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UNITED STATES
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 June 30, 1998
--------------------------------------------
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number:
BORON, LEPORE & ASSOCIATES, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 22-2365997
(State or other jurisdiction (I.R.S. Employer
of Incorporation or organization) Identification No.)
17-17 ROUTE 208 NORTH, FAIR LAWN, NEW JERSEY 07410
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (201) 791-7272
Indicate by check mark ("X") whether the Registrant: (1) has filed all reports
to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve 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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
CLASS OUTSTANDING AT AUGUST 5, 1998
----- -----------------------------
Common stock, par value $.01 share 12,627,514
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BORON, LEPORE & ASSOCIATES, INC.
INDEX
<TABLE>
<CAPTION>
Page
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<S> <C>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements:
Balance Sheets at June 30, 1998 (unaudited) and
December 31, 1997.......................................... 3
Statements of Income for the Three Months Ended June 30,
1998 and 1997 (unaudited) and the Six Months Ended
June 30, 1998 and 1997 (unaudited)......................... 4
Statements of Cash Flows for the Six Months Ended June 30,
1998 and 1997 (unaudited).................................. 5
Notes to Financial Statements............................... 6-8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................. 9-13
PART II OTHER INFORMATION
Item 1: Legal Proceedings.................................. 14
Item 2: Changes in Securities.............................. 14
Item 3: Defaults in Senior Securities...................... 14
Item 4: Submission of Matters to a Vote of Security
Holders........................................... 14
Item 5: Other Information.................................. 14
Item 6: Exhibits and Reports on Form 8-K
(a) Exhibits
27 Financial Data Schedules
(b) Reports on Form 8-K
Signatures.................................................. 15
Exhibit Index
</TABLE>
2
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BORON, LEPORE & ASSOCIATES, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
-------------- ----------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents....................................................... $ 39,985,970 $ 24,015,554
Accounts receivable, net........................................................ 50,266,052 21,764,173
Prepaid expense and other current assets........................................ 3,398,254 729,559
------------ ------------
Total current assets....................................................... 93,650,276 46,509,286
Furniture, fixtures and equipment, at cost, net of accumulated depreciation of
$1,359,051 at June 30, 1998 and $848,732 at December 31, 1997....................... 7,022,459 4,454,023
Intangible assets................................................................... 25,579,471 20,250
Other assets........................................................................ 430,060 72,921
------------ ------------
TOTAL ASSETS........................................................................ $126,682,266 $ 51,056,480
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses.......................................... $ 19,150,179 $ 9,729,766
Deferred revenue............................................................... 13,949,254 6,974,696
------------ ------------
Total current liabilities.................................................. 33,099,433 16,704,462
Deferred income taxes............................................................... 3,123,000 1,509,000
Committments and contingencies
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value, 50,000,000 shares authorized, 16,827,513
issued and 12,627,514 outstanding at June 30, 1998; 14,947,978 issued and
10,747,979 outstanding at December 31, 1997................................... 168,276 149,480
Treasury stock at cost, 4,199,999 shares at June 30, 1998 and
December 31, 1997.......................................................... (24,349,992) (24,349,992)
Additional paid-in capital..................................................... 117,527,012 64,176,975
Accumulated deficit............................................................ (2,885,463) (7,133,445)
------------ ------------
Total stockholders' equity................................................. 90,459,833 32,843,018
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.......................................... $126,682,266 $ 51,056,480
============ ============
</TABLE>
The accompanying notes are an integral part of these balance sheets.
3
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BORON, LEPORE & ASSOCIATES, INC.
STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
------------------------------------- ---------------------------------------
1998 1997 1998 1997
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Revenues................................. $47,740,007 $18,448,031 $79,893,883 $32,120,894
Cost of sales............................ 34,658,558 13,102,785 58,415,231 22,839,524
----------- ----------- ----------- -----------
Gross profit......................... 13,081,449 5,345,246 21,478,652 9,281,370
Selling, general and administrative
expenses................................ 9,693,514 2,759,522 15,473,922 5,009,044
----------- ----------- ----------- -----------
Operating income..................... 3,387,935 2,585,724 6,004,730 4,272,326
Interest (income) expense, net........... (318,727) 357,359 (626,934) 766,463
----------- ----------- ----------- -----------
Income before income taxes........... 3,706,662 2,228,365 6,631,664 3,505,863
Provision for income taxes............... 1,334,398 800,000 2,384,398 1,200,000
----------- ----------- ----------- -----------
Net income........................... $ 2,372,264 $ 1,428,365 $ 4,247,266 $ 2,305,863
=========== =========== =========== ===========
Income per common and common
equivalent share:
Basic................................ $0.20 $0.43 $0.38 $0.63
=========== =========== =========== ===========
Diluted.............................. $0.20 $0.19 $0.37 $0.31
=========== =========== =========== ===========
Weighted average number of common and
common equivalent shares:
Basic............................... 11,657,353 2,750,328 11,215,837 2,743,821
=========== =========== =========== ===========
Diluted............................. 12,082,161 7,463,387 11,630,327 7,433,682
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
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BORON, LEPORE & ASSOCIATES, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
-------------------------------------
1998 1997
----------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................................................ $ 4,247,266 $ 2,305,863
Adjustments for noncash items included in operating activities:
Depreciation and amortization..................................... 773,054 109,558
Non cash compensation expense..................................... -- 42,558
Deferred income taxes............................................. 1,614,000 1,200,000
Change in operating asset and liability components:
Increase in accounts receivable, net............................ (22,164,680) (4,472,678)
Increase in prepaid expenses and other assets................... (2,600,521) (746,550)
Increase in other assets........................................ (336,926) (5,269)
Increase (decrease) in accounts payable and accrued expenses.... 7,612,965 (3,631,260)
Increase in deferred revenue and billings in excess of costs.... 106,208 3,276,904
------------ -----------
Net cash used in operating activities........................ (10,748,634) (1,920,874)
------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of furniture, fixtures and equipment.................... (2,850,185) (1,386,223)
Business acquisitions, net of acquired cash....................... (14,842,998) --
------------ -----------
Net cash used in investing activities........................ (17,693,183) (1,386,223)
------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of long-term debt...................................... -- (250,000)
Repayments of revolving line of credit............................ -- (1,000,000)
Proceeds from the issuance of common stock........................ 44,412,233 114,318
------------ -----------
Net cash provided by (used in)
financing activities........................................ 44,412,233 (1,135,682)
------------ -----------
Increase (decrease) in cash and cash equivalents...................... 15,970,416 (4,442,779)
CASH AND CASH EQUIVALENTS, beginning of period........................ 24,015,554 7,175,648
------------ -----------
CASH AND CASH EQUIVALENTS, end of period.............................. $ 39,985,970 $ 2,732,869
============ ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest.......................................................... $ -- $ 754,000
Taxes............................................................. $ 1,695,000 $ --
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
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BORON, LEPORE & ASSOCIATES, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
(1) DESCRIPTION OF THE BUSINESS AND BASIS OF PRESENTATION:
Boron, LePore & Associates, Inc. (the "Company" or "BLP") provides
outsourced promotional, marketing, educational and field sales force logistics
services to the pharmaceutical industry.
The accompanying financial statements are unaudited and have been prepared in
accordance with generally accepted accounting principles. The foregoing
financial information reflects all adjustments which are, in the opinion of
management, necessary for a fair presentation of the results for the periods
presented. All such adjustments are of a normal, recurring nature. These
results, however, are not necessarily indicative of the results to be expected
for the full fiscal year. The financial statements should be read in conjunction
with the summary of significant accounting policies and notes to financial
statements contained in the Company's Form 10-K as filed with the Securities and
Exchange Commission.
(2) PUBLIC STOCK OFFERING:
In the second quarter of 1998, the Company completed a secondary public offering
of 2,980,000 shares (including underwriter's over allotment of 80,000 shares) of
Common Stock, of which 1,580,000 shares were issued and sold by the Company at
$30.00 per share resulting in net proceeds to the Company, after underwriter's
commissions and offering costs, of approximately $44.4 million. The Company
intends to use the net proceeds from the offering for general corporate
purposes, including the funding of potential acquisitions.
6
<PAGE>
BORON, LEPORE & ASSOCIATES, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
(3) EARNINGS PER SHARE:
In accordance with Statement of Financial Accounting Standards No. 128,
"Earnings per Share" the following table reconciles income and share amounts
used to calculate basic and diluted earnings per share.
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
------------------------------------ -------------------------------------
1998 1997 1998 1997
--------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Numerator:
Net Income - Diluted............................ $ 2,372,264 $1,428,365 $ 4,247,266 $2,305,863
Less Dividends accrued on Convertible
Participating Preferred Stock................. -- 249,000 -- 581,000
----------- ---------- ----------- ----------
Net income - Basic.............................. $ 2,372,264 $1,179,365 $ 4,247,266 $1,724,863
=========== ========== =========== ==========
Denominator:
Weighted average shares outstanding - Basic..... 11,657,353 2,750,328 11,215,837 2,743,821
Incremental shares from assumed conversions
of options.................................... 424,808 46,395 414,490 23,197
Convertible participating preferred stock....... -- 4,666,664 -- 4,666,664
----------- ---------- ----------- ----------
Weighted average shares outstanding - Diluted... 12,082,161 7,463,387 11,630,327 7,433,682
=========== ========== =========== ==========
Earnings per share - Basic....................... $ 0.20 $ 0.43 $ 0.38 $ 0.63
=========== ========== =========== ==========
Earnings per share - Diluted..................... $ 0.20 $ 0.19 $ 0.37 $ 0.31
=========== ========== =========== ==========
</TABLE>
(4) ACQUISITIONS:
In May 1998, the Company purchased substantially all of the assets and assumed
certain liabilities of Medical Education Systems, Inc., a Pennsylvania
corporation. The purchase price was $10,000,000 in cash and 160,103 shares of
the Company's common stock. In addition, the Company may be required to pay an
additional amount up to $10,000,000 in contingent cash payments based on certain
operating income goals of the acquired business during the twelve month period
subsequent to the date of the acquisition. The acquisition has been accounted
for using the purchase method of accounting. The excess of purchase price over
net assets acquired was estimated to be approximately $16,700,000 and will be
amortized over twenty years.
In March 1998, the Company purchased substantially all of the assets and assumed
certain liabilities of Strategic Implications International, Inc., a Maryland
corporation. The purchase price was $4,300,000 in cash and approximately 137,000
shares of the Company's common stock. In addition, the Company may be required
to pay certain contingent payments based on revenue goals related to the
calendar year subsequent to the date of the acquisition. The acquisition has
been accounted for using the purchase
7
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method of accounting. The excess of purchase price over net assets acquired was
estimated to be approximately $8,300,000 and will be amortized over twenty
years.
In January 1998, the Company purchased certain assets from Decision Point, Inc.,
an Illinois company. The purchase price was $800,000 in cash, subject to
adjustment upward or downward, based on certain revenue and pre-tax earnings
goals related to the calendar year subsequent to the date of the acquisition.
The acquisition has been accounted for using the purchase method of accounting.
The excess of purchase price over net assets acquired, estimated to be $800,000,
will be amortized over twenty years.
8
<PAGE>
BORON, LEPORE & ASSOCIATES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Boron, LePore & Associates, Inc. ("BLP" or the "Company") provides outsourced
promotional, marketing, educational and field sales force logistics services to
the pharmaceutical industry. Substantially all of the Company's customers are
large pharmaceutical companies seeking to communicate their messages to
physicians and other healthcare professionals on a cost-effective basis. The
Company's objective is to enhance its position as a leading provider of peer-to-
peer and other meetings and to continue to expand its array of other
promotional, marketing, educational and field sales force logistics services.
Following several years of relatively modest revenue growth, BLP's revenues grew
significantly from 1995 to 1996 and then again from 1996 to 1997. Revenues also
grew significantly in the second quarter and six months ended June 30, 1998 as
compared to the second quarter and six months ended June 30, 1997. This growth
has resulted from increased business with existing customers, the addition of
new customers and the expansion of services offered. The Company believes that
the increase in business with existing customers and the addition of new
customers reflect increased recognition of peer-to-peer meeting programs as an
effective promotional technique and increased levels of promotional, marketing
and educational spending in the pharmaceutical industry. Principal elements of
the Company's growth strategy are further enhancing and expanding its service
offerings, continuing to increase business with existing customers and obtaining
new customers. As part of this strategy, over the last two years, the Company
has expanded its portfolio of services to include symposia, medical education,
product marketing, teleservices, contract sales and field sales force logistics
services. During 1997, in connection with this expansion of services, the
Company opened a new teleservice center in Norfolk, Virginia in July and
established a contract sales organization in August. In addition, in late 1997,
the Company began forming a field sales force logistics organization and, in
March 1998, the Company signed a contract with a large pharmaceutical company to
provide field sales force logistics services for up to a two-year period. Such
services include meeting planning, event coordination and other services. The
contract provides for a management fee component and a fee-for-service
component. The management fee for the first year is fixed and will represent
substantial revenues in 1998. The management fee for the second year is subject
to future negotiation. The fee-for-service component is dependent upon the level
of services provided. The Company believes field sales force logistics is a
substantial, emerging business opportunity and that the Company's historical
expertise and ability to invest in technology provide it with a strategic
advantage. However, there can be no assurance that the Company will be able to
obtain additional field sales force logistics contracts, that the existing
contract will be extended beyond the second year or that the management fee for
such second year will be negotiated on terms acceptable to the Company (which
failure to so negotiate the management fee would result in the termination of
the contract at the end of the first year). In the first quarter of 1998, the
Company acquired a continuing medical education company and entered into its
second contract to provide contract sales services. In addition, in the second
quarter of 1998, the Company acquired a medical education and sales training
company.
Although revenues from the Company's peer-to-peer meeting business grew from
$20.6 million in 1995 to $33.4 million in 1996 and then to $45.1 million in
1997, the Company does not anticipate that future growth of revenues from this
line of business will continue at such an accelerated rate. More recently,
revenues from this line of business increased from $20.5 million in the first
six months of 1997 to $24.9 million in the first six months of 1998, an increase
of 22%. There can be no assurances that future growth of revenues from this line
of business, if any, will continue at this rate. In addition, certain of BLP's
newer services, particularly symposia and field sales force logistics, have
lower gross margin percentages than the Company's historical peer-to-peer
meeting business. Furthermore, the initial costs related to the Company's new
teleservice center and new contract sales organization, as well as the continued
development and implementation costs of the Company's technology enhancement
efforts and the establishment and build-out of its field sales force logistics
organization, will negatively impact the
9
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Company's 1998 financial performance. The Company anticipates that, due to those
costs and an anticipated increase in the proportion of symposia and field sales
force logistics revenue during 1998 relative to 1997, its operating profit as a
percentage of revenues in 1998 will be less than that achieved in 1997. The
Company's objective is to enhance its operating profit during the second half of
1998 through efficiency efforts, carefully managing operating expenses and
improving its mix of revenue. However, the Company's operating margins could be
adversely affected if its efforts to enhance the profitability of its services
are not successful, the proportion of symposia or field sales force logistics
revenue to total revenues increases more than anticipated or total revenues do
not grow sufficiently to fully leverage its operating expenses.
RESULTS OF OPERATIONS
The following table sets forth as a percentage of revenues certain items
reflected in the Company's Statements of Operations for the periods indicated.
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
-------------------- --------------------
1998 1997 1998 1997
------ ------ ------ ------
<S> <C> <C> <C> <C>
Revenues............................... 100.0% 100.0% 100.0% 100.0%
Cost of sales.......................... 72.6 71.0 73.1 71.1
------ ------ ------ ------
Gross profit...................... 27.4 29.0 26.9 28.9
Selling, general and administrative
expenses............................. 20.3 15.0 19.4 15.6
------ ------ ------ ------
Operating income.................. 7.1 14.0 7.5 13.3
Interest (income) expense, net......... (0.7) 1.9 (0.8) 2.4
------ ------ ------ ------
Income before income taxes........ 7.8 12.1 8.3 10.9
Provision for income taxes............. 2.8 4.4 3.0 3.7
------ ------ ------ ------
Net income........................ 5.0% 7.7% 5.3% 7.2%
====== ====== ====== ======
</TABLE>
THREE MONTHS ENDED JUNE 30, 1998 COMPARED TO THE THREE MONTHS
ENDED JUNE 30, 1997
Revenues increased $29.3 million, or 159%, from $18.4 million in the three
month period ended June 30, 1997 to $47.7 million in the three month period
ended June 30, 1998. This growth primarily resulted from a $7.9 million, or
45%, increase in promotional conferencing services revenue, the addition of
$10.3 million of revenue from field sales force logistics services, the addition
of $5.4 million of revenue from contract sales services and an increase of $5.8
million in educational conferencing services. The increase in the Company's
promotional conferencing services revenue was comprised of a $5.2 million
increase in peer-to-peer meetings and other conferencing services and an
increase in symposia services revenue of $2.7 million. The field sales force
logistics revenue was comprised of $8.3 million of fee-for-service revenue and
$2.0 million of management fee revenue.
Cost of sales increased $21.6 million, or 165%, from $13.1 million in the three
month period ended June 30, 1997 to $34.7 million in the three month period
ended June 30, 1998. Cost of sales as a percentage of revenues increased from
71.0% in the prior year period to 72.6% in the current year period. The
increase in cost of sales as a percentage of revenues was primarily due to the
increased proportion of field sales force logistics revenue partially offset by
the decreased proportion of symposia services revenue, both of which have a
lower average gross profit than the Company's historical business due to their
higher proportion of production costs which are passed through to the customer
with little or no markup. This increase was partially offset by an increase in
educational services revenue, which has a higher gross profit percentage than
the Company's historical peer-to-peer meeting business.
10
<PAGE>
Selling, general and administrative expenses increased $6.9 million, or 251%,
from $2.8 million in the three month period ended June 30, 1997 to $9.7 million
in the three month period in 1998. This increase was due to the cost of
personnel additions of approximately $3.7 million, including the personnel of
acquired companies, and an increase in other operating costs of approximately
$3.2 million incurred to support the Company's growth. Selling, general and
administrative expenses increased as a percentage of revenues from 15.0% in the
prior year period to 20.3% in the current year period as the increase in
selling, general and administrative expenses was partially offset by the
increase of revenues.
Operating income increased $0.8 million, or 31%, from $2.6 million in the three
month period ended June 30, 1997 to $3.4 million in the three month period ended
June 30, 1998. Operating income as a percentage of revenues decreased from
14.0% in the prior year period to 7.1% in the current year period. The decrease
in operating income as a percentage of revenues was due to the aforementioned
increases in cost of sales and selling, general and administrative expenses as a
percentage of revenues.
Interest expense, net of interest income, was $357,000 in the three month period
ended June 30, 1997 compared to $318,000 of interest income, net of interest
expense, in the three month period ended June 30, 1998. This change was due to
(i) a decrease in interest expense in the current year period as compared to the
prior year period related to the Company's full repayment of its bank debt
subsequent to the period ended June 30, 1997 and (ii) an increase in interest
income in the current year period as compared to the prior year period related
to the Company's higher average cash balance in the current year period as
compared to the prior year period.
The provision for income taxes for the three month periods ended June 30, 1998
and June 30, 1997 reflect estimated Federal and state income tax expense
partially offset by the utilization of benefits from net operating losses
previously not recognized.
SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 1997
Revenues increased $47.8 million, or 149%, from $32.1 million in the six month
period ended June 30, 1997 to $79.9 million in the six month period ended June
30, 1998. This growth primarily resulted from a $15.0 million, or 50%, increase
in promotional conferencing services revenue, the addition of $17.2 million of
revenue from field sales force logistics services, the addition of $8.8 million
of revenue from contract sales services, and an increase of $6.2 million in
educational conferencing services. The increase in the Company's promotional
conferencing services revenue was comprised of a $10.6 million increase in
symposia services revenue and an increase in revenue from peer-to-peer meetings
and other conferencing services of $4.4 million. The field sales force
logistics revenue was comprised of $12.2 million of fee-for-service revenue,
$4.0 million of management fee revenue and $1.0 million of development fee
revenue.
Cost of sales increased $35.6 million, or 156%, from $22.8 million in the six
month period ended June 30, 1997 to $58.4 million in the six month period ended
June 30, 1998. Cost of sales as a percentage of revenues increased from 71.1%
in the prior year period to 73.1% in the current year period. The increase in
cost of sales as a percentage of revenues was primarily due to the increased
proportion of field sales force logistics revenue partially offset by the
decrease in symposia services revenue, both of which have a lower average gross
profit than the Company's historical business due to their higher proportion of
production costs which are passed through to the customer with little or no
markup. This increase was partially offset by an increase in educational
services revenue, which has a higher gross profit percentage than the Company's
historical peer-to-peer meeting business.
Selling, general and administrative expenses increased $10.5 million, or 209%,
from $5.0 million in the six month period ended June 30, 1997 to $15.5 million
in the six month period ended June 30, 1998. This increase was due to the cost
of personnel additions of approximately $5.4 million, including the personnel of
acquired companies, and an increase in other operating costs of approximately
$5.1 million incurred to support the Company's growth. Selling, general and
administrative expenses increased as a percentage of revenues from 15.6% in the
prior year period to 19.4% in the current year period as the increase in
selling, general and administrative expenses was partially offset by the
increase of revenues.
11
<PAGE>
Operating income increased $1.7 million, or 41%, from $4.3 million in the six
month period ended June 30, 1997 to $6.0 million in the six month period ended
June 30, 1998. Operating income as a percentage of revenues decreased from
13.3% in the prior year period to 7.5% in the current year period. The decrease
in operating income as a percentage of revenues was due to the aforementioned
increases in cost of sales and selling, general and administrative expenses as a
percentage of revenues.
Interest expense, net of interest income, was $766,000 in the six month period
ended June 30, 1997 compared to $627,000 of interest income, net of interest
expense, in the six month period ended June 30, 1998. This change was due to
(i) a decrease in interest expense in the current year period as compared to the
prior year period related to the Company's full repayment of its bank debt
subsequent to the period ended June 30, 1997 and (ii) an increase in interest
income in the current year period as compared to the prior year period related
to the Company's higher average cash balance in the current year period as
compared to the prior year period.
The provision for income taxes for the six month periods ended June 30, 1998 and
June 30, 1997 reflect estimated Federal and state income tax expense partially
offset by the utilization of benefits from net operating losses previously not
recognized.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1998, the Company had $60.6 million in net working capital, an
increase of $30.7 million from December 31, 1997. As described below, $44.4
million of the Company's net working capital resulted from the secondary public
offering in the second quarter of 1998. The Company's primary sources of
liquidity as of June 30, 1998 consisted of cash and cash equivalents, accounts
receivable and borrowing availability under a revolving credit facility.
The Company's accounts receivable turnover averaged 95, 84 and 93 days for the
periods ended June 30, 1998, December 31, 1997 and December 31, 1996. The
allowance for doubtful accounts was $0.5 million at June 30, 1998, $0.4 million
at December 31, 1997 and $0.3 million at December 31, 1996.
During the six months ended June 30, 1998, the Company used $10.7 million in
operating activities and $17.7 million in investing activities. The $10.7
million used in operating activities was primarily related to the substantial
increase in business experienced by the Company in the second quarter of 1998
relative to the first quarter of the year, including the timing of cash receipts
and disbursements related to the field force logistics services contract. The
Company anticipates that the timing of such cash receipts and disbursements will
positively affect cash flows from operations in the second half of the year. The
$17.7 million of cash used in investing activities was comprised of $14.8
million used for business acquisitions and $2.9 million used to purchase
computer, telephone and office equipment.
Financing activities during the three month period ended June 30, 1998 generated
$44.4 million of net cash inflows. Included in these activities was the
Company's secondary public offering in the second quarter of 2,980,000 shares of
Common Stock, of which 1,580,000 shares were issued and sold by the Company at
$30.00 per share, resulting in net proceeds to the Company, after underwriter
commissions and offering costs, of approximately $44.4 million.
The Company anticipates capital expenditures, primarily in connection with its
implementation of a new management information system, the establishment of a
field sales force logistics organization and the continued development of its
teleservice center in Norfolk, Virginia, to amount to approximately $5.0 million
in 1998.
The Company's credit facility (the "Credit Facility") provides for a $5.0
million revolving credit facility, which is secured by the Company's assets. As
of December 31, 1996, December 31, 1997 and June 30, 1998, $1.0 million, $0 and
$0, respectively, was outstanding under the revolving credit facility.
Borrowings under the revolver are due on December 31, 2001. The Credit Facility
contains various financial and
12
<PAGE>
reporting covenants. In July 1997, November 1997 and May 1998, certain covenants
in the Credit Facility were amended to allow for the anticipated increases in
capital expenditures related to its teleservice center in Norfolk, Virginia.
YEAR 2000
The Company plans to modify certain portions of its software so that its
computer and non-information technology systems will function properly with
respect to dates in the year 2000 and thereafter. The total cost of compliance
and its effect on the Company's future results is currently being determined as
part of the conversion planning, although the Company does not believe such cost
will be material. The Company anticipates completion of the conversion process
by December 31, 1998. The Company has not yet undertaken an assessment of its
material customers' and suppliers' Year 2000 preparedness. The Company has not
yet drafted a contingency plan to outline the Company's actions in the event its
Year 2000 compliance plan is not successfully implemented. There can be no
assurance that the Company's, or its customers' and suppliers', Year 2000
conversion will be successfully completed. Actual results could differ
materially from those anticipated.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income"
("SFAS 130") and Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information" ("SFAS
131"). SFAS 130 establishes standards for reporting and display of
comprehensive income and its components in a full set of general-purpose
financial statements and requires that all items that are required to be
recognized under accounting standards as components of comprehensive income be
reported in a financial statement that is displayed with the same prominence as
other financial statements. SFAS 130 is required to be adopted for the Company's
fiscal year ending December 31, 1998. The adoption of this pronouncement is
expected to have no impact on the Company's financial position or results of
operations. SFAS 131 establishes standards for the way that public business
enterprises report information about operating segments in annual financial
statements and requires that those enterprises report selected information about
operating segments in interim financial reports issued to stockholders. It also
establishes standards for related disclosures about products and services,
geographic areas, and major customers. SFAS 131 is required to be adopted for
the Company's 1998 year-end financial statements. The Company is currently
evaluating the impact, if any, of the adoption of this pronouncement on the
Company's existing disclosures.
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
The statements contained in this report, which are not historical facts, are
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended. Because such statements include risks and uncertainties, actual
results may differ materially from those expressed or implied by such forward-
looking statements. Factors that could cause actual results to differ materially
from those expressed or implied by such forward-looking statements include, but
are not limited to the Company's: dependence on the pharmaceutical industry,
customer concentration, reliance on new services for continued growth,
management of growth, acquisition risks, variation in quarterly operating
results, regulation, potential litigation exposure and reliance of certain
personnel, successful completion of the Company's Year 2000 compliance program
and those risks and uncertainties contained under the heading "Risk Factors" on
page 6 of the Company's Registration Statement on Form S-1 as filed with the
Securities and Exchange Commission.
13
<PAGE>
PART II OTHER INFORMATION
Item 1. Legal Proceedings
As previously disclosed, Thomas S. Boron, a former stockholder and
officer of the Company, filed a complaint on March 27, 1998 in the
United States District Court for the District of New Jersey against
the Company, Patrick G. LePore and Gregory F. Boron, senior officers
and directors of the Company, and Michael W. Foti and Christopher J.
Sweeney, former officers of and current consultants to the Company,
alleging, among other matters, securities and common law fraud and
breach of contract in connection with the settlement of contractual
arrangements with Thomas S. Boron in December 1996. The damages sought
by Thomas S. Boron are not stated in the complaint. The Company's By-
laws provide for mandatory indemnification of the Company's officers
and former officers to the fullest extent authorized by the Delaware
General Corporation Law against all expenses incurred in proceedings
in which an officer or former officer is involved as a result of
serving or having served as an officer, director or employee of the
Company. The Company believes the allegations of Thomas S. Boron are
without merit and intends to contest them vigorously. The Company
believes that the matter may involve significant litigation-related
expenses but that it will not have a material adverse effect on its
financial condition or results of operations; there can be no
assurance, however, that this will be the case.
Item 2. Changes in Securities
(c) In August 1998, pursuant to an Asset Purchase Agreement with Strategem
Plus, Inc. ("Strategem"), the Company issued 13,630 shares of
its Common Stock to Strategem, along with $2,000,000, in exchange for
substantially all of the assets of Strategem, in reliance upon the
exemption from registration under section 4 (2) of the Securities Act.
Item 3. Defaults upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
The Company held its 1998 Annual Meeting of Stockholders on June 4,
1998. At the meeting, the following directors were elected to serve
until the 2001 Annual Meeting.
Vote For Vote Withheld
-------- -------------
Jacqueline C. Morby 8,539,294 102,100
John A. Staley, IV 8,539,294 102,100
Additionally, the Company received stockholder approval to amend the
Company's 1996 Stock Option and Grant Plan to increase the number of
shares reserved for issuance under the Plan by 1,000,000 shares.
Vote For Against Abstain
-------- ------- -------
6,646,422 1,405,845 12,216
Item 5. Other information
In August 1998, the Company purchased substantially all of the assets
and assumed certain liabilities of Strategem Plus, Inc., a New Jersey
corporation. The purchase price was $2.0 million in cash and 13,630
shares of common stock of the Company. In addition, the Company may be
required to pay certain contingent payments based upon the achievement
of specified revenue goals. The acquisition will be accounted for using
the purchase method of accounting.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27 Financial Data Schedule
(b) Reports on Form 8-K
Form 8-K filed May 29, 1998 and amended on July 28, 1998,
relating to the acquisition of MES.
14
<PAGE>
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.
BORON, LEPORE & ASSOCIATES, INC.
Date: August 12, 1998 By: /s/ Patrick G. LePore
---------------------------------
Patrick G. LePore
Chief Executive Officer, President
and Chairman of the Board
(Principal Executive Officer)
Date: August 12, 1998 By: /s/ Martin J. Veilleux
---------------------------------
Martin J. Veilleux
Chief Financial Officer, Secretary
and Treasurer (Principal Financial
and Accounting Officer)
15
<PAGE>
EXHIBIT INDEX
Exhibit Number Description
-------------- -----------
27 Financial Data Schedule
16
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S BALANCE SHEET AT JUNE 30, 1998 AND STATEMENTS OF INCOME FOR THE THREE
AND SIX MONTHS ENDED JUNE 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1998
<PERIOD-START> APR-01-1998 JAN-01-1998
<PERIOD-END> JUN-30-1998 JUN-30-1998
<CASH> 0 39,985,970
<SECURITIES> 0 0
<RECEIVABLES> 0 50,801,052
<ALLOWANCES> 0 535,000
<INVENTORY> 0 0
<CURRENT-ASSETS> 0 3,398,254
<PP&E> 0 8,381,510
<DEPRECIATION> 0 1,359,051
<TOTAL-ASSETS> 0 126,682,266
<CURRENT-LIABILITIES> 0 33,099,433
<BONDS> 0 0
0 0
0 0
<COMMON> 0 168,276
<OTHER-SE> 0 90,291,557
<TOTAL-LIABILITY-AND-EQUITY> 0 126,682,266
<SALES> 0 0
<TOTAL-REVENUES> 47,740,007 79,893,883
<CGS> 0 0
<TOTAL-COSTS> 34,658,558 58,415,231
<OTHER-EXPENSES> 9,693,514 15,473,922
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> 3,706,662 6,631,664
<INCOME-TAX> 1,334,398 2,384,398
<INCOME-CONTINUING> 2,372,264 4,247,266
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 2,372,264 4,247,266
<EPS-PRIMARY> 0.20 0.38
<EPS-DILUTED> 0.20 0.37
</TABLE>
