UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
| [ X ] | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2002
OR
| [ ] | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ____________ to ____________
Commission File Number 0-22879
BIORELIANCE CORPORATION
(Exact name of the registrant as specified in its charter)
| Delaware | 52-1541583 | |
| (State or other jurisdiction of | (I.R.S. Employer | |
| incorporation or organization) | Identification No.) | |
| 14920 Broschart Road | ||
| Rockville, Maryland | 20850 | |
| (Address of principal executive offices) | (Zip code) |
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
As of October 15, 2002, 8,453,592 shares of registrant’s common stock, par value $.01 per share, were outstanding.
1
BIORELIANCE CORPORATION
TABLE OF CONTENTS
| Page | ||||
| Number | ||||
| PART I | FINANCIAL INFORMATION | |||
| Item 1 - Financial Statements: | ||||
|
Consolidated Balance Sheets as of December 31, 2001 and September 30, 2002 (Unaudited) |
3 | |||
|
Consolidated (Unaudited) Statements of Income for the Three and Nine Months Ended September 30, 2001 and 2002. |
4 | |||
|
Consolidated (Unaudited) Statements of Cash Flows for the Nine Months Ended September 30, 2001 and 2002. |
5 | |||
| Notes to Consolidated (Unaudited) Financial Statements | 6 | |||
|
Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations |
9 | |||
| Item 3 - Quantitative and Qualitative Disclosures About Market Risks | 20 | |||
| Item 4 - Controls and Procedures | 21 | |||
| PART II | OTHER INFORMATION | 22 | ||
| SIGNATURES | 23 | |||
| CERTIFICATIONS PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 | 24 | |||
| EXHIBIT INDEX | 26 | |||
2
BIORELIANCE CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
| September 30, | ||||||||||||
| December 31, | 2002 | |||||||||||
| 2001 | (Unaudited) | |||||||||||
| Assets | ||||||||||||
Current assets: |
||||||||||||
Cash and cash equivalents |
$ | 27,536 | $ | 35,808 | ||||||||
Accounts receivable, net |
22,335 | 22,496 | ||||||||||
Other current assets |
1,747 | 3,156 | ||||||||||
Total current assets |
51,618 | 61,460 | ||||||||||
Property and equipment, net |
39,177 | 40,392 | ||||||||||
Deposits and other assets |
280 | 212 | ||||||||||
Deferred income taxes |
1,062 | 825 | ||||||||||
Total assets |
$ | 92,137 | $ | 102,889 | ||||||||
| Liabilities and Stockholders’ Equity | ||||||||||||
Current liabilities: |
||||||||||||
Current portion of long-term debt and capital lease obligations |
$ | 919 | $ | 918 | ||||||||
Accounts payable |
2,312 | 1,929 | ||||||||||
Accrued employee compensation and benefits |
5,323 | 3,885 | ||||||||||
Other accrued liabilities |
2,544 | 4,925 | ||||||||||
Customer advances |
4,972 | 5,776 | ||||||||||
Deferred income taxes |
4,102 | 4,779 | ||||||||||
Total current liabilities |
20,172 | 22,212 | ||||||||||
Long-term debt and capital lease obligations |
10,977 | 10,883 | ||||||||||
Total liabilities |
31,149 | 33,095 | ||||||||||
Stockholders’ equity: |
||||||||||||
Preferred stock, $.01 par value: 6,900,000 shares authorized;
no shares issued and outstanding |
— | — | ||||||||||
Common stock, $.01 par value: 15,000,000 shares authorized;
8,362,040 and 8,451,656 shares issued and outstanding |
84 | 85 | ||||||||||
Additional paid-in capital |
55,018 | 55,610 | ||||||||||
Retained earnings |
7,782 | 15,856 | ||||||||||
Accumulated other comprehensive loss |
(1,896 | ) | (1,757 | ) | ||||||||
Total stockholders’ equity |
60,988 | 69,794 | ||||||||||
Total liabilities and stockholders’ equity |
$ | 92,137 | $ | 102,889 | ||||||||
The accompanying notes are an integral part of these consolidated financial statements.
3
BIORELIANCE CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(Unaudited)
| Three Months Ended | Nine Months Ended | |||||||||||||||||
| September 30, | September 30, | |||||||||||||||||
| 2001 | 2002 | 2001 | 2002 | |||||||||||||||
Revenue |
$ | 18,578 | $ | 21,594 | $ | 50,177 | $ | 61,340 | ||||||||||
Expenses: |
||||||||||||||||||
Cost of sales |
11,197 | 12,090 | 32,402 | 35,083 | ||||||||||||||
Selling, general and administrative |
3,984 | 4,215 | 11,748 | 12,736 | ||||||||||||||
Research and development |
284 | 225 | 1,027 | 681 | ||||||||||||||
Total operating expenses |
15,465 | 16,530 | 45,177 | 48,500 | ||||||||||||||
Income from operations |
3,113 | 5,064 | 5,000 | 12,840 | ||||||||||||||
Other (income) expense: |
||||||||||||||||||
Interest income |
(196 | ) | (191 | ) | (682 | ) | (508 | ) | ||||||||||
Interest expense |
198 | 236 | 629 | 658 | ||||||||||||||
Other (income) expense |
22 | 20 | 293 | (30 | ) | |||||||||||||
Net other expense |
24 | 65 | 240 | 120 | ||||||||||||||
Income before income taxes |
3,089 | 4,999 | 4,760 | 12,720 | ||||||||||||||
Income tax provision |
853 | 1,825 | 1,248 | 4,643 | ||||||||||||||
Net income |
$ | 2,236 | $ | 3,174 | $ | 3,512 | $ | 8,077 | ||||||||||
Net income per share: |
||||||||||||||||||
Basic |
$ | 0.27 | $ | 0.38 | $ | 0.43 | $ | 0.96 | ||||||||||
Diluted |
$ | 0.26 | $ | 0.36 | $ | 0.41 | $ | 0.91 | ||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
4
BIORELIANCE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
| Nine Months Ended | ||||||||||||
| September 30, | ||||||||||||
| 2001 | 2002 | |||||||||||
Cash flows from operating activities: |
||||||||||||
Net income |
$ | 3,512 | $ | 8,077 | ||||||||
Adjustments to reconcile net income to net cash provided
by operating activities: |
||||||||||||
Depreciation |
3,361 | 3,475 | ||||||||||
Compensation element of options |
39 | — | ||||||||||
Amortization expense |
37 | 10 | ||||||||||
Amortization of bond discounts |
(114 | ) | — | |||||||||
Loss on disposal |
94 | 136 | ||||||||||
Deferred income taxes, net |
463 | 914 | ||||||||||
Changes in current assets and liabilities: |
||||||||||||
Accounts receivable, net |
(1,960 | ) | 161 | |||||||||
Other current assets |
(276 | ) | (1,368 | ) | ||||||||
Accounts payable |
(281 | ) | (521 | ) | ||||||||
Accrued employee compensation and benefits |
254 | (1,468 | ) | |||||||||
Other accrued liabilities |
637 | 2,353 | ||||||||||
Customer advances |
2,504 | 453 | ||||||||||
(Increase) decrease in deposits and other assets |
(80 | ) | 135 | |||||||||
Net cash provided by operating activities |
8,190 | 12,357 | ||||||||||
Cash flows from investing activities: |
||||||||||||
Purchases of marketable securities |
(2,455 | ) | — | |||||||||
Proceeds from the maturities of marketable securities |
11,000 | — | ||||||||||
Purchases of property and equipment |
(2,770 | ) | (5,021 | ) | ||||||||
Proceeds from the sale of property and equipment |
— | 124 | ||||||||||
Net cash provided by (used in) investing activities |
5,775 | (4,897 | ) | |||||||||
Cash flows from financing activities: |
||||||||||||
Proceeds from exercise of stock options |
421 | 593 | ||||||||||
Payments on debt and capital lease obligations |
(918 | ) | (700 | ) | ||||||||
Net cash used in financing activities |
(497 | ) | (107 | ) | ||||||||
Effect of exchange rate changes on cash and cash equivalents |
120 | 919 | ||||||||||
Net increase in cash and cash equivalents |
13,588 | 8,272 | ||||||||||
Cash and cash equivalents, beginning of period |
8,231 | 27,536 | ||||||||||
Cash and cash equivalents, end of period |
$ | 21,819 | $ | 35,808 | ||||||||
The accompanying notes are an integral part of these consolidated financial statements.
5
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 nine-month periods ended September 30, 2001 and 2002 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 nine-month periods ended September 30, 2001 and 2002 are not necessarily indicative of the results for the entire year ending December 31, 2002.
(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):
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2001 | 2002 | 2001 | 2002 | |||||||||||||
Weighted average common stock
outstanding |
8,225 | 8,444 | 8,208 | 8,425 | ||||||||||||
Stock options, as if converted |
322 | 432 | 349 | 474 | ||||||||||||
Weighted average common and
common equivalent shares
outstanding |
8,547 | 8,876 | 8,557 | 8,899 | ||||||||||||
6
(4) Segment Information
Summarized financial information concerning the Corporation’s reportable segments for the three months and nine months ended September 30 is shown in the following table (in thousands):
| Three Months | Nine Months | ||||||||||||||||||
| Ended September 30, | Ended September 30, | ||||||||||||||||||
| 2001 | 2002 | 2001 | 2002 | ||||||||||||||||
Revenue: |
|||||||||||||||||||
Testing and Development |
$ | 15,777 | $ | 18,131 | $ | 42,737 | $ | 51,477 | |||||||||||
Manufacturing |
2,801 | 3,463 | 7,440 | 9,863 | |||||||||||||||
Total |
$ | 18,578 | $ | 21,594 | $ | 50,177 | $ | 61,340 | |||||||||||
Gross Profit (Loss) |
|||||||||||||||||||
Testing and Development |
$ | 7,688 | $ | 9,717 | $ | 18,984 | $ | 26,319 | |||||||||||
Manufacturing |
(307 | ) | (213 | ) | (1,209 | ) | (62 | ) | |||||||||||
Total |
$ | 7,381 | $ | 9,504 | $ | 17,775 | $ | 26,257 | |||||||||||
Summarized financial information concerning the Corporation’s revenue and gross profit by geographic region for the three months and nine months ended September 30 is shown in the following table (in thousands):