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, 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 ------------------------------------------------------ (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 - -------------------------------------------------------------------------------- (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 May 12, 1998 was 34,893,917 shares.
2 QUARTERLY REPORT UNDER SECTION 13 OR 15(d) Nabi ================================================================================ INDEX ----- <TABLE> <CAPTION> PART I. FINANCIAL INFORMATION PAGE ---- <S> <C> ITEM 1. FINANCIAL STATEMENTS.............................................................................3 Consolidated Balance Sheets, March 31, 1998 and December 31, 1997.........................................3 Consolidated Statements of Operations for the three-month periods ended March 31, 1998 and 1997..............................................................................4 Consolidated Statements of Cash Flows for the three-month periods ended March 31, 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...............................................................................11 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K................................................................12 Exhibit 10.30 - Amendment No. 2 and Waiver dated as of March 30, 1998 to Loan and Security Agreement dated as of September 12, 1997...........................14 27 - Financial Data Schedule (for S.E.C. use only)........................................27 </TABLE> 2
3 Nabi PART I Financial Information Item 1 Financial Statements - -------------------------------------------------------------------------------- CONSOLIDATED BALANCE SHEETS <TABLE> <CAPTION> (UNAUDITED) March 31, December 31, ------------------------------- (In Thousands) 1998 1997 - ---------------------------------------------------------------------------------------------- <S> <C> <C> ASSETS CURRENT ASSETS: Cash and cash equivalents $ 1,225 $ 3,397 Trade accounts receivable, net 35,086 36,060 Inventories, net 40,526 43,387 Prepaid expenses and other assets 18,666 16,128 ---------- ---------- TOTAL CURRENT ASSETS 95,503 98,972 PROPERTY AND EQUIPMENT, NET 91,943 89,187 OTHER ASSETS: Excess of acquisition cost over net assets acquired, net 16,866 17,123 Intangible assets, net 7,827 8,104 Other, net 12,289 12,520 ---------- ---------- TOTAL ASSETS $224,428 $225,906 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Trade accounts payable $ 12,380 $ 11,390 Accrued expenses 18,771 17,396 Notes payable 2,154 6,253 ---------- ---------- TOTAL CURRENT LIABILITIES 33,305 35,039 NOTES PAYABLE 116,930 114,828 OTHER 381 376 ---------- ---------- TOTAL LIABILITIES 150,616 150,243 ---------- ---------- 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; 34,889 and 34,801 shares issued and outstanding, respectively 3,489 3,480 Capital in excess of par value 137,882 137,780 Accumulated deficit (66,895) (64,977) Accumulated other comprehensive income (loss) (664) (620) ---------- ---------- TOTAL STOCKHOLDERS' EQUITY 73,812 75,663 ---------- ---------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $224,428 $225,906 ========== ========== </TABLE> The accompanying notes are an integral part of these financial statements. 3
4 Nabi - -------------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF OPERATIONS <TABLE> <CAPTION> (UNAUDITED) Three Months Ended March 31, ---------------------------- (In Thousands, Except Per Share Data) 1998 1997 - ------------------------------------------------------------------------------------- <S> <C> <C> SALES $ 58,614 $ 56,377 COSTS AND EXPENSES: Costs of products sold 44,589 43,185 Selling, general and administrative expense 7,995 4,400 Research and development expense 4,767 3,798 Royalty expense 2,745 1,209 Other operating expense, principally freight and amortization 582 934 -------- -------- OPERATING INCOME (LOSS) (2,064) 2,851 INTEREST INCOME 9 185 INTEREST EXPENSE (1,776) (976) OTHER, NET (140) (9) -------- -------- INCOME (LOSS) BEFORE BENEFIT (PROVISION) FOR INCOME TAXES (3,971) 2,051 BENEFIT (PROVISION) FOR INCOME TAXES 2,053 (701) -------- -------- NET INCOME (LOSS) ($ 1,918) $ 1,350 ======== ======== BASIC AND DILUTED EARNINGS (LOSS) PER SHARE ($ 0.06) $ 0.04 ======== ======== </TABLE> The accompanying notes are an integral part of these financial statements. 4
5 Nabi - -------------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF CASH FLOWS <TABLE> <CAPTION> (UNAUDITED) Three Months Ended March 31, ---------------------------- (In Thousands) 1998 1997 - ------------------------------------------------------------------------------------------------ <S> <C> <C> CASH FLOW FROM OPERATING ACTIVITIES: Net income (loss) ($ 1,918) $ 1,350 Adjustments to reconcile net income (loss) to net cash provided (used) by operating activities: Depreciation and amortization 2,671 2,130 Provision for doubtful accounts 62 100 Other 102 (16) Deferred income taxes (2,053) -- Change in assets and liabilities: Decrease (increase) in trade accounts receivable 911 505 Decrease (increase) in inventories 2,861 (5,863) Decrease (increase) in prepaid expenses and other assets (485) 486 Decrease (increase) in other assets 27 (2,049) Increase (decrease) in accounts payable and accrued liabilities 2,327 (8,863) ---------- ---------- Total adjustments 6,423 (13,570) ---------- ---------- NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES 4,505 (12,220) ---------- ---------- CASH FLOW FROM INVESTING ACTIVITIES: Proceeds from maturity of short-term investments -- 8,850 Capital expenditures (4,765) (7,332) ---------- ---------- NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES (4,765) 1,518 ---------- ---------- CASH FLOW FROM FINANCING ACTIVITIES: Borrowing (repayments) under line of credit, net 2,126 10,000 Other debt (4,149) 2,209 Proceeds from the exercise of options and warrants 111 309 ---------- ---------- NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES (1,912) 12,518 ---------- ---------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (2,172) 1,816 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 3,397 18,513 ---------- ---------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,225 $ 20,329 ========== ========== </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 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-blood 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 March 31, 1998 and the consolidated results of its operations for the three months ended March 31, 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: MARCH 31, DECEMBER 31, ------------------------------------------ (In thousands) 1998 1997 - ----------------------------------------------------------------------------- Finished goods $36,593 $40,029 Work in process 316 212 Raw materials 4,789 3,787 ------------------ -------------------- 41,698 44,028 Less: reserves (1,172) (641) ================== ==================== TOTAL $40,526 $43,387 ================== ==================== 6
7 NOTE 3 -- PROPERTY AND EQUIPMENT Property and equipment and related allowances for depreciation and amortization are summarized below: MARCH 31, DECEMBER 31, ------------------------------------------ (In thousands) 1998 1997 - ------------------------------------------------------------------------------ Information systems $19,335 $19,066 Leasehold improvements 18,683 18,077 Machinery and equipment 17,028 16,882 Land and buildings 8,634 8,634 Furniture and fixtures 4,632 4,568 Construction in progress 50,113 46,776 ------------------ -------------------- Total property and equipment 118,425 114,003 Less: accumulated depreciation and amortization (26,482) (24,816) ================== ==================== TOTAL $91,943 $89,187 ================== ==================== Construction in progress consists primarily of costs incurred in connection with construction of Nabi's biopharmaceutical facility and includes capitalized interest of $5,903 and $5,149 at March 31, 1998 and December 31, 1997, respectively. NOTE 4 -- EARNINGS PER SHARE The following is a reconciliation between basic and diluted earnings per share for the quarters ending March 31, 1998 and 1997: <TABLE> <CAPTION> EFFECT OF BASIC DILUTIVE SECURITIES: DILUTED EPS STOCK OPTIONS EPS - ----------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> THREE MONTHS ENDED MARCH 31, 1998 Net loss ($1,918) - ($1,918) Shares 34,852 - 34,852 (1) Per share ($0.06) ($0.06) - ----------------------------------------------------------------------------------------------------------- THREE MONTHS ENDED MARCH 31, 1997 Net income $1,350 - $1,350 Shares 34,677 713 35,390 Per share $0.04 $0.04 </TABLE> (1) AT MARCH 31, 1998, STOCK OPTIONS FOR SHARES OF COMMON STOCK WERE NOT INCLUDED IN THE CALCULATION OF DILUTED EARNINGS PER SHARE BECAUSE THE EFFECTS WERE ANTI-DILUTIVE. 7
8 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 first quarter of 1998 and 1997 are as follows: <TABLE> <CAPTION> QUARTER ENDED MARCH 31, ----------------------------------------- (In thousands) 1998 1997 - --------------------------------------------------------------------------------------- <S> <C> <C> Net income (loss) ($1,918) $1,350 Other comprehensive income (loss) (44) (336) ----------------- -------------------- TOTAL ($1,962) $1,014 ================= ==================== </TABLE> NOTE 6 -- RECLASSIFICATIONS Certain items in the consolidated financial statements for the 1997 period 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 Nabi's financial condition and results of operations for the three month periods ended March 31, 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 MARCH 31, --------------------------------- 1998 1997 - ------------------------------------------------------------------------------------------------------- <S> <C> <C> Sales 100.0% 100.0% Cost of products sold 76.1 76.6 -------------- -------------- Gross profit margin 23.9 23.4 Selling, general and administrative expense 13.6 7.8 Research and development expense 8.1 6.7 Royalty expense 4.7 2.1 Other operating expense 1.0 1.7 -------------- -------------- Operating income (loss) (3.5) 5.1 Interest income -- 0.3 Interest expense (3.0) (1.8) Other, net (0.3) -- -------------- -------------- Income (loss) before benefit (provision) for income taxes (6.8) 3.6 Benefit (provision) for income taxes 3.5 (1.2) ============== ============== Net income (loss) (3.3)% 2.4% ============== ============== </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 MARCH 31, ------------------------------------------------------------ (In thousands) 1998 1997 - --------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> Segment Plasma - Source $34,008 58.0% $33,896 60.2% - Specialty 10,700 18.3 16,256 28.8 - Other (includes diagnostic products and services) 1,254 2.1 1,317 2.3 ---------------------------- -------------- -------------- 45,962 78.4 51,469 91.3 Drugs 12,652 21.6 4,908 8.7 ============================ ============== ============== TOTAL $58,614 100.0% $56,377 100.0% ============================ ============== ============== </TABLE> 9
10 THREE-MONTHS ENDED MARCH 31, 1998 AND 1997 SALES. Sales for the first quarter of 1998 increased by $2.2 million to $58.6 million compared to $56.4 million for the first quarter of 1997. The increase was primarily attributable to a substantial increase in the sales of drug products, partially offset by a decline in specialty plasma sales. GROSS PROFIT MARGIN. Gross profit and related margin for the first quarter of 1998 was $14 million, or 23.9% of sales, compared to $13.2 million, or 23.4% of sales, in the first quarter 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 plasma product sales. Gross profits and related margins on plasma product sales were adversely affected by under absorption of fixed overhead as a result of reduced production levels in response to the general disruption in the plasma industry and certain expenses associated with process improvement initiatives within plasma operations. SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general and administrative expense was $8.0 million, or 13.6% of sales, for the first quarter of 1998 compared to $4.4 million, or 7.8% of sales, in the first quarter of 1997. The increase resulted primarily from costs associated with Nabi's restructuring measures, sales and marketing expenses associated with increased drug product sales and expenses associated with the implementation and ongoing support of new information systems. RESEARCH AND DEVELOPMENT EXPENSE. Research and development expense was $4.8 million, or 8.1% of sales, for the first quarter of 1998 compared to $3.8 million, or 6.7% of sales, in the first quarter of 1997. The increase in expenses related primarily to costs associated with the advancement of clinical trials for Nabi-H-BIG(R), Nabi-Altastaph(TM) and Nabi-StaphVAX(TM). INTEREST EXPENSE. Interest expense for the first quarter of 1998 was $1.8 million, or 3% of sales, compared to $1.0 million, or 1.8% of sales, in the first quarter of 1997. The increase was primarily attributable to interest expense associated with higher average outstanding borrowings in the first quarter of 1998 when compared to 1997. OTHER FACTORS. Benefit for income taxes was $2.1 million or an effective rate of 52%, in the first quarter of 1998 compared to a $.7 million provision, or an effective rate of 34%, in the first quarter of 1997. The 52% effective tax rate for the first quarter of 1998 differs from the statutory rate of 35% primarily due to foreign losses, non-deductible goodwill and alternative minimum taxes. The 34% effective tax rate for the first quarter of 1997 differs from the statutory rate of 35% primarily due foreign trade income, offset by the effects of non-deductible goodwill and state income taxes. LIQUIDITY AND CAPITAL RESOURCES At March 31, 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 $5.0 million term loan due March 1999. Borrowings under the agreement were $36.4 million and additional availability was approximately $9.7 million at March 31, 1998. The credit agreement is secured by substantially all of Nabi's assets, contains covenants requiring the maintenance of certain financial covenants and prohibits the payment of dividends. As of March 31, 1998, Nabi's current assets exceeded current liabilities by $62.2 million as compared to a net working capital position of $63.9 million at December 31, 1997. 10
11 Projected capital expenditures for 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 1998. 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 cause Nabi's actual results to differ materially from the results anticipated in such forward-looking statements. Said discussion is hereby incorporated by reference into this Quarterly Report. PART II -- OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS Nabi is a party to litigation in the ordinary course of business. There have been no material developments in any of the legal proceedings reported in Nabi's Annual Report on Form 10-K for the year ended December 31, 1997. Nabi does not believe that any such litigation will have a material adverse effect on its business, financial position or results of operations. 11
12 \ ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K <TABLE> <CAPTION> a. Exhibit <S> <C> <C> 10.30 Amendment No. 2 and Waiver dated as of March 30, 1998 to Loan and Security Agreement dated as of September 12, 1997............................14 27 Financial Data Schedule (for SEC use only)............................................27 </TABLE> b. Reports on Form 8-K: None 12
13 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 13, 1998 By: /s/ David J. Gury ------------------------------------- DAVID J. GURY Chairman of the Board, President and Chief Executive Officer By: /s/ Lorraine M. Breece ------------------------------------- LORRAINE M. BREECE Chief Accounting Officer, Controller 13