<PAGE>
================================================================================
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 September 30, 1999
-------------------------------------------------
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 0-23093
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 NOVEMBER 9, 1999
----- -------------------------------
Common stock, par value $.01 share 12,454,634
================================================================================
<PAGE>
BORON, LEPORE & ASSOCIATES, INC.
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements:
Consolidated Balance Sheets at September 30, 1999 (unaudited) and December 31,
1998........................................................................................... 3
Consolidated Statements of Operations for the Three Months Ended September 30,
1999 and 1998 (unaudited) and the Nine Months Ended September 30, 1999 and 1998
(unaudited).................................................................................... 4
Consolidated Statements of Cash Flows for the Nine Months Ended September 30,
1999 and 1998 (unaudited)...................................................................... 5
Notes to Consolidated Financial Statements..................................................... 6-9
Item 2. Management's Discussion and Analysis of Financial Condition and Results of 10-16
Operations......................................................................................
Item 3. Quantitative and Qualitative Disclosures About Market Risk...................................... 16
PART II OTHER INFORMATION
Item 1: Legal Proceedings................................................................... 17
Item 2: Changes in Securities and Use of Proceeds........................................... 17
Item 3: Defaults Upon Senior Securities..................................................... 17
Item 4: Submission of Matters to a Vote of Security Holders................................. 17
Item 5: Other Information................................................................... 17
Item 6: Exhibits and Reports on Form 8-K
(a) Exhibits
27 Financial Data Schedules................................................... 18
(b) Reports on Form 8-K........................................................... 18
Signatures...................................................................................... 19
Exhibit Index
</TABLE>
2
<PAGE>
BORON, LEPORE & ASSOCIATES, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
--------------- -----------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalenets................................................ $ 37,763 $ 36,924
Accounts receivable, net.................................................. 36,068 44,394
Prepaid expense and other current assets.................................. 4,007 1,678
-------- --------
Total current assets.................................................. 77,838 82,996
Furniture, fixtures and equipment, at cost, net of accumulated depreciation of
$3,772 at September 30, 1999 and $2,036 at December 31, 1998.................... 7,883 7,884
Intangible assets............................................................... 36,973 33,592
Other assets.................................................................... 495 630
-------- --------
TOTAL ASSETS.................................................................... $123,189 $125,102
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable............................................................. $ 2,548 $ 5,138
Accrued payroll.............................................................. 3,254 1,808
Accrued expenses............................................................. 9,981 9,981
Deferred revenue............................................................. 10,327 9,599
-------- --------
Total current liabilities............................................... 26,110 26,526
-------- --------
Deferred income taxes............................................................ 780 1,080
-------- --------
Committments and contingencies
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value, 50,000 shares authorized, 16,907 issued and
12,699 outstanding at September 30, 1999; 16,882 issued and 12,682
outstanding at December 31, 1998............................................. 169 169
Treasury stock at cost, 4,208 and 4,200 shares at September 30, 1999 and
December 31, 1998, respectively.............................................. (24,354) (24,350)
Additional paid-incapital.................................................... 118,581 118,363
Retained earnings............................................................ 1,903 3,314
-------- --------
Total stockholders equity................................................. 96,299 97,496
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY........................................ $123,189 $125,102
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
3
<PAGE>
BORON, LEPORE & ASSOCIATES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
----------------------------------------- -----------------------------------------
1999 1998 1999 1998
------------------ ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Revenues.................................... $33,394 $41,937 $105,811 $121,831
Cost of sales............................... 23,750 27,867 76,998 86,282
------- ------- -------- --------
Gross profit............................ 9,644 14,070 28,813 35,549
------- ------- -------- --------
Selling, general and administrative
expenses.................................... 9,425 9,920 29,865 25,394
Provision for restructuring................. -- -- 1,700 --
Goodwill impairment charge.................. -- -- 754 --
------- ------- -------- --------
Total operating expenses................ 9,425 9,920 32,319 25,394
------- ------- -------- --------
Operating income(loss).................. 219 4,150 (3,506) 10,155
Interest income............................. 402 551 1,195 1,178
------- ------- -------- --------
Income (loss) before income taxes....... 621 4,701 (2,311) 11,333
Provision (benefit) for income taxes........ 220 1,600 (900) 3,985
------- ------- -------- --------
Net income (loss)....................... $ 401 $ 3,101 $(1,411) $ 7,348
======= ======= ======= =======
Net income (loss) per common and common
equivalent share:
Basic................................... $0.03 $ 0.25 $(0.11) $0.63
======= ======= ======== ========
Diluted................................. $0.03 $ 0.24 $(0.11) $0.61
======= ======= ======== ========
Weighted average number of common and
common equivalent shares:
Basic................................... 12,699 12,635 12,699 11,694
======= ======= ======== ========
Diluted................................. 12,709 13,119 12,699 12,132
======= ======= ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
BORON, LEPORE & ASSOCIATES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
--------------------------------------
1999 1998
----------------- ---------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).................................................... $ (1,411) $ 7,348
Adjustments for noncash items included in operating activities:
Depreciation and amortization.................................... 3,079 1,474
Provision for doubtful accounts.................................. 874 --
Provision for restructuring...................................... 1,700 --
Goodwill impairment charge....................................... 754 --
Deferred income taxes............................................ (300) (386)
Change in operating asset and liability components:
Decrease (increase) in accounts receivable....................... 7,452 (14,656)
Increase in prepaid expenses and other assets.................... (2,329) (1,633)
Decrease in intangible assets.................................... 554 --
Decrease (increase) in other assets.............................. 135 (408)
Increase in accounts payable and accrued expenses................ 1,815 5,046
Increase (decrease) in deferred revenue.......................... 728 (5,521)
-------- --------
Net cash provided by (used in) operating activities............ 13,051 (8,736)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of furniture, fixtures and equipment................... (1,726) (4,012)
Business acquisitions, net of acquired cash...................... -- (15,920)
Business acquisitions, contingent consideration.................. (10,600) --
-------- --------
Net cash used in investing activities.......................... (12,326) (19,932)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the issuance of common stock....................... -- 44,412
Proceeds from the exercise of stock options...................... 114 --
-------- --------
Net cash provided by financing activities...................... 114 44,412
-------- --------
Increase in cash and cash equivalents.......................... 839 15,744
CASH AND CASH EQUIVALENTS, beginning of period....................... 36,924 24,015
-------- --------
CASH AND CASH EQUIVALENTS, end of period............................. $ 37,763 $ 39,759
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest......................................................... $ -- $ --
Taxes............................................................ $ 1,728 $ 3,405
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
BORON, LEPORE & ASSOCIATES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) Description of the Business and Basis of Presentation:
Boron, LePore & Associates, Inc. (the "Company" or "BLP") provides
outsourced marketing, educational and sales services to the pharmaceutical
industry.
The accompanying consolidated 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, with
the exception of the goodwill impairment charge, as discussed in footnote 4, and
the provision for restructuring, as discussed in footnote 5. 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) Earnings (Loss) 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 Nine months ended
September 30, September 30,
------------------------------------- --------------------------------------
(In thousands, except per share data) 1999 1998 1999 1998
---------------- -------------- ---------------- --------------
<S> <C> <C> <C> <C>
Numerator:
Net income (loss) - Diluted.................. $ 401 $ 3,101 $(1,411) $ 7,348
======= ======= ======= =======
Net income (loss) - Basic.................... $ 401 $ 3,101 $(1,411) $ 7,348
======= ======= ======= =======
Denominator:
Weighted average shares outstanding - Basic 12,699 12,635 12,699 11,694
Incremental shares from assumed conversions
of stock options........................... 10 484 -- 438
------- ------- ------- -------
Weighted average shares outstanding - Diluted 12,709 13,119 12,699 12,132
======= ======= ======= =======
Earnings (loss) per share - Basic.............. $ 0.03 $ 0.25 $ (0.11) $ 0.63
======= ======= ======== =======
Earnings (loss) per share - Diluted............ $ 0.03 $ 0.24 $ (0.11) $ 0.61
======= ======= ======== =======
</TABLE>
6
<PAGE>
BORON, LEPORE & ASSOCIATES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
(Unaudited)
(3) Acquisitions:
In August 1998, the Company purchased substantially all of the assets and
assumed certain liabilities of Strategem Plus, Inc. ("Strategem"), a New Jersey
corporation. The purchase price was $1,600,000 in cash and 13,630 shares of the
Company's common stock. During the second quarter of 1999, the Company paid
$400,000 in cash and issued 9,934 shares of the Company's common stock to
Strategem based upon the attainment of certain revenue goals. In October 1999,
the Company also paid $833,067 in cash and issued 33,472 shares of the Company's
common stock to Strategem based upon the attainment of certain revenue goals.
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 $4,000,000 and is being amortized over twenty years.
In May 1998, the Company purchased substantially all of the assets and
assumed certain liabilities of Medical Education Systems, Inc. ("MES"), a
Pennsylvania corporation. The purchase price was $10,000,000 in cash and 160,103
shares of the Company's common stock. During the first quarter of 1999, the
Company paid $5,000,000 in cash to MES based upon the attainment of certain
operating income goals. In July 1999, the Company also paid $4,500,000 in cash
to MES based upon the attainment of certain operating income goals. 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 $26,000,000 and is being 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 paid $700,000 in the first quarter of 1999 based on the attainment of
certain performance goals. 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 $9,200,000 and is being 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. The
acquisition was accounted for using the purchase method of accounting. The
excess of purchase price over net assets acquired was estimated to be $800,000.
As described below (see footnote 4), in connection with its preparation of the
financial statements related to the three months ended March 31, 1999, the
Company determined that the remaining unamortized purchase price of $754,000 was
impaired. As a result, the Company wrote down the goodwill to zero as of March
31, 1999.
(4) Goodwill Impairment Charge:
The Company adopted Statement of Financial Accounting Standards (SFAS) No. 121,
"Accounting for the Impairment of Long-Lived Assets to be Disposed of." This
statement addresses the accounting for the impairment of long-lived assets and
long-lived assets to be disposed of, certain identifiable intangibles and
goodwill related to those assets, and establishes guidance for recognizing and
measuring impairment losses. Under the provisions of this statement, the Company
continually evaluates its long-lived assets for financial impairment. In
connection with its preparation of the financial statements related to the three
months ended March 31, 1999, the Company determined that the goodwill related to
the acquisition of Decision Point, Inc. was impaired. The Company based its
determination on the inability of the long-lived asset to generate future cash
flows sufficient to recover the carrying amount. As a result, the Company
recorded a write-down during the three months ended March 31, 1999 in the amount
of $754,000 related to this asset to bring the book value of this asset to zero.
7
<PAGE>
BORON, LEPORE & ASSOCIATES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
(Unaudited)
(5) Provision for Restructuring:
In May 1999, the Company's management approved a plan to restructure its
operations. In connection with the restructuring, the Company recorded a $1.7
million provision for restructuring during the three months ended June 30, 1999.
The restructuring plan provided for a workforce reduction of approximately 10%
of the total Company headcount, the downsizing or closing of certain office
locations and other costs which represent approximately 67%, 21% and 12%,
respectively of the restructuring provision. During the three months ended
September 30, 1999 and June 30, 1999, the actual cash payments related to this
restructuring amounted to approximately $200,000 and $125,000, respectively and
were related primarily to employee termination costs. The balance of the
restructuring reserve at September 30, 1999 was approximately $1.4 million.
(6) Legal Proceedings:
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 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 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.
On or about May 25, 1999, a stockholder of the Company filed a putative
class action lawsuit against the Company and certain of the Company's officers
and directors in the United States District Court for the District of New
Jersey. The suit alleges that the Company, certain of its officers and
directors, and certain institutional stockholders violated the federal
securities laws by making material misrepresentations and omissions in certain
public disclosures related to, among other things, the secondary offering made
by the Company in May 1998, the Company's acquisition of Decision Point, Inc. in
January 1998, the termination of the Company's relationship with Glaxo-Wellcome,
and the impact of various events on the Company's earnings. The suit seeks
unspecified damages. The Company has agreed that plaintiffs have until November
22, 1999 to file any Amended Complaint in the litigation. The Company believes
that the plaintiff's claims are without merit and intends to vigorously defend
the lawsuit. 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.
In addition, the Company, from time to time, is involved in legal
proceedings incurred in the normal course of business. The Company believes none
of these proceedings will have a material adverse effect on the financial
condition or liquidity of the Company.
8
<PAGE>
BORON, LEPORE & ASSOCIATES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
(Unaudited)
(7) Segment Information:
The Company's management considers its business to be a single business
entity the providing of outsourced marketing, educational and sales services to
the pharmaceutical industry. The Company's services generally are utilized by
customers and people associated with the pharmaceutical industry and the medical
profession. Management evaluates its product offerings on a revenue basis, which
is presented below, and profitability is generally evaluated on an enterprise-
wide basis due to shared infrastructures.
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
1999 1998 1999 1998
--------------- --------------- --------------- -----------------
<S> <C> <C> <C> <C>
Revenues:
Marketing and Educational Services........ $16,034 $27,315 $ 52,410 $ 81,220
Field sales force logistics services...... 11,852 8,293 35,156 25,469
Contract sales services................... 5,508 6,329 18,245 15,142
------- ------- -------- --------
Total revenues.......................... $33,394 $41,937 $105,811 $121,831
======= ======= ======== ========
</TABLE>
(8) Revolving Credit Facility
On October 31, 1999, the Company's $5.0 million unsecured revolving credit
facility expired. There were no amounts outstanding as of September 30, 1999 and
December 31, 1998.
9
<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 marketing, educational and sales 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 enhance its array of other marketing, educational and sales
services.
Following several years of relatively modest revenue growth, BLP's revenues
grew significantly from 1995 to 1998. This growth 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 reflected
increased recognition of peer-to-peer meeting programs as an effective
promotional technique and increased levels of marketing and educational spending
in the pharmaceutical industry. Principal elements of the Company's growth
strategy have been 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 three 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. In
connection with its expansion of services, during 1997, the Company opened a new
teleservice center in Norfolk, Virginia and established a contract sales
organization. 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
through December 1999. In November 1999, the Company renewed the aforementioned
field sales force logistics contract through December 2001. Such services
include meeting planning, event coordination and other logistical services. The
contract provides for a management fee component and a fee-for-service
component. The management fee for 2001 is subject to negotiations. There can be
no assurance that the management fee for such 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 on December 31, 2000). The fee-
for-service component is dependent upon the level of services provided. Also in
1998, the Company continued to enhance its newer service offerings, as it
acquired two medical education companies.
In December 1998, the Company signed its second field force logistics
contract with a pharmaceutical company to provide field force logistics services
through December 2001. This second contract, which was significantly smaller
than the Company's first field force logistics contract, also provided for a
management fee component and a fee-for-service component. In July 1999, the
Company commenced discussions with this customer to terminate the contract
between the two companies. During the third quarter the Company terminated the
contract. The Company will not generate revenue from this contract after the
three months ended September 30, 1999. This contract represented 7% and 6% of
the Company's total revenues during the three and nine months ended September
30, 1999, respectively.
In late 1998, the Company was advised that a significant customer would not
be making any new commitments for speaker training and advisory panel meetings
with the Company. This customer represented 27% of the Company's total revenues
during the year ended December 31, 1998. A substantial portion of this revenue
was comprised of speaker training and advisory panel meetings. Based on further
discussions with this customer, except for a limited amount of speaker training
revenue in the three months ended March 31, 1999, the Company believes it will
not produce any revenue related to this customer in 1999. This customer
represented less than 5% of the Company's total revenues during the three months
ended March 31, 1999 and 0% of revenue during the three months ended June 30,
1999 and September 30, 1999.
Although revenues from the Company's peer-to-peer meeting business grew
from $33.4 million in 1996 to $45.1 million in 1997 and then to $52.8 million in
1998, the Company does not anticipate that future growth of revenues from this
line of business will continue at such an accelerated rate. Furthermore,
10
<PAGE>
the Company believes that the aforementioned loss of a significant customer will
negatively impact the Company's peer-to-peer meeting revenue in 1999 as compared
to 1998. Revenues from this line of business decreased from $38.4 million in the
first nine months of 1998 to $25.5 million in the first nine months of 1999,
including the effect of the loss of revenue from this previously significant
customer. In addition, although revenues from the Company's symposia services
(also known as speaker training meetings) increased from $1.5 million in 1996 to
$20.7 million in 1997 and to $28.9 million in 1998, due to the aforementioned
loss of the significant customer and the Company's focus on replacing the
speaker training revenue related to this customer with revenue from other
services, the Company anticipates a significant decrease in symposia revenue in
1999 as compared to 1998. Revenues from this line of business decreased from
$26.1 million in the first nine months of 1998 to $6.2 million in the first nine
months of 1999.
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, while other services, particularly
educational conferencing, have higher gross margin percentages than the
Company's historical peer-to-peer meeting business. As such, the mix of business
generated from individual services could impact the Company's operating profit
percentage.
The Company's operating performance objective is to enhance its operating
profit through efficiency efforts, carefully managing operating expenses,
improving its mix of revenue and increasing its overall revenue.
The Company incurred a net loss of $1.4 million during the nine months
ended September 30, 1999. Included in these results was a noncash charge of
$754,000 related to the writedown of goodwill associated with the Company's
January 1998 acquisition of Decision Point, Inc. Also included in these results
was a charge of $1,700,000 related to a restructuring plan, which was initiated
by the Company in the second quarter of 1999 and fully implemented in the third
quarter of 1999. The restructuring plan is expected to improve operational
efficiencies and better align costs and expenses with anticipated revenues.
During the second quarter ended June 30, 1999, the Company retained the
services of Bear, Stearns & Co. Inc. as its investment advisor, for the purpose
of pursuing strategic alternatives on behalf of the Company. During the third
quarter ended September 30, 1999, the Company decided not to pursue a sale
or recapitalization transaction at this time. The Company may reconsider such a
transaction in the future.
The Company also recently enhanced its senior management team with the
addition of Steven M. Freeman as President and Chief Operating Officer and
Terrance S. Novak as General Manager of its Contract Sales Division.
11
<PAGE>
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 Nine months ended
September 30, September 30,
--------------------------------- ---------------------------------
1999 1998 1999 1998
------------ ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues................................... 100.0% 100.0% 100.0% 100.0%
Cost of sales............................... 71.1 66.4 72.8 70.8
------------ ------------- ------------- -------------
Gross profit........................... 28.9 33.6 27.2 29.2
------------ ------------- ------------- -------------
Selling, general and administrative
expenses.................................. 28.2 23.7 28.2 20.9
Provision for restructuring................. -- -- 1.6 --
Goodwill impairment charge.................. -- -- 0.7 --
------------ ------------- ------------- -------------
Total operating expenses................ 28.2 23.7 30.5 20.9
------------ ------------- ------------- -------------
Operating income (loss)................. 0.7 9.9 (3.3) 8.3
Interest income.............................. 1.2 1.3 1.1 1.0
------------ ------------- ------------- -------------
Income (loss) before income taxes....... 1.9 11.2 (2.2) 9.3
Provision (benefit) for income taxes......... 0.7 3.8 (0.9) 3.3
------------ ------------- ------------- -------------
Net income (loss)....................... 1.2% 7.4% (1.3)% 6.0%
============ ============= ============= =============
</TABLE>
THREE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO THE THREE MONTHS ENDED
SEPTEMBER 30, 1998
Revenues decreased $8.5 million, or 20%, from $41.9 million in the three months
ended September 30, 1998 to $33.4 million in the three months ended September
30, 1999. This decline resulted from a $9.1 million, or 47%, decrease in
promotional conferencing services revenue, a $2.2 million decrease in revenue
from educational conferencing services and a $0.8 million decrease in revenue
from contract sales services, offset by a $3.6 million increase in revenue from
field sales force logistics services. The decrease in promotional conferencing
services was comprised of a decrease in symposia revenue of $3.9 million and a
$5.2 million decrease in revenues from peer-to-peer meetings and other
conferencing services. The increase in field sales force logistics services
includes $2.1 million in revenue from a contract which was terminated during the
three months ended September 30, 1999.
Cost of sales decreased $4.1 million, or 15%, from $27.9 million in the three
months ended September 30, 1998 to $23.8 million in the three months ended
September 30, 1999. Cost of sales as a percentage of revenues increased from
66.4% in the prior year period to 71.1% 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 decreased proportion of symposia services revenue, both having 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. The increase in cost of sales includes $1.7 million related
to a field sales force logistics contract which was terminated during the three
months ended September 30, 1999.
12
<PAGE>
Selling, general and administrative expenses decreased $0.5 million, or 5%, from
$9.9 million in the three months ended September 30, 1998 to $9.4 million in the
three months ended September 30, 1999. This decrease was due to the cost of
personnel reductions of approximately $0.5 million and a decrease in other
operating costs of approximately $0.3 million, offset by an increase in bad debt
expense of $0.3 million. Selling, general and administrative expenses increased
as a percentage of revenues from 23.7% in the prior year period to 28.2% in the
current year period. This percentage increase was primarily the result of the
aforementioned decrease in sales for the three months ended September 30, 1999.
Operating income decreased $3.9 million, or 95%, from $4.1 million in the three
months ended September 30, 1998 to $0.2 million in the three months ended
September 30, 1999. Operating income as a percentage of revenues decreased from
of 9.9% in the prior year period to 0.7% 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 income was $0.6 million in the three months ended September 30, 1998
compared to $0.4 million in the three months ended September 30, 1999. This
decrease was the result of the Company's lower average cash balance and lower
prevailing interest rates in the current year period as compared to the prior
year period.
The provision for income taxes for the three months ended September 30, 1999 and
September 30, 1998 reflects estimated federal and state income tax expense.
NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1998
Revenues decreased $16.0 million, or 13%, from $121.8 million in the nine months
ended September 30, 1998 to $105.8 million in the nine months ended September
30, 1999. This decline primarily resulted from a $33.1 million, or 51%, decrease
in promotional conferencing services revenue, offset by a $9.7 million increase
in revenue from field force logistics services, a $4.3 million increase from
educational conferencing services and a $3.1 million increase in revenue from
contract sales services. The decrease in promotional conferencing services was
comprised of a decrease in symposia revenue of $19.9 million and a $13.2 million
decrease in revenues from peer-to-peer meetings and other conferencing services.
The increase in field sales force logistics services includes $6.4 million in
revenue from a contract which was terminated during the three months ended
September 30, 1999.
Cost of sales decreased $9.3 million, or 11%, from $86.3 million in the nine
months ended September 30, 1998 to $77.0 million in the nine months ended
September 30, 1999. Cost of sales as a percentage of revenues increased from
70.8% in the prior year period to 72.8% 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. The cost of sales for
the nine months ended September 30, 1999 includes $4.8 million related to a
field logistics contract that was terminated during the three months ended
September 30, 1999.
During the nine months ended September 30, 1999, the Company determined that the
remaining goodwill balance of $754,000 associated with the acquisition of
Decision Point, Inc. in January 1998 was impaired. As a result, the Company
incurred a one-time charge to write-down the asset value to zero during the nine
months ended September 30, 1999. As a percentage of revenues, this charge
represented 0.7% of revenues for the nine months ended September 30, 1999.
During the nine months ended September 30, 1999, the Company initiated a
restructuring plan, which involved the reduction in the workforce of
approximately 10% of its employees and the consolidation of its facilities. As
a result, the Company incurred a restructuring charge of $1.7 million during the
nine months ended September 30, 1999. As a percentage of revenues, this charge
represented 1.6% of revenues for the nine months ended September 30, 1999.
Selling, general and administrative expenses increased $4.5 million, or 18%,
from $25.4 million in the nine months ended September 30, 1998 to $29.9 million
in the nine-month period ended September 30, 1999. This increase was due to the
cost of personnel additions of approximately $2.7 million, including the
13
<PAGE>
personnel of acquired companies, an increase in bad debts of approximately $0.9
million and an increase in other operating costs of approximately $0.9 million.
Selling, general and administrative expenses increased as a percentage of
revenues from 20.9% in the prior year period to 28.2% in the current year
period. This percentage increase was largely the result of the aforementioned
decrease in revenues for the nine months ended September 30, 1999.
Operating income (loss) decreased $13.7 million, or 135%, from income of $10.2
million in the nine months ended September 30, 1998 to a loss of $3.5 million in
the nine months ended September 30, 1999. Operating income (loss) as a
percentage of revenues decreased from income of 8.3% in the prior year period to
a loss of 3.3% in the current year period. The decrease in operating income
(loss) as a percentage of revenues was due to the aforementioned increases in
cost of sales, selling, general and administrative expenses, restructuring
charge and a noncash charge to write down an impaired asset as a percentage of
revenues.
Interest income was $1.2 million in the nine months ended September 30, 1998 and
September 30, 1999.
The provision (benefit) for income taxes for the nine months ended September 30,
1999 and September 30, 1998 reflects estimated Federal and state income tax
expense partially offset by the utilization of benefits from net operating
losses previously not recognized in 1998 and the recording of the benefits of
the net loss in 1999.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1999, the Company had $51.7 million in net working
capital, a decrease of $4.7 million from December 31, 1998. The Company's
primary sources of liquidity as of September 30, 1999 consisted of cash and cash
equivalents, accounts receivable and borrowing availability under a revolving
credit facility, which expired on October 31, 1999. The Company's accounts
receivable turnover averaged 97, 93 and 84 days for the periods ended September
30, 1999, December 31, 1998 and December 31, 1997, repsectively. The allowance
for doubtful accounts was $1.1 million at September 30, 1999, $0.5 million at
December 31, 1998 and $0.4 million at December 31, 1997.
During the nine months ended September 30, 1999, the Company generated
$13.1 million in operating activities as compared to $8.7 million used in
operating activities during the same period in 1998. The amount provided by
operating activities was primarily related to the decrease in business
experienced by the Company throughout the first nine months of 1999 as compared
to the nine months ended September 30, 1998. The Company believes its ability to
generate cash flow from operations is inversely related to revenue growth. As
such, during periods of rapid growth the Company will use cash, whereas during
periods of slow growth or decline the Company believes it will be able to
generate cash from operations.
During the nine months ended September 30, 1999, the Company used $12.3
million of cash in investing activities which was comprised of $10.6 million of
cash related to the payment of contingent consideration and $1.7 million used to
purchase computer, telephone and office equipment. The Company made cash
payments of approximately $10.6 million during the nine months ended September
30, 1999 based upon the attainment of contingent payment goals established
during the acquisitions of Medical Education Systems, Inc. ("MES"), Strategic
Implications International, Inc., and Strategem Plus, Inc. ("Strategem"). In
addition, in October 1999 the Company paid an additional $0.8 million in
contingent cash payments based on the attainment of certain operating income
goals of Strategem.
Financing activities during the nine months ended September 30, 1999
generated $0.1 million of net cash inflows, primarily as a result of proceeds
from the exercises of stock options. In September 1999, the Company's Board of
Directors authorized the Company to repurchase up to 500,000 shares of its
common stock over the next twelve months. During October 1999, the Company
repurchased 275,000 shares at a cost of $1.5 million.
14
<PAGE>
On October 31, 1999, the Company's $5.0 million unsecured revolving credit
facility expired. There were no amounts outstanding as of September 30, 1999 and
December 31, 1998. The Company currently does not intend to renew or extend this
revolving credit facility and believes it has sufficient other capital
resources.
YEAR 2000 READINESS DISCLOSURE
During 1998, the Company conducted an extensive review of its computer
systems and operations to identify the areas that could be affected by the Year
2000 issue. A plan has been developed that focuses on the Company's information
systems and third-party relationships.
The Company has developed a five phase Year 2000 program consisting of:
Phase I - detailed review and ranking of the components of the Company's systems
that may be vulnerable; Phase II overall assessment of all items identified in
Phase I; Phase III replacement of non-compliant systems and components; Phase IV
testing of systems and components following replacement; and Phase V developing
contingency plans to address the most reasonably likely worst case scenarios.
The Company has completed Phases I and II, and has made substantial progress on
Phases III and IV. The Company anticipates completion of all Phases by December
1999.
With respect to its third party relationships, the Company is in the
process of contacting its largest vendors, customers, and other material third
parties to assess the state of their Year 2000 readiness. The Company has
commenced contingency planning to address the most reasonably likely worst case
Year 2000 scenarios with respect to its third party relationships, including
developing alternative third-party relationships, if necessary. A reasonable
worst case scenario would involve the failure of the Company's teleconferencing
center and computer systems that support the field sales force logistics
operations. If this worst case scenario occurred for any significant period, it
could have a material adverse impact on our business, results of operations,
liquidity and financial position.
Based on its efforts to date, the Company does not believe that the Year
2000 issue will have a material adverse effect on its financial condition or
results of operations. There can be no guarantee, however, that a Year 2000
failure will not arise. This is due to the uncertainty surrounding potential
third-party related Year 2000 problems, as well as our potential failure to
discover all of our own susceptible internal systems. The Company's costs
incurred to date associated with the Year 2000 issue have been approximately
$225,000. The Company estimates that the costs to complete its five phase
program, excluding any costs that may be incurred by the Company as a result of
the failure of any third parties to become Year 2000 compliant, will be
approximately $300,000 in total. There can be no assurance that the timing and
cost estimates related to the Year 2000 conversion will be accurate. Actual
results for the Company and third parties could differ materially from those
currently anticipated.
15
<PAGE>
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
Certain statements contained in this report, including statements regarding
the anticipated development of the Company's business, the intent, belief or
current expectations of the Company, its directors or its officers, primarily
with respect to the Company's business model and future operating performance of
the Company, including expectations regarding the possible cost savings
associated with the Company's restructuring plan in current and future periods,
trends in the mix of educational and marketing services revenues toward more
value-added products, the possible effects aimed at improving costs and
efficiencies, expectations regarding certain field force logistics relationships
and related revenues and profits, and regarding results in future periods,
operating performance and growth in 1999, the effects of loss of revenue and the
magnitude and timing of revenues from new and existing clients, and expectations
regarding business units within the Company, and other statements contained
herein regarding matters that are not historical facts, are "forward-looking"
statements (as such term is defined in the Private Securities Litigation Reform
Act of 1995). Because such statements are subject to 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: uncertainties regarding implementation of the
restructuring plan, continuation of trends in educational and marketing
services, risks relating to the market for the Company's services, acceptance of
the Company's new services, difficulties inherent in locating acquisition
candidates and consummating acquisitions, and those risks and uncertainties
contained under the heading "Risk Factors" in the Company's Form 10-K for the
year ended December 31, 1998 and on page 6 of the Company's Registration
Statement on Form S-1 as amended, as filed with the Securities and Exchange
Commission.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
None.
16
<PAGE>
BORON, LEPORE & ASSOCIATES, INC.
PART II-OTHER INFORMATION
Item 1. Legal Proceedings
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 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 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.
On or about May 25, 1999, a stockholder of the Company filed a putative
class action lawsuit against the Company and certain of the Company's officers
and directors in the United States District Court for the District of New
Jersey. The suit alleges that the Company, certain of its officers and
directors, and certain institutional stockholders violated the federal
securities laws by making material misrepresentations and omissions in certain
public disclosures related to, among other things, the secondary offering made
by the Company in May 1998, the Company's acquisition of Decision Point, Inc. in
January 1998, the termination of the Company's relationship with Glaxo-Wellcome,
and the impact of various events on the Company's earnings. The suit seeks
unspecified damages. The Company has agreed that plaintiffs have until
November 22, 1999 to file any Amended Complaint in the litigation. The Company
believes that the plaintiff's claims are without merit and intends to vigorously
defend the lawsuit. 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.
In addition, the Company, from time to time, is involved in legal
proceedings incurred in the normal course of business. The Company believes none
of these proceedings will have a material adverse effect on the financial
condition or liquidity of the Company.
Item 2. Changes in Securities and Use of Proceeds
Not applicable.
Item 3. Defaults upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 5. Other information
Not applicable.
17
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27 Financial Data Schedule
(b) Reports on Form 8-K
On July 14, 1999, the Company issued a report on Form 8-K related
to revised employment agreements for certain executive officers.
18
<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: November 12, 1999 By: /s/ Patrick G. LePore
----------------------------
Patrick G. LePore
Chief Executive Officer, President
and Chairman of the Board
(Principal Executive Officer)
Date: November 12, 1999 By: /s/ Martin J. Veilleux
-----------------------------
Martin J. Veilleux
Chief Financial Officer, Secretary and
Treasurer (Principal Financial and
Accounting Officer)
<PAGE>
EXHIBIT INDEX
Exhibit Number Description
-------------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S BALANCE SHEET AT SEPTEMBER 30, 1999 AND STATEMENTS OF OPERATIONS FOR
THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1999 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1999
<PERIOD-START> JUL-01-1999 JAN-01-1999
<PERIOD-END> SEP-30-1999 SEP-30-1999
<CASH> 0 37,763
<SECURITIES> 0 0
<RECEIVABLES> 0 37,173
<ALLOWANCES> 0 1,105
<INVENTORY> 0 0
<CURRENT-ASSETS> 0 4,007
<PP&E> 0 11,655
<DEPRECIATION> 0 3,772
<TOTAL-ASSETS> 0 123,189
<CURRENT-LIABILITIES> 0 26,110
<BONDS> 0 0
0 0
0 0
<COMMON> 0 169
<OTHER-SE> 0 96,130
<TOTAL-LIABILITY-AND-EQUITY> 0 123,189
<SALES> 0 0
<TOTAL-REVENUES> 33,394 105,811
<CGS> 23,750 76,998
<TOTAL-COSTS> 23,750 76,998
<OTHER-EXPENSES> 9,425 32,319
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> 621 (2,311)
<INCOME-TAX> 220 (900)
<INCOME-CONTINUING> 401 (1,411)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 401 (1,411)
<EPS-BASIC> 0.03 (0.11)
<EPS-DILUTED> 0.03 (0.11)
</TABLE>
