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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

Commission File Number 0-22879

Registrant’s telephone number, including area code:
(301) 738-1000

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 (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

YES   X             NO      

Indicate by check mark whether registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

YES   X             NO      

As of August 7, 2003, 8,338,896 shares of registrant’s common stock, par value $.01 per share, were outstanding.

BIORELIANCE CORPORATION

TABLE OF CONTENTS

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BIORELIANCE CORPORATION

CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)

The accompanying notes are an integral part of these consolidated financial statements.

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BIORELIANCE CORPORATION

CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(Unaudited)

The accompanying notes are an integral part of these consolidated financial statements.

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BIORELIANCE CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)

The accompanying notes are an integral part of these consolidated financial statements.

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BIORELIANCE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

(1)    Description of the Business

     BioReliance Corporation (the Corporation) is a contract service organization that provides testing and development, and manufacturing services for biologics and other biomedical products to biotechnology and pharmaceutical companies worldwide.

(2)    Interim Financial Statements Presentation

     The accompanying interim financial statements are unaudited and have been prepared by the Corporation pursuant to the rules and regulations of the Securities and Exchange Commission (SEC) regarding interim financial reporting. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements, and therefore these consolidated financial statements should be read in conjunction with the audited consolidated financial statements, and related notes thereto, included in the Corporation’s Annual Report on Form 10-K. In the opinion of management, the unaudited consolidated financial statements for the three month and six month periods ended June 30, 2002 and 2003 include all normal and recurring adjustments that are necessary for a fair presentation of the results of the interim period. The results of operations for the three month and six month periods ended June 30, 2003 are not necessarily indicative of the results for the entire year ending December 31, 2003.

(3)    Net Income Per Share

     The Corporation calculates earnings per share (EPS) on both a basic and diluted basis. Dilutive securities are excluded from the computation in periods in which they have an anti-dilutive effect. Net income available to common stockholders and common equivalent stockholders is equal to net income for all periods presented.

     The following table represents reconciliations between the weighted average common stock outstanding used in basic EPS and the weighted average common and common equivalent shares outstanding used in diluted EPS for each of the periods presented (in thousands):

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(4)    Segment Information

     Summarized financial information concerning the Corporation’s reportable segments for the three months and six months ended June 30 is shown in the following table (in thousands):

     Summarized financial information concerning the Corporation’s revenue and gross profit by geographic region for the three months and six months ended June 30 is shown in the following table (in thousands):

(5)    Stock Based Compensation

     The Corporation has stock-based compensation plans, described more fully in Note 5 to our audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2003. Effective January 1, 2003, BioReliance adopted FASB Statement No. 148 (FAS 148), “Accounting for Stock-Based Compensation — Transition and Disclosure.” FAS 148 amends FASB Statement No. 123 (FAS 123), “Accounting for Stock-Based Compensation,” to provide, among other things, prominent disclosure of the effects of an entity’s accounting policy with respect to stock-based employee compensation on reported net income and earnings per share in annual and interim financial statements. As permitted by FAS 123 and amended by FAS 148, the Corporation has chosen to continue accounting for stock options at their intrinsic value. Accordingly, no compensation expense has

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been recognized for its stock option compensation plans. To determine fair value under FAS 123, the Corporation used the Black-Scholes option-pricing model and the following respective weighted average assumptions for the three and six months ended June 30, 2002 and 2003:

	*No options were granted in the three month period ended June 30, 2003.

     Had the fair value method of accounting been applied to the Corporation’s stock option plans utilizing the valuation method currently recognized, the impact would have been as follows:

(6)    Stock Repurchase

     On March 5, 2003, the Corporation’s Board of Directors authorized the repurchase of up to 500,000 shares of the Corporation’s common stock over the following two years. The repurchase is being funded using the Corporation’s working capital. During the three months and six months ended June 30, 2003, the Corporation has repurchased 114,942 shares for $2,262,000 and 190,242 shares for $3,501,000, respectively.

(7)    New Accounting Pronouncements

     In June 2002, the FASB issued FAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities” (FAS 146). FAS 146 addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force (EITF) Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring).” The provisions of this Statement are effective for exit or disposal activities that are initiated after December 31, 2002, with early application encouraged.

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The Corporation does not expect adoption of this Statement to have a material impact on the Corporation’s results of operations or financial position.

     In November 2002, the FASB issued Interpretation No. 45 (FIN 45), “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others.” FIN 45 elaborates on the existing disclosure requirements for most guarantees. The initial recognition and measurement provisions apply on a prospective basis to guarantees issued or modified after December 31, 2002. The disclosure requirements are effective for financial statements or interim of annual period ending after December 15, 2002. The initial adoption of FIN 45 has had no material impact on the Corporation’s results of operations or financial position.

     On December 31, 2002, the FASB issued FAS No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosure” (FAS 148). FAS 148 amends FAS 123, “Accounting for Stock-Based Compensation,” to provide alternative methods of transition to FAS 123’s fair value method of accounting for stock-based employee compensation for an entity that voluntarily changes to the fair value based method of accounting for stock-based employee compensation. FAS 148 also requires prominent disclosure of the effects of an entity’s accounting policy with respect to stock-based employee compensation on reported net income and earnings per share in annual and interim financial statements. The Corporation intends to continue to follow the disclosure-only provisions of FAS 123 and, accordingly, will continue to apply APB 25 and its related interpretations in accounting for its plans. The Corporation does not expect the adoption of FAS 148 to have a material impact on the Corporation’s results of operations or financial position.

     In May 2003, the FASB issued FAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity.” FAS 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances). Many of those instruments were previously classified as equity. FAS 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The Corporation does not expect the adoption of FAS 150 to have a material effect on the Corporation’s results of operations or financial position.

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Item 2.    Management’s Discussion and Analysis of Financial Condition and Results
                of Operations

     Certain statements made in this Report on Form 10-Q are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include, without limitation, any statement that may predict, forecast, indicate, or imply future results, performance, or achievements, which generally are not historical in nature, and may contain the words “believe”, “anticipate”, “expect”, “estimate”, “project”, “will be”, “will continue”, “will likely result”, or similar words or phrases. Forward-looking statements in this Report on Form 10-Q include, among others, statements regarding:

	•		the anticipated growth of revenue and improvement in profit margins,
	•		the anticipated growth of revenue to exceed cost increases related to the Corporation’s U.S. manufacturing facility,
	•		the Corporation’s ability to use additional capacity in its manufacturing facility, or to expand its manufacturing capacity,
	•		the anticipated increase in selling, general and administrative expenses and the hiring of new employees,
	•		the Corporation’s ability to maintain selling, general and administrative expenses as a percentage of revenue relatively constant or below 20%,
	•		the Corporation’s ability to maintain research and development expenses and tax rates at constant levels,
	•		the Corporation’s ability to fund its operations, capital expenditures, stock repurchases and interest and principal payments on debt for 2003 with existing cash, cash flows from operations and its line of credit,
	•		the Corporation’s possible acquisition of with Q-One Biotech and the Corporation’s ability to obtain financing for the proposed acquisition on favorable terms, and
	•		the Corporation’s expansion plans.

     Forward-looking statements involve risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. The risks and uncertainties are detailed from time to time in reports filed by BioReliance with the Securities and Exchange Commission, including in its Form10-K filed on March 31, 2003.

     The forward looking statements do not take into consideration a possible acquisition of Q-One Biotech or the significant potential charge to earnings for transaction and related costs that would result if the transaction were not completed.

     The Corporation undertakes no obligation to revise or publicly release the results of any revision to these forward-looking statements. Therefore, readers are cautioned not to place undue reliance on these forward-looking statements since new risk factors emerge from time to time and it is not possible for management to predict all such risk factors, or to assess the impact of all such risk factors on the Corporation’s business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.

     The following discussion and analysis of the Corporation’s financial condition and results of operations should be read in conjunction with the Corporation’s consolidated financial statements and related notes thereto included elsewhere in this Form 10-Q.

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Overview

     The Corporation is a leading contract service organization providing, testing, development and manufacturing services for biologics and other biomedical products to pharmaceutical companies worldwide. The Corporation believes that it is the largest provider of outsourcing services focused on the expanding biologics sector of the pharmaceutical industry. During the quarter ended June 30, 2003, the Corporation continued to work with clients on the development of global multi-year arrangements, such as those announced in 2002. The Corporation also continued to contribute to bioterrorism defense through the work performed in both operating segments on the smallpox vaccine contracts. The Corporation believes that the services provided under some of its key relationships, the benefits that have been provided by what the Corporation believes is a growing market, and the increasing recognition of BioReliance as a service provider of choice continues to have a positive effect on the Corporation’s results of operations.

     On July 17, 2003, the Corporation and Q-One Biotech Group Limited (Q-One Biotech), a privately-held company based in Glasgow, Scotland, announced that they entered into a letter agreement providing for a period of exclusive negotiations in connection with a proposed acquisition of Q-One Biotech by the Corporation. BioReliance has also applied for regulatory approval of the proposed transaction in the United Kingdom.

     The proposed acquisition of Q-One Biotech, if consummated, would involve the purchase by the Corporation of all of the outstanding capital stock of Q-One Biotech in an all cash transaction expected to be financed through a new senior secured credit facility and a portion of existing cash resources. The terms of the proposed transaction have not been disclosed. The Corporation has not yet entered into a definitive acquisition agreement with Q-One Biotech or its shareholders, and no assurances can be given as to whether any agreements will be signed or a transaction consummated. However, pursuant to the letter agreement, the parties have agreed in principle on many of the major terms of the proposed transaction, including the pricing mechanism, and Q-One Biotech and its principal shareholders have agreed to deal exclusively with the Corporation for an undisclosed period to negotiate mutually acceptable definitive agreements.

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Results of Operations
(Dollars in tables are in thousands)

     For the three months ended June 30, 2003, the Corporation had revenue of $23.5 million, an increase of 13% over revenue of $20.7 million for the three months ended June 30, 2002. Earnings per share for the three months ended June 30, 2003 were $0.37 (diluted) compared with $0.31 (diluted) for the three months ended June 30, 2002.

     For the six months ended June 30, 2003, the Corporation had revenue of $44.3 million, an increase of 11% over revenue of $39.7 million for the six months ended June 30, 2002. Earnings per share for the six months ended June 30, 2003 were $0.63 (diluted) compared with $0.55 (diluted) for the six months ended June 30, 2002.

     Continuing increases in orders fueled revenue growth in both of the Corporation’s segments and both geographic regions for the three months and six months ended June 30, 2003. These higher revenues also drove higher gross profits in both segments and both geographic regions. Gross margins were hampered in U.S. manufacturing and U.K. testing and development by increases while other business units, particularly European manufacturing, experienced improved margins due largely to the revenue growth. Although selling, general, and administrative costs increased, as a percentage of sales these costs decreased to 20% for both the three months and six months ended June 30, 2003, as a result of continued programs to control expenses. Income tax rates for the three months and six months ended June 30, 2003 increased slightly from 36% to 37%, remaining in line with the Corporation’s historical rates.

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Gross Revenue by Operating Segment

     The following table shows a comparison of revenue by operating segment for the three months and six months ended June 30, 2002 and 2003:

     The increase in testing and development revenue for the three months and six months ended June 30, 2003 is due primarily to the continued increase in new orders. These new orders included those arising from global arrangements with some major clients. The increase in U.S. testing and development revenue was partially offset by decreases in revenue generated in Europe for the three months ended June 30, 2003. The decrease in European testing and development revenue was the result of client delays in some projects.

     The increase in manufacturing revenue for the three and six months ended June 30, 2003 represents increases in both the U.S. and Europe. European increases are attributable to increases in both U.K. and German facilities. Both European facilities benefited from increased orders and German revenue benefited from improvements in throughput efficiencies.

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     Approximately 28% and 23%, respectively, of the Corporation’s manufacturing revenue for the three months and six months ended June 30, 2003 resulted from work performed under the Corporation’s smallpox vaccine contracts. Approximately 10% of the Corporation’s total revenue for the three months and six months ended June 30, 2003 resulted from work performed under these smallpox vaccine contracts.

Gross Revenue by Geographic Region

     The following table shows a comparison of revenue by geographic region for the three months ended June 30, 2002 and 2003:

     The increase in revenue generated in the United States for the three months ended June 30, 2003 resulted from increases in orders, which fueled increased revenue in both biologics testing and in toxicology services. For the six months ending June 30, 2003, increases in biologics testing services were partially offset by decreases in toxicology services revenue. As previously mentioned, U.S. manufacturing revenue increased for the three and six months ended June 30, 2003. Revenue generated in the U.S. for the three and six months ended June 30, 2003 includes an adjustment resulting in additional revenue of approximately $380,000 relating to long-term contracts.

     The increase in revenue generated in Europe for the three months ended June 30, 2003 reflects an increase in revenue generated in the Corporation’s German facilities. The increase in revenue generated in Europe for the six months ended June 30, 2003 is the result of increases in revenue generated in both the Corporation’s U.K. and German facilities as a result of an increase in orders. The Corporation continues to benefit from increased penetration into the growing European biopharmaceutical market. As the German facility continues to run near capacity, revenue fluctuations in that facility are primarily attributable to incremental improvement in throughput efficiencies and different pricing structures among contracts.

Revenue Outlook

     The Corporation expects that testing and development revenue will continue to increase in both the U.S. and Europe in the foreseeable future, and it expects that U.S. manufacturing revenue will increase with the Corporation’s smallpox vaccine and commercial contracts, as well as with additional service offerings in the U.S. manufacturing facility. There can be no assurance that such expectations will prove to be correct. The Corporation expects European revenue to continue to grow more rapidly than revenue in the U.S. to the extent that the European markets continue to outpace U.S. markets. The Corporation is planning for laboratory expansions that would become available to meet anticipated growth in the U.S. and Europe over a two-year to three-year period.

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     Gross Profit by Operating Segment

     The following table compares gross profit and gross margin by operating segment for the three months and six months ended June 30, 2002 and 2003:

N.M. = Not Meaningful                            

     The testing and development gross margin for the three months ended June 30, 2003 remained unchanged with increased margins in the U.S. being offset by decreased margins in Europe. The increased gross profit generated in the U.S. was partially offset by a decreased profit in the U.K. Increased costs primarily related to quality assurance and quality control costs in the U.S., and direct material and labor related costs in Europe impacted gross profits.

     For the six months ended June 30, 2003, gross margins were impacted by a decrease in margins generated in the U.K. resulting from a decrease in the gross profit generated by testing and development in the U.K., only partially offset by increases in the gross profit generated by European manufacturing. The gross profit was impacted by the increase in expenses discussed above.

     Manufacturing gross margin for the three months ended June 30, 2003 improved, reflecting improvements in both the U.S. and Europe. Gross profits in Europe increased and losses generated in the U.S. decreased. For the six months ended June 30, 2003 gross margins increased as a result of increases in the gross profit generated in Europe, partially offset by increased losses generated in the U.S. The throughput efficiencies and pricing structures mentioned earlier allowed European manufacturing revenues to grow at a much faster rate than cost of sales, thus resulting in increased margin. However, increased direct materials and labor related costs contributed to a decrease in U.S. manufacturing gross profit.

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Gross Profit by Geographic Region

     The following table compares gross profit and gross margin by geographic region for the three months and six months ended June 30, 2002 and 2003: