood plasma and develops and commercializes therapeutic products for the prevention and treatment of infectious diseases and immunological disorders. On November 29, 1995, Univax Biologics, Inc. ("Univax"), a publicly traded biopharmaceutical company, was merged with and into NABI. Under the terms of the agreement and plan of merger, Univax's common stockholders received .79 of NABI common stock for each Univax share. Additionally, Univax's preferred stockholders received 1.047 shares of NABI common stock for each preferred share. NABI issued an aggregate of 14,173,508 shares of its common stock for the outstanding shares of Univax common and preferred stock. The merger was accounted for as a pooling of interests and accordingly, the prior period financial statements have been combined. The consolidated financial statements include the accounts of NABI (formerly 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, 1995. In the opinion of management, the unaudited consolidated financial statements include all adjustments necessary to present fairly the Company's consolidated financial position at March 31, 1996 and the consolidated results of its operations for the three months ended March 31, 1996 and 1995. The interim results of operations are not necessarily indicative of the results which may occur for the fiscal year. NOTE 2 -- INVESTMENTS At March 31, 1996, the Company had approximately $16.2 million in investments. The investments consist of securities issued or guaranteed by the U.S. Treasury and debt instruments including US Government Agency securities and high-quality commercial paper. All the investments are classified as held to maturity and are stated at amortized cost. The carrying value of these investments approximates fair value. <TABLE> <CAPTION> (In Thousands) MARCH 31, DECEMBER 31, 1996 1995 ========= ============ <S> <C> <C> U.S. Treasury Bill $ 4,761 -- U.S. agencies 9,524 -- Corporate debt securities 1,955 -- ------- ------ Total $16,240 -- ======= ====== </TABLE> 6
7 NOTE 3 -- INVENTORIES The components of inventories, stated at the lower of cost (FIFO) or market, are as follows: <TABLE> <CAPTION> MARCH 31, DECEMBER 31, (In Thousands) 1996 1995 --------- ------------ <S> <C> <C> Finished goods $18,849 $19,054 Work in process 1,562 1,255 Raw materials 6,685 6,405 ------- ------- 27,096 26,714 Less: valuation allowance (5,340) (4,068) ------- ------- $21,756 $22,646 ======= ======= </TABLE> NOTE 4 -- PROPERTY AND EQUIPMENT Property and equipment and related allowances for depreciation and amortization are summarized below: <TABLE> <CAPTION> MARCH 31, DECEMBER 31, (In Thousands) 1996 1995 ========== ============ <S> <C> <C> Land and buildings $ 5,573 $ 5,551 Furniture and fixtures 3,802 3,691 Machinery and equipment 20,290 19,443 Leasehold improvements 12,137 12,055 Construction in progress 20,890 18,311 ------- ------- Total property and equipment 62,692 59,051 Less: accumulated depreciation and amortization (17,341) (16,354) ------- ------- $45,351 $42,697 ======= ======= </TABLE> Interest capitalized in connection with construction of NABI's biopharmaceutical facility was $1,463 and $932 at March 31, 1996 and December 31, 1995, respectively. NOTE 5 -- SUBORDINATED CONVERTIBLE NOTES During the first quarter of 1996, NABI issued $80.5 million of 6.5% convertible subordinated notes due February 1, 2003 ("Notes") in a private placement. The Notes are convertible into NABI common stock at a conversion price of $14 per share at any time after 60 days following the date of original issuance and prior to maturity, unless previously redeemed or repurchased. At any time on or after February 4, 1999, the Notes may be redeemed at NABI's option without premium. A total of 5,750,000 shares of common stock have been reserved for issuance upon conversion of the Notes. NABI utilized a portion of the net proceeds of the offering to repay a $10 million term loan, approximately $12.2 million under a revolving credit facility and $14.5 million of an $18 million flexible term notes facility. In connection with the early extinguishment of the bank debt through the application of the net proceeds of the Notes, NABI incurred an extraordinary charge of approximately $932,000 in the first quarter of 1996. 7
8 NOTE 6 -- INCOME TAXES For the quarter ended March 31, 1996, the provision for income taxes is comprised solely of state income taxes since NABI has recognized net deferred tax benefits equal to its current federal income tax provision. NOTE 7 -- RECLASSIFICATIONS Certain items in the consolidated financial statements for the 1995 periods have been reclassified for comparative purposes. 8
9 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 month periods ended March 31, 1996 and 1995. The discussion and analysis should be read in conjunction with the condensed 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 expressed as a percentage of sales: <TABLE> <CAPTION> THREE MONTHS ENDED MARCH 31, ------------------------ 1996 1995 ------ ------ <S> <C> <C> Sales 100.0% 100.0% Cost of products sold 75.4 76.9 ----- ----- Gross profit margin 24.6 23.1 Research and development expense 9.0 11.5 Selling, general and administrative expense 8.6 9.5 Royalty expense 2.1 0.9 Other operating expense 1.5 1.3 ----- ----- Operating income (loss) 3.4 (0.1) Interest and other income 0.6 1.0 Interest and other expense (1.5) (0.8) ----- ----- Income before provision for income taxes and extraordinary charge 2.5 0.1 Provision for income taxes (0.1) (3.9) ----- ----- Income (loss) before extraordinary charge 2.4 (3.8) Extraordinary charge (1.6) --- ----- ----- Net income (loss) 0.8% (3.8)% ===== ===== </TABLE> Information concerning NABI's sales by industry segment, for the respective periods, is set forth in the following table. All dollar amounts set forth in the table are expressed in thousands. <TABLE> <CAPTION> THREE MONTHS ENDED MARCH 31, --------------------------------------------- 1996 % 1995 % ------- ----- ------- ----- <S> <C> <C> <C> <C> Segment - ------- Plasma -Source $30,627 51.5% $28,271 58.7% -Specialty 21,661 36.4 13,661 28.4 ------- ----- ------- ----- 52,288 87.9 41,932 87.1 Immunotherapeutic products 4,797 8.1 2,601 5.4 Diagnostic products and services 1,467 2.4 1,770 3.7 Research and development 943 1.6 1,825 3.8 ------- ----- ------- ----- Total $59,495 100.0% $48,128 100.0% ======= ===== ======= ===== </TABLE> 9
10 THREE MONTHS ENDED MARCH 31, 1996 AND 1995 The Company achieved record sales for the quarter ended March 31, 1996. Operating income rose to $2 million in the first quarter of 1996 compared to an operating loss of $42,000 in the comparable 1995 quarter. Net income for the first quarter of 1996 was approximately $.5 million or $0.01 per share, versus a net loss of $1.8 million or $0.05 per share in the first quarter of 1995. Sales. Sales for the first quarter of 1996 rose 24% to $59.5 million compared to $48.1 million for the first quarter of 1995. The increase was primarily attributable to increased volume of plasma shipments, primarily specialty plasmas. Gross profit margin. Gross profit and related margin for the first quarter of 1996 was $14.7 million, or 24.6% of sales, compared to $11.1 million, or 23.1% of sales, in the first quarter of 1995. An improved sales mix, primarily from increased sales of higher margin specialty plasmas, and increased immunotherapeutic sales, accounted for the improved profitability. Selling, general and administrative expense. Selling, general and administrative expense was $5.1 million, or 8.6% of sales, for the first quarter of 1996 compared to $4.5 million, or 9.5% of sales, in the first quarter of 1995. While expenses decreased as a percentage of sales, the dollar increase resulted primarily from additional personnel and sales and marketing expenses related to the product launch of WinRho SD in mid 1995. Royalty expense. Royalty expense for the first quarter of 1996 was $1.2 million, or 2.1% of sales, compared to $.4 million or .9% of sales, in the first quarter of 1995. The increase resulted primarily from royalties associated with sales of WinRho SD in the first quarter of 1996. Interest and other expense. Interest and other expense for the first quarter of 1996 was $.9 million, or 1.5% of sales, compared to $.4 million, or .8% of sales, in the first quarter of 1995. The increase was primarily attributable to interest expense associated with the convertible subordinated notes issued during the first quarter of 1996. Other factors. Provision for income taxes was $59,000 or an effective rate of 4% in the first quarter of 1996, compared to $1.9 million in the first quarter of 1995. The effective tax rate differs from the statutory rate of 35% primarily due to the reversal of a portion of the valuation allowance associated with NOL carryforwards. The provision for income taxes in the first quarter of 1995 reflects income taxes on NABI's stand-alone pre-tax income which could not be offset by pre-merger losses. The first quarter of 1996 reflects an extraordinary charge of $.9 million, or $.03 per share, due to the immediate recognition and expense of debt issue costs associated with NABI's early extinguishment of its bank debt through the application of a portion of the net proceeds of the convertible subordinated notes issued during the first quarter of 1996. 10
11 LIQUIDITY AND CAPITAL RESOURCES During the first quarter of 1996, NABI issued $80.5 million of 6.5% convertible subordinated notes due 2003 ("Notes") in a private placement. A portion of the net proceeds was used to repay a majority of NABI's outstanding bank indebtedness aggregating approximately $22.2 million. NABI also intends to use the net proceeds for the repayment and cancellation of $18 million of flexible term notes as they mature at varying dates through May 15, 1996. As of March 31, 1996, $14.5 million of flexible term notes have been repaid. As of March 31, 1996, the Company's current assets exceeded current liabilities by $67.2 million as compared to a net working capital position of $14.7 million at December 31, 1995. The increase in working capital was principally due to the net proceeds from the issuance of the Notes. In addition, NABI's bank credit agreement, as amended through March 31, 1996, provides for a $20 million revolving credit facility. At March 31, 1996, NABI had no amounts outstanding under this credit facility. The Company believes that cash on hand, available bank line of credit and cash flow from operations will be sufficient to meet its anticipated cash needs for the remainder of fiscal 1996. PART II -- OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS NABI is a party to litigation in the ordinary course of business. NABI does not believe that any such litigation will have a material adverse effect on its business, financial position or results of operations. In addition, NABI is a co-defendant with various other parties in numerous suits filed in the U.S. and Canada brought by individuals or their representatives 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 against NABI generally are based on either or both negligence and strict liability. One of the suits, filed in the Circuit Court for the Eleventh Judicial Circuit of Dade County, Florida on May 23, 1995 (Case No. 95-10489 CA 02), purports to be a class action. The defendants in this suit, other than NABI, include Bayer, Armour Pharmaceutical Company, Rhone-Poulenc Rorer, Inc., Baxter, Alpha Therapeutic Corporation and The National Hemophilia Foundation. The suits filed in Canada seek to impose liability on NABI as the successor to a company acquired by NABI in 1986. NABI denies all claims against it in these suits and intends to vigorously defend the cases. Although NABI does not believe that any such litigation will have a material adverse effect on its business, financial position or results of operations, the defense of these lawsuits can be expensive and time-consuming, regardless of the outcome, and an adverse result in one or more of these lawsuits could have a material adverse effect on NABI's business, financial condition and results of operations. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K a. Exhibits: <TABLE> <S> <C> <C> 10.24 Amendment No. 5 to Third Amended and Restated Revolving Credit Term Loan and Reimbursement Agreement between NationsBank and NABI dated March 31, 1996.... 14 11 Calculation of Earnings Per Share................................................ 23 27 Financial Data Schedule (For SEC use only) </TABLE> 11
12 b. Reports on Form 8-K: On January 22, 1996, NABI filed a current report on Form 8-K, reporting under Item 5 thereof, the proposed issuance of convertible subordinated notes and the announcement of the Company name change and trading symbol. 12
13 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 13, 1996 By: /s/ Alfred J. Fernandez ---------------------------------------- ALFRED J. FERNANDEZ Senior Vice President and Chief Financial Officer 13