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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 SEPTEMBER 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO .
------------------- -----------------
COMMISSION FILE #0-4829-03
Nabi
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(Exact name of registrant as specified in its charter)
DELAWARE 59-1212264
- ---------------------------------- ------------------------------------
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
5800 PARK OF COMMERCE BOULEVARD N.W., BOCA RATON, FL 33487
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(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code): (561) 989-5800
-------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days.
YES (X) NO ( )
The number of shares outstanding of registrant's common stock at November 10,
1998 was 34,903,410 shares.
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QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
Nabi
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INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE
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<S> <C>
ITEM 1. FINANCIAL STATEMENTS.............................................................................3
Consolidated Balance Sheets, September 30, 1998 and December 31, 1997.....................................3
Consolidated Statements of Operations for the three-month and nine-month periods ended
September 30, 1998 and 1997..........................................................................4
Consolidated Statements of Cash Flows for the nine-month periods ended
September 30, 1998 and 1997..........................................................................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...............................................................................14
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K................................................................14
10.33 Employment Agreement dated August 1, 1998 between
Dr. Robert B. Naso and Nabi.................................................................16
</TABLE>
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Nabi
PART I FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
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CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(UNAUDITED)
September 30, December 31,
(AMOUNTS IN THOUSANDS) 1998 1997
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<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 680 $ 3,397
Trade accounts receivable, net 32,122 36,060
Inventories, net 39,173 43,387
Prepaid expenses and other assets 7,927 16,128
--------- ---------
Total current assets 79,902 98,972
Property and equipment, net 97,170 89,187
Other assets:
Excess of acquisition cost over net assets acquired, net 16,416 17,123
Intangible assets, net 7,299 8,104
Other, net 11,577 12,520
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TOTAL ASSETS $ 212,364 $ 225,906
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable $ 9,511 $ 15,989
Accrued expenses 17,830 17,396
Notes payable 5,368 1,654
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Total current liabilities 32,709 35,039
Notes payable 109,484 114,828
Other 389 376
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Total liabilities 142,582 150,243
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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;
34,897 and 34,801 shares issued and outstanding, respectively 3,490 3,480
Capital in excess of par value 137,904 137,780
Accumulated deficit (71,169) (64,977)
Accumulated other comprehensive income (loss) (443) (620)
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Total stockholders' equity 69,782 75,663
--------- ---------
Total liabilities and stockholders' equity $ 212,364 $ 225,906
========= =========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
3
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<TABLE>
<CAPTION>
Nabi
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CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED) (UNAUDITED)
Three Months Ended September 30, Nine Months Ended September 30,
-------------------------------- -------------------------------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA) 1998 1997 1998 1997
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales $ 58,713 $ 52,849 $ 178,505 $ 167,141
Costs and expenses:
Costs of products sold 42,520 43,370 130,651 129,501
Selling, general and administrative expense 7,449 6,992 23,622 17,230
Research and development expense 5,301 4,622 15,689 12,465
Royalty expense 2,694 1,924 8,557 4,321
Other operating expense, principally freight and
amortization 499 811 1,658 2,431
Non-recurring charges -- 5,680 -- 5,680
---------- ---------- ---------- ----------
Operating income (loss) 250 (10,550) (1,672) (4,487)
Interest income 24 16 36 230
Interest expense (1,419) (1,247) (4,596) (3,215)
Other, net (7) (2) 40 (29)
---------- ---------- ---------- ----------
Income (loss) before benefit (provision)
for income taxes (1,152) (11,783) (6,192) (7,501)
Benefit (provision) for income taxes (2,605) 3,894 -- 2,975
---------- ---------- ---------- ----------
Net income (loss) $ (3,757) $ (7,889) $ (6,192) $ (4,526)
========== ========== ========== ==========
Basic and diluted earnings (loss) per share $ (0.11) $ (0.23) $ (0.18) $ (0.13)
========== ========== ========== ==========
Weighted average number of shares outstanding 34,897 34,759 34,879 34,728
========== ========== ========== ==========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
4
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Nabi
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CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(UNAUDITED)
Nine Months Ended September 30,
-------------------------------
(Dollars in Thousands) 1998 1997
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<S> <C> <C>
Cash flow from operating activities:
Net income (loss) $ (6,192) $ (4,526)
Adjustments to reconcile net income (loss) to net cash provided
(used) by operating activities:
Depreciation and amortization 8,548 6,988
Provision for doubtful accounts (13) 135
Other 228 54
Non-recurring charges -- 5,680
Change in assets and liabilities:
Decrease (increase) in trade accounts receivable 3,950 4,145
Decrease (increase) in inventories 4,214 (20,551)
Decrease (increase) in prepaid expenses and other assets 8,254 (5,169)
Decrease (increase) in other assets 258 (3,055)
Increase (decrease) in accounts payable and accrued liabilities (5,658) (13,132)
-------- --------
Total adjustments 19,781 (24,905)
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Net cash provided (used) by operating activities 13,589 (29,431)
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Cash flow from investing activities:
Proceeds from maturity of short-term investments -- 8,850
Capital expenditures (14,786) (27,588)
-------- --------
Net cash provided (used) by investing activities (14,786) (18,738)
-------- --------
Cash flow from financing activities:
Borrowing (repayments) under line of credit, net (5,261) 32,022
Borrowings under term loan 5,000 --
Other debt (1,394) 5,219
Proceeds from the exercise of options and warrants 135 410
-------- --------
Net cash provided (used) by financing activities (1,520) 37,651
-------- --------
Net increase (decrease) in cash and cash equivalents (2,717) (10,518)
Cash and cash equivalents at beginning of period 3,397 18,513
-------- --------
Cash and cash equivalents at end of period $ 680 $ 7,995
======== ========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
5
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Nabi
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 GENERAL
Nabi is a fully integrated research and development driven biopharmaceutical
company that develops and commercializes products for the prevention and
treatment of infectious diseases and immunological disorders, and supplies human
plasma.
The consolidated financial statements include the accounts of Nabi 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 Nabi's
Annual Report to Stockholders for the year ended December 31, 1997.
In the opinion of management, the unaudited consolidated financial statements
include all adjustments necessary to present fairly Nabi's consolidated
financial position at September 30, 1998 and the consolidated results of its
operations for the three and nine months ended September 30, 1998 and 1997. 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:
SEPTEMBER 30, DECEMBER 31,
AMOUNTS IN THOUSANDS 1998 1997
- -------------------------------------------------------------------------------
Finished goods $38,143 $40,029
Work in process 955 212
Raw materials 3,527 3,787
-------------------- --------------------
42,625 44,028
Less: reserves (3,452) (641)
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TOTAL $39,173 $43,387
==================== ====================
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NOTE 3 PROPERTY AND EQUIPMENT
Property and equipment and related allowances for depreciation and amortization
are summarized below:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
DOLLARS IN THOUSANDS 1998 1997
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<S> <C> <C>
Information systems $21,347 $19,066
Leasehold improvements 20,398 18,077
Machinery and equipment 18,103 16,882
Land and buildings 8,815 8,634
Furniture and fixtures 5,139 4,568
Construction in progress 53,643 46,776
-------------------- --------------------
Total property and equipment 127,445 114,003
Less: accumulated depreciation and
amortization (30,275) (24,816)
-------------------- --------------------
TOTAL $97,170 $89,187
==================== ====================
</TABLE>
Construction in progress consists primarily of costs incurred in connection with
construction of Nabi's biopharmaceutical manufacturing facility and includes
capitalized interest of $7,645 and $5,149 at September 30, 1998 and December 31,
1997, respectively.
NOTE 4 EARNINGS PER SHARE
At September 30, 1998 and 1997, stock options for shares of common stock were
not included in the calculation of diluted earnings per share because the
effects were anti-dilutive. The following is the basic and diluted earnings per
share for the three and nine months ending September 30, 1998 and 1997:
BASIC AND
AMOUNTS IN THOUSANDS DILUTED EPS
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THREE MONTHS ENDED SEPTEMBER 30, 1998
Net loss ($3,757)
Shares 34,897
Per share ($0.11)
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THREE MONTHS ENDED SEPTEMBER 30, 1997
Net loss ($7,889)
Shares 34,759
Per share ($0.23)
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NINE MONTHS ENDED SEPTEMBER 30, 1998
Net loss ($6,192)
Shares 34,879
Per share ($0.18)
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NINE MONTHS ENDED SEPTEMBER 30, 1997
Net loss ($4,526)
Shares 34,728
Per share ($0.13)
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7
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NOTE 5 COMPREHENSIVE INCOME
Effective January 1, 1998, Nabi adopted Statement of Financial Accounting
Standards ("SFAS") No. 130, "Reporting Comprehensive Income" which establishes
new rules for the reporting of comprehensive income.
The components of comprehensive income for the three and nine months ended
September 30, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
--------------------------------------------------------------------------
AMOUNTS IN THOUSANDS 1998 1997 1998 1997
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<S> <C> <C> <C> <C>
Net income (loss) ($3,757) ($7,889) ($6,192) ($4,526)
Other comprehensive income (loss) 186 (53) 177 (445)
----------------- ----------------- ----------------- -----------------
TOTAL ($3,571) ($7,942) ($6,015) ($4,971)
================= ================= ================= =================
</TABLE>
NOTE 6 PRODUCT LICENSE APPLICATION
In September 1998, Nabi sold the last of its inventory of the old formulation of
one of its major marketed therapeutic products, H-BIG(R). During the third
quarter of 1998, Nabi filed a Product License Application for a new formulation
of H-BIG(R) which is currently under review by the FDA. Nabi expects to generate
revenues from this new formulation, pending FDA approval, in early 1999.
During this period, the Company has filed an amendment to its Investigation for
New Drug application to allow expanded access to the newly re-formulated
H-BIG(R) for intravascular use in liver transplants patients. Nabi believes this
is the best method to provide H-BIG(R) to the patients who are chronically in
need of this drug.
NOTE 7 RECENT PRONOUNCEMENTS
In April 1998, Statement of Position ("SOP") No. 98-5, "Reporting on the Costs
of Start-Up Activities" was issued. This SOP requires that all start-up or
pre-operating costs be expensed as incurred and is effective for fiscal years
beginning after December 15, 1998. Management believes that the adoption of the
SOP will not have a material impact on the financial statements.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information" ("SFAS
131"), which is effective for fiscal years beginning after December 15, 1997.
This statement requires disclosure of certain information about operating
segments and geographic areas of operation. Management believes that adoption of
SFAS 131 in 1998 will not have any effect upon the Company's consolidated
financial condition or results of operations.
NOTE 8 RECLASSIFICATIONS
Certain items in the consolidated financial statements for the 1997 period have
been reclassified for comparative purposes.
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ITEM 2
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is a discussion and analysis of the major factors contributing to
Nabi's financial condition and results of operations for the three and nine
month periods ended September 30, 1998 and 1997. The discussion and analysis
should be read in conjunction with the condensed consolidated financial
statements and notes thereto. All dollar amounts are expressed in thousands,
except per share amounts.
RESULTS OF OPERATIONS
The following table sets forth Nabi's results of operations expressed as a
percentage of sales:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- ------------------------
1998 1997 1998 1997
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<S> <C> <C> <C> <C>
Sales 100.0 % 100.0 % 100.0 % 100.0 %
Costs of products sold 72.4 % 82.1 % 73.2 % 77.5 %
------- ------- ------- -------
Gross profit margin 27.6 % 17.9 % 26.8 % 22.5 %
Selling, general and administrative expense 12.7 % 13.2 % 13.2 % 10.3 %
Research and development expense 9.0 % 8.7 % 8.8 % 7.4 %
Royalty expense 4.6 % 3.5 % 4.8 % 2.6 %
Other operating expense, principally
freight and amortization 0.8 % 1.5 % 0.9 % 1.5 %
Non-recurring charges -- % 10.7 % -- % 3.4 %
------- ------- ------- -------
Operating income (loss) 0.4 % (20.0)% (0.9)% (2.7)%
Interest income -- % -- % -- % -- %
Interest expense (2.3)% (2.4)% (2.5)% (1.9)%
Other, net -- % -- % -- % -- %
------- ------- ------- -------
Income (loss) before benefit (provision)
for income taxes (2.0)% (22.4)% (3.5)% (4.5)%
Benefit (provision) for income taxes (4.4)% 7.5 % - % 1.8 %
------- ------- ------- -------
Net income (loss) (6.4)% (14.9)% (3.5)% (2.7)%
======= ======= ======= =======
</TABLE>
Information concerning Nabi's sales by operating segments for the respective
periods, is set forth in the following table:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30,
------------------------------------------------------------
DOLLARS IN THOUSANDS 1998 1997
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Segment
Plasma - Source $30,579 52.1% $31,280 59.2%
- Specialty 11,788 20.1 9,843 18.7
- Other (includes diagnostic products and
services) 2,568 4.3 1,060 1.9
------------- ------------- ------------- --------------
44,935 76.5 42,183 79.8
Drugs 13,778 23.5 10,666 20.2
------------- ------------- ------------- --------------
TOTAL $58,713 100.0% $52,849 100.0%
============= ============= ============= ==============
</TABLE>
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<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
------------------------------------------------------------
DOLLARS IN THOUSANDS 1998 1997
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Segment
Plasma - Source $97,273 54.5% $100,099 59.9%
- Specialty 33,127 18.6 40,395 24.2
- Other (includes diagnostic products and
services) 6,115 3.4 3,490 2.0
----------- ------------- -------------- ------------
136,515 76.5 143,984 86.1
Drugs 41,990 23.5 23,157 13.9
----------- ------------- -------------- ------------
TOTAL $178,505 100.0% $167,141 100.0%
=========== ============= ============== ============
</TABLE>
THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
SALES. Sales for the third quarter of 1998 increased by $5.9 million to $58.7
million compared to $52.8 million for the third quarter of 1997. Plasma sales
increased due to a higher volume of specialty plasma sales, primarily anti-D and
other high-margin products. This increase was offset by a decrease in source
plasma revenues. Although shipments of source plasma increased, the overall
decline in revenues was primarily due to lower prices under contracts which were
negotiated in late 1997 when there was a general disruption in the plasma
industry. Nabi also benefited from an opportunity to provide laboratory testing
services for a plasma fractionator during the third quarter of 1998. Drug sales
improved based on strong demand for WinRho SDF(TM) and Autoplex(R)T which more
than offset a reduction in H-BIG(R) sales due to product supply constraints.
GROSS PROFIT MARGIN. Gross profit and related margin for the third quarter of
1998 was $16.2 million, or 27.6% of sales, compared to $9.5 million, or 17.9% of
sales, in the third quarter of 1997. The substantial increase in gross profit
and related margin resulted from a shift in product mix toward high-margin drug
products and specialty plasma.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general and administrative
expense was $7.4 million or 12.7% of sales, for the third quarter of 1998
compared to $7.0 million, or 13.2% of sales, in the third quarter of 1997. The
expense increase resulted primarily from sales and marketing efforts directed
toward increasing drug product sales. Selling, general and administrative
expense as a percentage of sales decreased as a result of higher sales for the
quarter.
RESEARCH AND DEVELOPMENT EXPENSE. Research and development expense was $5.3
million, or 9.0% of sales, for the third quarter of 1998 compared to $4.6
million, or 8.7% of sales, in the third quarter of 1997. The higher spending
related primarily to the advancement of clinical trials. During the third
quarter of 1998, Nabi submitted its first Product License Application ("PLA")
for a new formulation of H-BIG(R). In addition, Nabi has enrolled over 50% of
the patients in its pivotal Phase III clinical trial of Nabi-StaphVAX(TM) and is
currently in Phase I/II clinical studies using Nabi-Altastaph(TM) in low
birth-weight neonates.
INTEREST EXPENSE. Interest expense for the third quarter of 1998 was $1.4
million, or 2.3% of sales, compared to $1.2 million, or 2.4% of sales, in the
third quarter of 1997. The increase was primarily attributable to interest
expense associated with higher average outstanding borrowings in 1998 as
compared to 1997.
OTHER FACTORS. Provision for income taxes was $2.6 million in the third quarter
of 1998. Since Nabi does not expect to be profitable for the full year, the tax
benefit recorded during the first half of 1998 was
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reversed in the third quarter. The tax benefit for the third quarter of 1997 was
$3.9 million and resulted from expected income tax refunds attributable to the
carryback of net operating losses incurred in 1997, against prior years' taxable
income.
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
SALES. Sales for the nine months ended September 30, 1998 increased by $11.4
million to $178.5 million compared to $167.1 million for the nine months of
1997. The increase was primarily attributable to a substantial increase in drug
sales based on a strong demand for all three of Nabi's marketed therapeutic
products. This significant increase was reduced by an overall decline in plasma
product sales. Although revenues for certain high-margin specialty plasma
products, including anti-D plasma increased, this was offset by decreased market
demand for other specialty plasmas. Source plasma shipments increased in 1998,
but sales declined due to lower prices under contracts which were negotiated in
late 1997 when there was a general disruption in the plasma industry. Revenues
from laboratory testing services increased during 1998.
GROSS PROFIT MARGIN. Gross profit and related margin for the nine months of 1998
was $47.9 million, or 26.8% of sales, compared to $37.6 million, or 22.5% of
sales, in the nine months of 1997. The increase in gross profit and related
margin resulted from increased sales of high-margin drug products, offset by the
effects of reduced margins on source plasma and diagnostic product sales. Gross
profits and related margins on plasma product sales were adversely affected by
several factors: lower contract prices, higher fees paid to donors to increase
production to meet demand during a period of low unemployment, higher costs to
meet new regulatory and quality requirements and certain expenses associated
with process improvement initiatives within plasma operations.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general and administrative
expense was $23.6 million, or 13.2% of sales, for the nine months of 1998
compared to $17.2 million, or 10.3% of sales, in the nine months of 1997. The
increase resulted primarily from sales and marketing programs directed toward
increasing drug product sales, costs associated with Nabi's restructuring
efforts and incremental expenses in the first half of 1998 associated with the
SAP information systems which were implemented in the third quarter of 1997.
RESEARCH AND DEVELOPMENT EXPENSE. Research and development expense was $15.7
million, or 8.8% of sales, for the nine months of 1998 compared to $12.5
million, or 7.4% of sales, in the nine months of 1997. In 1998 these programs
have been focused primarily on the advancement of clinical trials for
Nabi-H-BIG(R), Nabi-StaphVAX(TM) and Nabi-Altastaph(TM).
ROYALTY EXPENSE. Royalty expense increased to $8.6 million or 4.8% of sales
during the nine months of 1998, compared to $4.3 million, or 2.6% of sales, in
the nine months of 1997 primarily due to increased sales of H-BIG(R) and WinRho
SDF(TM) in 1998.
INTEREST EXPENSE. Interest expense for the nine months of 1998 was $4.6 million,
or 2.5% of sales, compared to $3.2 million, or 1.9% of sales, in the nine months
of 1997. The increase was primarily attributable to interest expense associated
with higher average outstanding borrowings in the nine months of 1998 when
compared to 1997.
OTHER FACTORS. There was no tax provision in 1998 since Nabi has incurred a
pre-tax loss for the nine months of 1998 and does not anticipate profits for the
year. During the nine months of 1997, the benefit for income taxes of $3 million
results from expected income tax refunds attributable to the carryback of net
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operating losses incurred in 1997 against prior years' taxable income. The 1997
effective rate of 39.7% differs from the statutory rate primarily due to foreign
trade income and a reduction in tax reserves established in prior periods,
offset by the effect of non-deductible goodwill.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1998, Nabi's credit agreement provided for a $45 million
revolving credit facility subject to certain borrowing base restrictions as
defined in the agreement which matures in September 2002, and a $5 million term
loan due March 1999. Borrowings under the agreement were $34 million and
additional availability was approximately $6.7 million at September 30, 1998.
The credit agreement is secured by substantially all of Nabi's assets and
requires the maintenance of certain financial covenants and prohibits the
payment of dividends.
As of September 30, 1998, Nabi's current assets exceeded current liabilities by
$47.2 million as compared to a net working capital position of $63.9 million at
December 31, 1997. Cash and cash equivalents at September 30, 1998 was $680,000
compared to $3.9 million at December 31, 1997. The primary source of cash for
the nine months of 1998 was from operations, including reductions in receivables
and inventories and the collection of a significant refund of income taxes. Net
cash provided by operating activities was $13.6 million representing an
improvement of $43 million from the prior year. The primary uses of cash were
capital expenditures and debt repayments.
Projected capital expenditures for the remainder of 1998 include deferred
validation costs, including capitalized interest for manufacturing facilities,
development of information systems, and plasma center renovations. Nabi believes
that cash flow from operations and its available bank credit facilities will be
sufficient to meet its anticipated cash requirements for the remainder of 1998.
YEAR 2000
During 1997, the Company implemented a current version of SAP software. This
system is used for most computer processing related to purchasing, accounts
payable, invoicing, accounts receivable, inventory, fixed assets and financial
reporting. The vendor of this software has advised Nabi that this system is Year
2000 compliant.
During the third quarter of 1998, Nabi established a cross-functional team to
coordinate the Company's efforts in addressing year 2000 issues beyond SAP.
These efforts are focused in four major areas: information systems, equipment,
other systems and third party supplier and customer relationships.
The Company's program to address Year 2000 preparedness has four overlapping
phases: (1) the identification and assessment of business critical systems,
equipment and business relationships, (2) the testing of year 2000 readiness for
internal systems and equipment and the inquiry/audit of year 2000 readiness for
third party suppliers and customers, (3) the renovation or replacement of
systems, equipment or business relationships that that will not be year 2000
compliant, including re-testing as required, and finally, (4) contingency
planning to mitigate the potential effect of issues which may be so deeply
embedded in systems, equipment and processes that they are beyond the Company's
ability to identify and control.
As of the end of the October 1998, Nabi had completed all major elements of its
project planning and the assessment of internal information systems and
applications. Assessment of other equipment and systems is targeted for
completion during the fourth quarter of 1998 and the inquiry/audit of third
party suppliers and customers is expected to be completed by March, 1999.
Testing is planned for completion
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by the end of March 1999 and any renovations or replacements are targeted for
completion by June, 1999. Nabi's goal is to complete any required validation of
changes to systems, equipment or processes and contingency planning by the end
of the third quarter of 1999.
The Company will utilize both internal and external resources in its year 2000
efforts. The additional cost to achieve year 2000 compliance is currently
estimated at $2 to $5 million dollars, including expense and capital
expenditures, not all of which are incremental to the Company's operations.
These expenditures will primarily be incurred during 1999.
The Company's efforts in these areas are ongoing. At this time, based on the
work completed to date, Nabi believes that its software, equipment and other
systems are year 2000 compliant or that it will be able to renovate or replace,
in a timely manner, any element, which if not year 2000 compliant could be
expected to have a significant, adverse effect on our ability to deliver
products or services. There can be no assurance that the Company's efforts will
be successful. If they are not, the Company's operations or financial condition
may be materially and adversely affected.
FACTORS TO BE CONSIDERED
The parts of this Quarterly Report on Form 10-Q captioned "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Legal Proceedings" contain certain forward-looking statements which involve
risks and uncertainties. Readers should refer to a discussion under "Factors to
be Considered" contained in Nabi's Annual Report on Form 10-K for the year ended
December 31, 1997 concerning certain factors that could adversely affect Nabi's
future operating performance or cause Nabi's actual results to differ materially
from the results anticipated in such forward-looking statements, including in
particular the risks described under the caption, "Dependence Upon third Parties
to Manufacture Products." Said discussion is hereby incorporated by reference
into this Quarterly Report.
13
<PAGE> 14
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. 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 against Nabi are based on negligence and strict liability.
The defendants include Bayer Corporation, Armour Pharmaceutical Company,
Rhone-Poulenc Rorer, Inc., Baxter Healthcare Corporation, Alpha Therapeutic
Corporation and The National Hemophilia Foundation. A national settlement
involving most of the plaintiffs is pending.
Nabi denies all claims against it in these suits and intends to defend the cases
vigorously. Nabi believes that any such litigation will not have a material
adverse effect on its business, financial position or results of operations.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibit
10.33 Employment Agreement dated August 1, 1998 between
Dr. Robert B. Naso and Nabi................................16
27 Financial Data Schedule (for SEC use only).
b. Reports on Form 8-K:
None
14
<PAGE> 15
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: November 13, 1998 By: /s/ THOMAS H. MCLAIN
---------------------------------------------
THOMAS H. MCLAIN
Senior Vice President, Corporate Services and
Chief Financial Officer
15
<PAGE> 1
EXHIBIT 10.33
================================================================================
EMPLOYMENT AGREEMENT
DATED AUGUST 1, 1998
BETWEEN
DR. ROBERT B. NASO AND NABI
<PAGE> 2
Nabi
- --------------------------------------------------------------------------------
5800 PARK OF COMMERCE BOULEVARD, N.W.
BOCA RATON, FL 33487
EFFECTIVE AS OF AUGUST 1, 1998
Dr. Robert B. Naso
8630 Rock Haven Drive
Gaithersburg, Maryland 20882
Dear Bob:
You have agreed to serve as Senior Vice President Quality, Regulatory & Product
Development, for Nabi. The following are the terms of such employment:
1. TERM: You will serve as Senior Vice President Quality, Regulatory & Product
Development, for Nabi, for a period beginning as of the date hereof and ending
on July 31, 2001, unless your employment is sooner terminated as provided below
(the "Employment Period").
2. SALARY: Your salary will be $215,000.00 per year, payable bi-weekly during
the Employment Period. Your salary will be subject to discretionary annual
increases as determined by Nabi's Board of Directors.
3. BONUS: You will be entitled to participate in Nabi's VIP Management Incentive
Program.
Unless the Employment Period is terminated for "cause" pursuant to
Section 7(B)(b) below, bonus compensation shall be pro rated in respect of any
calendar year during which the Employment Period terminates based on the amount
of bonus compensation which would have been payable with respect to such year
based on your original VIP Management Incentive Program participation, divided
by 12, times the number of full calendar months during the relevant year you
were employed prior to the termination of the Employment Period. If the
Employment Period is terminated pursuant to Section 7(B)(b) below, no bonus
compensation is payable with respect to the calendar year during which it is
terminated.
Bonus payments shall be payable within 120 days after the end of the relevant
calendar year.
4. AUTO ALLOWANCE: You, while an employee under the terms of this Agreement,
shall receive an auto allowance of not less than $900.00 per month.
5. BENEFITS: You will be eligible to participate in Nabi's 401(k),
medical/dental insurance, life insurance, executive long term disability
program, Supplemental Executive Retirement Plan (SERP), and other benefit
programs upon the effective date of this Agreement. You will accrue Paid Leave
Bank (PLB) time at the rate of 18.67 hours per month.
6. DUTIES AND EXTENT OF SERVICES:
(A) During the Employment Period, you agree to devote substantially all of your
working time, and such energy, knowledge, and efforts as is necessary to the
discharge and performance of your duties provided for in this Agreement and such
other reasonable duties and responsibilities consistent with your position as
are assigned to you from time to time by the person to whom you report. You
shall be located primarily
17
<PAGE> 3
in Nabi's Rockville, Maryland, facilities, but shall travel to other locations
from time to time as shall be reasonably required in the course of performance
of your duties.
(B) During the Employment Period, you shall serve as Nabi's Senior Vice
President Quality, Regulatory and Product Development. You shall have such
duties as are delegated to you by the person to whom you report provided that
such duties shall be reasonably consistent with those duties assigned to
executive officers having similar titles in organizations comparable to Nabi.
7. TERMINATION:
(A) The Employment Period shall terminate upon your death. You may also
terminate the Employment Period upon thirty (30) days' prior written notice to
Nabi. Any termination pursuant to this Section 7(A) shall not affect any bonus
compensation applicable to the year of such termination, provided that any bonus
compensation payable pursuant to Section 3 of this Agreement shall be prorated
as provided for in Section 3.
(B) Nabi may terminate the Employment Period in the event of (a) your disability
that prevents you from performing your obligations pursuant to this Agreement
for any three (3) consecutive months or (b) for "cause", which is defined as (i)
commission of fraud or embezzlement or other felonious acts by you, (ii) your
refusal to comply with reasonable directions in connection with the performance
of your duties as provided for in Section 6 of this Agreement after notice of
such failure is delivered to you, (iii) failure to comply with the provisions of
Section 8 or 9 of this Agreement or (iv) your gross negligence in connection
with the performance of your duties as provided for in this Agreement, which
gross negligence causes material damage to Nabi, provided that, in the event of
termination under this clause (B), you shall receive ten (10) days' notice of
such failure prior to termination and a determination must be made by Nabi's
Board of Directors or a duly appointed committee of the Board, after you are
afforded an opportunity to be heard, that it is, at the date of such
termination, reasonable to conclude that grounds for such termination under this
clause (B) still exists.
(C) Nabi may otherwise terminate the Employment Period upon thirty (30) days'
prior notice to you. In the event of such termination based on the effective
date of such termination, Nabi will pay you severance pay of twelve (12) months
of your annual base salary as in effect at the time of such termination
("Severance Pay") and maintain in effect for a twelve (12) month period all then
existing benefits, (subject to the limitations of the applicable plans),
including but not limited to, the auto allowance, life insurance, short and long
term disability programs, health care coverage, and SERP benefits. Severance Pay
provided for in this paragraph shall be made in twelve (12) equal monthly
installments. If you terminate your employment with Nabi within thirty (30) days
of the expiration of the Employment Period, you shall be entitled to receive
Severance Pay under Section 7C unless during the thirty (30) day period prior to
the expiration of the Employment Period, Nabi offered to renew this Agreement on
terms no less favorable to you than the terms then in effect.
(D) If your employment terminates pursuant to Section 7B(a) or Section 7C, all
non-vested stock options, restricted stock or similar incentive equity
instruments pursuant to the Company's 1990 Equity Incentive Plan and/or
successor plans (the "Options") shall immediately vest. All such "Options" shall
be exercisable for one (1) year past termination date, except that no "Options"
shall be exercisable beyond the original "Option" expiration date. To the extent
the terms of any "Options" are inconsistent with this Agreement, the terms of
this Agreement shall control.
(E) Your confidentiality and non-competition agreements set forth in Sections 8
and 9 below shall survive the termination of your employment regardless of the
reasons therefor.
8. CONFIDENTIALITY: You acknowledge that your duties as described in Section 6
of this Agreement will give you access to trade secrets and other confidential
information of Nabi and/or its affiliates,
18
<PAGE> 4
including but not limited to information concerning production and marketing of
their respective products, customer lists, and other information relating to
their present or future operations (all of the foregoing, whether or not it
qualifies as a "trade secret" under applicable law, is collectively called
"Confidential Information"). You recognize that Confidential Information is
proprietary to each such entity and gives each of them significant competitive
advantage.
Accordingly, you shall not use or disclose any of the Confidential Information
during or after the Employment Period, except for the sole and exclusive benefit
of the relevant company. Upon any termination of the Employment Period, you will
return to the relevant company's office all documents, computer tapes, and other
tangible embodiments of any Confidential Information. You agree that Nabi would
be irreparably injured by any breach of your confidentiality agreement, that
such injury would not be adequately compensable by monetary damages, and that,
accordingly, the offended company may specifically enforce the provisions of
this Section by injunction or similar remedy by any court of competent
jurisdiction without affecting any claim for damages.
9. NON-COMPETITION:
(A) You acknowledge that your services to be rendered are of a special and
unusual character and have a unique value to Nabi the loss of which cannot
adequately be compensated by damages in an action at law. In view of the unique
value of the services, and because of the Confidential Information to be
obtained by or disclosed to you, and as a material inducement to Nabi to enter
into this Agreement and to pay to you the compensation referred to above and
other consideration provided, you covenant and agree that you will not, during
the term of your employment by Nabi and for a period of one (1) year after
termination of such employment for any reason whatsoever, you will not, directly
or indirectly, (a) engage or become interested, as owner, employee, consultant,
partner, through stock ownership (except ownership of less than five percent of
any class of securities which are publicly traded), investment of capital,
lending of money or property, rendering of services, or otherwise, either alone
or in association with others, in the operations, management or supervision of
any type of business or enterprise engaged in any business which is competitive
with any business of Nabi (a "Competitive Business"), (b) solicit or accept
orders from any current or past customer of Nabi for products or services
offered or sold by, or competitive with products or services offered or sold by,
Nabi, (c) induce or attempt to induce any such customer to reduce such
customer's purchase of products or services from Nabi, (d) disclose or use for
the benefit of any Competitive Business the name and/or requirements of any such
customer or (e) solicit any of Nabi's employees to leave the employ of Nabi or
hire or negotiate for the employment of any employee of Nabi.
(B) You have carefully read and considered the provisions of this Section and
Section 8 and having done so, agree that the restrictions set forth (including
but not limited to the time period of restriction and the world wide areas of
restriction) are fair and reasonable (even if termination is at our request and
without cause) and are reasonably required for the protection of the interest of
Nabi, its officers, directors, and other employees. You acknowledge that upon
termination of this Agreement for any reason, it may be necessary for you to
relocate to another area, and you agree that this restriction is fair and
reasonable and is reasonably required for the protection of the interests of
Nabi, its officers, directors, and other employees.
(C) In the event that, notwithstanding the foregoing, any of the provisions of
this Section or Section 8 shall be held to be invalid or unenforceable, the
remaining provisions thereof shall nevertheless continue to be valid and
enforceable as though invalid or unenforceable parts had not been included
therein. In the event that any provision of this Section relating to time period
and/or areas of restriction shall be declared by a court of competent
jurisdiction to exceed the maximum time period or areas such court deems
reasonable and enforceable, said time period and/or areas of restriction shall
be deemed to become, and thereafter be, the maximum time period and/or area
which such court deems reasonable and enforceable.
19
<PAGE> 5
(D) With respect to the provisions of this Section, you agree that damages, by
themselves, are an inadequate remedy at law, that a material breach of the
provisions of this Section would cause irreparable injury to the aggrieved
party, and that provisions of this Section 9 may be specifically enforced by
injunction or similar remedy in any court of competent jurisdiction without
affecting any claim for damages.
10. MISCELLANEOUS: This Agreement and the rights and obligations of the parties
pursuant to it and any other instruments or documents issued pursuant to it
shall be construed, interpreted and enforced in accordance with the laws of the
State of Florida, exclusive of its choice-of-law principles. This Agreement
shall be binding upon and inure to the benefit of the parties hereto, and their
respective successors and assigns. The provisions of this Agreement shall be
severable and the illegality, unenforceability or invalidity of any provision of
this Agreement shall not affect or impair the remaining provisions hereof, and
each provision of this Agreement shall be construed to be valid and enforceable
to the full extent permitted by law. In any suit, action or proceeding arising
out of or in connection with this Agreement, the prevailing party shall be
entitled to receive an award of the reasonable related amount of attorneys' fees
and disbursements incurred by such party, including fees and disbursements on
appeal. This Agreement is a complete expression of all agreements of the parties
relating to the subject matter hereof, and all prior or contemporaneous oral or
written understandings or agreements shall be null and void except to the extent
set forth in this Agreement.
This Agreement cannot be amended orally, or by any course of conduct or dealing,
but only by a written agreement signed by the party to be charged therewith. All
notices required and allowed hereunder shall be in writing, and shall be deemed
given upon deposit in the Certified Mail, Return Receipt Requested, first-class
postage and registration fees prepaid, and correctly addressed to the party for
whom intended at its address set forth under its name below, or to such other
address as has been most recently specified by a party by one or more
counterparts, each of which shall constitute one and the same agreement. All
references to genders or number in this Agreement shall be deemed
interchangeably to have a masculine, feminine, neuter, singular or plural
meaning, as the sense of the context required.
If the foregoing confirms your understanding of our agreements, please so
indicate by signing in the space provided below and returning a signed copy to
us.
Nabi
5800 Park of Commerce Boulevard, N.W.
Boca Raton, Florida 33487
By: /s/ DAVID J. GURY
--------------------------------
David J. Gury
Chief Executive Officer
Accepted and agreed:
/s/ ROBERT B. NASO
- ------------------------------
Dr. Robert B. Naso
8630 Lochaven Drive
Gaithersburg, Maryland 20882
20
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AT SEPTEMBER 30, 1998 (UNAUDITED) AND THE
CONSOLIDATED STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30,
1998 (UNAUDITED) AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 680
<SECURITIES> 0
<RECEIVABLES> 32,122<F1>
<ALLOWANCES> 0
<INVENTORY> 39,173<F1>
<CURRENT-ASSETS> 79,902
<PP&E> 97,170<F1>
<DEPRECIATION> 0
<TOTAL-ASSETS> 212,364
<CURRENT-LIABILITIES> 32,709
<BONDS> 114,852
0
0
<COMMON> 3,490
<OTHER-SE> 66,292
<TOTAL-LIABILITY-AND-EQUITY> 212,364
<SALES> 178,505
<TOTAL-REVENUES> 178,505
<CGS> 130,651
<TOTAL-COSTS> 130,651
<OTHER-EXPENSES> 49,526
<LOSS-PROVISION> 0<F2>
<INTEREST-EXPENSE> 4,596
<INCOME-PRETAX> (6,192)
<INCOME-TAX> 0
<INCOME-CONTINUING> (6,192)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,192)
<EPS-PRIMARY> (0.18)
<EPS-DILUTED> (0.18)
<FN>
<F1>RECEIVABLES, INVENTORY AND PP&E REPRESENT NET AMOUNTS.
<F2>LOSS PROVISION INCLUDED IN OTHER EXPENSES.
</FN>
</TABLE>
