<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, 2000
-------------------------------------------------
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 7, 2000
----- -------------------------------
Common stock, par value $.01 share 11,594,551
================================================================================
<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, 2000 (unaudited) and December 31, 1999......................... 3
Consolidated Statements of Operations for the Three Months Ended September 30, 2000 and
1999 (unaudited) and the Nine Months Ended September 30, 2000 and 1999 (unaudited)........................... 4
Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2000 and
1999 (unaudited)............................................................................................. 5
Notes to Consolidated Financial Statements................................................................... 6-8
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations................................................................................................... 9-14
PART II OTHER INFORMATION
Item 1: Legal Proceedings................................................................................ 15
Item 2: Changes in Securities............................................................................ 15
Item 3: Defaults in Senior Securities.................................................................... 15
Item 4: Submission of Matters to a Vote of Security Holders.............................................. 15
Item 5: Other Information................................................................................ 15
Item 6: Exhibits and Reports on Form 8-K 16
(a) Exhibits
27 Financial Data Schedules
(b) Reports on Form 8-K
Signatures................................................................................................... 17
Exhibit Index
</TABLE>
2
<PAGE>
BORON, LEPORE & ASSOCIATES, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------------- ----------------
(Unaudited)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents........................................................ $ 30,376 $ 44,631
Accounts receivable, net......................................................... 35,177 27,567
Prepaid expense and other current assets......................................... 5,744 1,387
-------- --------
Total current assets........................................................ 71,297 73,585
Furniture, fixtures and equipment, at cost, net of accumulated depreciation of
$6,290 and $4,391 at September 30, 2000 and December 31, 1999, respectively. 6,531 7,397
Intangible assets, net................................................................ 44,267 36,476
Other assets.......................................................................... 312 686
-------- --------
Total assets................................................................ $122,407 $118,144
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................................. $ 3,966 $ 3,568
Accrued payroll.................................................................. 4,065 1,532
Accrued expenses................................................................. 10,739 8,536
Deferred revenue................................................................. 11,581 9,808
-------- --------
Total current liabilities................................................... 30,351 23,444
-------- --------
Other liabilities..................................................................... 23 --
-------- --------
Commitments and contingencies -- --
Stockholders' equity:
Common stock, $.01 par value, 50,000 shares authorized, 17,125 issued and
11,586 outstanding at September 30, 2000; 16,938 issued and 12,302
outstanding at December 31, 1999.............................................. 171 169
Treasury stock at cost, 5,539 and 4,636 shares at September 30, 2000 and
December 31, 1999, respectively................................................ (34,858) (26,989)
Additional paid-in capital....................................................... 120,351 118,789
Retained earnings............................................................... 6,369 2,731
-------- --------
Total stockholders' equity.................................................. 92,033 94,700
-------- --------
Total liabilities and stockholders' equity.................................. $122,407 $118,144
======== ========
</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,
--------------------------------- ---------------------------------
2000 1999 2000 1999
------------- ------------- ------------- ---------------
<S> <C> <C> <C> <C>
Revenues.............................................. $ 39,591 $ 33,394 $ 117,804 $105,811
Cost of sales......................................... 28,276 23,750 85,453 76,998
----------- --------- --------- --------
Gross profit..................................... 11,315 9,644 32,351 28,813
----------- --------- --------- --------
Selling, general and administrative expenses.......... 9,772 9,425 28,135 29,865
Provision for restructuring........................... -- -- -- 1,700
Goodwill impairment charge............................ -- -- -- 754
----------- --------- --------- --------
Total expenses................................ 9,772 9,425 28,135 32,319
----------- --------- --------- --------
Operating income (loss)............................... 1,543 219 4,216 (3,506)
Interest income, net.................................. 551 402 1,852 1,195
----------- --------- --------- --------
Income (loss) before provision (benefit) for income
taxes............................................. 2,094 621 6,068 (2,311)
Provision (benefit) for income taxes.................. 830 220 2,430 (900)
----------- --------- --------- --------
Net income (loss)..................................... $ 1,264 $ 401 $ 3,638 $ (1,411)
=========== ========= ========= ========
Net income (loss) per common and common equivalent share:
Basic............................................ $ 0.11 $ 0.03 $ 0.30 ($ 0.11)
========== ========== ========= ========
Diluted.......................................... $ 0.10 $ 0.03 $ 0.30 ($ 0.11)
========== ========== ========= ========
Weighted average number of common and common
equivalent shares:
Basic............................................ 11,915 12,699 12,128 12,699
========== ========== ========= =========
Diluted.......................................... 12,146 12,709 12,303 12,699
========== ========== ========= =========
</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,
---------------------------------
2000 1999
---------------- ---------------
<S> <C> <C>
Cash Flows From Operating Activities:
Net income (loss)............................................................ $ 3,638 $ (1,411)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation and amortization.............................................. 3,453 3,079
Provision for doubtful accounts and credit memo reserves................... (25) 874
Provision for restructuring................................................ -- 1,700
Goodwill impairment charge................................................. -- 754
Deferred income taxes...................................................... 150 (300)
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable.............................. (2,484) 7,452
Increase in prepaid expenses and other assets........................... (2,657) (2,329)
Decrease in other assets................................................ 64 135
Increase in accounts payable and accrued expenses....................... 3,052 2,369
(Decrease) increase in deferred revenue................................. (1,890) 728
Increase in other liabilities........................................... 23 --
------------ ---------
Net cash provided by operating activities........................ 3,324 13,051
------------ ---------
Cash Flows From Investing Activities:
Purchases of furniture, fixtures and equipment............................. (829) (1,726)
Business acquisitions, net of acquired cash................................ (8,881) --
Business acquisitions, contingent consideration............................ -- (10,600)
------------ ---------
Net cash used in investing activities............................ (9,710) (12,326)
------------ ---------
Cash Flows From Financing Activities:
Purchase of treasury stock................................................. (7,869) --
Proceeds from the exercise of stock options................................ -- 114
------------ ---------
Net cash (used in) provided by financing activities.............. (7,869) 114
------------ ---------
(Decrease) increase in cash and cash equivalents.................... (14,255) 839
Cash and cash equivalents, beginning of period.................................. 44,631 36,924
------------ ---------
Cash and cash equivalents, end of period........................................ $ 30,376 $ 37,763
============ =========
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Interest........................................................................ $ 25 $ --
Taxes........................................................................... $ 2,969 $ 1,728
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
BORON, LEPORE & ASSOCIATES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)
(Unaudited)
(1) Description of the Business and Basis of Presentation:
Boron, LePore & Associates, Inc. (the "Company" or "BLP ") provides integrated
marketing, educational and sales services to the healthcare industry.
The accompanying consolidated financial statements are unaudited and have been
prepared in accordance with generally accepted accounting principles for the
interim financial information and with the instructions to Form 10-Q and Article
10 of Regulation S-X. 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 and 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) Earnings (Loss) Per Share:
The following table reconciles net income (loss) and share amounts used to
calculate basic earnings (loss) per share and diluted earnings (loss) per share.
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
--------------------------------- ------------------------------
2000 1999 2000 1999
--------------- ------------- ---------------- ----------
<S> <C> <C> <C> <C>
Numerator:
Net Income (Loss) - Diluted....................... $ 1,264 $ 401 $ 3,638 $(1,411)
=========== ======== ======== =========
Net Income (Loss) - Basic......................... $ 1,264 $ 401 $ 3,638 $(1,411)
=========== ======== ======== =========
Denominator:
Weighted average shares outstanding - Basic 11,915 12,699 12,128 12,699
Incremental shares from assumed
conversions of options........................... 231 10 175 --
---------- --------- -------- ---------
Weighted average shares outstanding - Diluted 12,146 12,709 $ 12,303 12,699
========== ======== ======== =========
Earnings (loss) per share - Basic.................... $ 0.11 $ 0.03 $ 0.30 $ (0.11)
========== ======== ======== =========
Earnings (loss) per share - Diluted................. $ 0.10 $ 0.03 $ 0.30 $ (0.11)
========== ======== ======== =============
</TABLE>
6
<PAGE>
BORON, LEPORE & ASSOCIATES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Cont.)
(in thousands, except share and per share data)
(Unaudited)
(3) Provision for Restructuring and Other Severance:
During 1999, the Company incurred two provisions for restructuring and
other severance based on approved management plans. During the second quarter of
1999, the Company recorded a provision for restructuring in the amount of $1,700
and during the fourth quarter of 1999, the Company recorded a provision for
restructuring and other severance in the amount of $1,220. The fourth quarter
provision was net of a $280 reversal related to the second quarter provision.
The second quarter provision related to a workforce reduction of approximately
90 employees, the downsizing or closing of certain office locations and other
related costs which represent approximately 67%, 21% and 12%, respectively, of
the total provision. The fourth quarter provision related to the wind-down of
the Company's teleservice business in Norfolk, Virginia, including a workforce
reduction of approximately 75 employees and the disposition of certain assets,
and a management change which represent approximately 12%, 60% and 28%,
respectively, of the total provision. During the twelve months ended December
31, 1999 and the three months ended March 31, 2000, June 30, 2000 and September
30, 2000, the actual cash payments and charges related to these restructurings
amounted to approximately $633, $492, $407 and $248, respectively. The remaining
balance of the combined restructuring reserves at September 30, 2000 was
approximately $1,140.
(4) Acquisitions:
On May 17, 2000, the Company purchased substantially all of the assets and
assumed certain liabilities of Consumer2Patient, Inc., a North Carolina
corporation, Physician to Physician, LLC, a North Carolina limited liability
corporation, and Alternative Media Solutions, LLC, a North Carolina limited
liability corporation (collectively, "C2P"). The purchase price was $2,000 in
cash. In addition, the Company may be required to pay up to an additional $2,000
in contingent cash payments based on the achievement of certain operating goals
during the twelve-month period subsequent to the date of 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 $1,600. The resulting goodwill and non-compete agreements will be
amortized over ten years and three years, respectively.
On June 29, 2000, the Company purchased substantially all of the assets and
assumed certain liabilities of Armand Scott, Inc. ("Armand Scott"), a New Jersey
corporation. The purchase price was $7,500 in cash and 172,167 shares of the
Company's common stock. In addition, the Company may be required to pay an
additional amount up to $10,800 in contingent cash and stock payments based on
the achievement of certain operating income goals of the acquired business
during the two year period subsequent to the date of 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 $7,900. The resulting goodwill and non-compete agreements will be
amortized over fifteen and three years, respectively.
7
<PAGE>
BORON, LEPORE & ASSOCIATES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Cont.)
(in thousands, except share and per share data)
(Unaudited)
(5) Segment Information:
The Company's management considers its business to be a single business
entity - the providing of integrated marketing, educational and sales services
to the healthcare 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,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Marketing and educational services......... $23,298 $16,034 $63,687 $ 52,410
Field sales force logistics services....... 16,094 11,852 49,750 35,156
Contract sales services and other.......... 199 5,508 4,367 18,245
--------- ------- --------- ---------
Total revenues......................... $39,591 $33,394 $117,804 $ 105,811
========= ======= ======== =========
</TABLE>
8
<PAGE>
BORON, LEPORE & ASSOCIATES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Boron, LePore & Associates, Inc. provides integrated marketing, educational
and sales services to the healthcare industry which include promotional and
other meetings, medical education, product marketing, contract sales and field
sales force logistics; including a variety of internet-based solutions.
Substantially all of our customers are large pharmaceutical companies seeking to
communicate their messages to physicians and other healthcare professionals on a
cost-effective basis. We are a leading provider of peer-to-peer meetings. Our
service offerings also include promotional and educational content development,
accredited medical education programs and symposia, web-cast programs, visiting
faculty meetings, clinical advisory panels, field sales force logistic services,
and to a lesser extent, contract sales.
Our objective is to enhance our position as a leading provider of peer- to-
peer and other meetings, continue to expand our educational services,
selectively expand and add complimentary services to our array of other
outsourced promotional, marketing and logistical services and expand the market
for our field sales force logistics services. The principal elements of our
strategy are to: (i) offer integrated solutions that include promotional,
educational, marketing and logistical services, including a variety of internet-
based solutions related to these services; (ii) increase business with existing
customers; (iii) obtain new customers; (iv) target new audiences; and (v) pursue
strategic acquisitions.
We believe 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 marketing
and educational spending in the pharmaceutical industry. Our portfolio of
services includes symposia, medical education, product marketing and field sales
force logistics services. The expansion of these services resulted primarily
from the acquisition of two medical education providers during 1998 and a
contract with a large pharmaceutical company to provide field sales force
logistics services through December 2001.
During 1999, we restructured our operations to improve operational
efficiencies and to better align costs and expenses with anticipated revenues.
As part of these efforts we reduced our work force, closed certain office
locations and initiated the wind-down of our teleservice business in Norfolk,
Virginia. In April 2000, we entered into an agreement with a third party to
lease a portion of our teleservice center and certain related assets. We
continue to use a portion of the Norfolk, Virginia facility for telerecruiting
for our conferencing services and other administrative support.
In November 1999, we renewed our field sales force logistics contract with
a large pharmaceutical company for another two years through December 2001. The
contract provides for a management fee component and a fee-for-service
component. The management fee for 2001 is currently in negotiation. There can be
no assurance that the management fee for such year will be negotiated on terms
acceptable to us (which failure to so negotiate the management fee would result
in the termination of the contract on December 31, 2000).
During 1999, we considered strategic alternatives and retained the services
of Bear, Stearns & Co., Inc, as our investment advisor. During the third quarter
of 1999, we decided not to pursue a sale or recapitalization transaction at that
time. We may reconsider such a transaction in the future.
9
<PAGE>
During the nine months ended September 2000, a contract sales service
contract was terminated. During 1999 and for the nine month period ended
September 30, 2000, such contract represented $15.4 million or 10.3% and $3.5
million or 3.0% of our revenues, respectively.
Certain of our services, particularly symposia and field sales force
logistics, have lower gross margin percentages than our historical peer-to-peer
meeting business, while other services, particularly educational conferencing
and medical education content development, have higher gross margin percentages
than our historical peer-to-peer meeting business. As such, the mix of business
generated from individual services could impact our operating profit percentage.
Our operating performance objective is to further enhance our operating profit
through efficiency efforts, become selective in pursuing noncore, low margin
services, carefully manage operating expenses, improve our mix of revenue and
increase our overall revenue. We believe our efforts in 1999 and our
acquisitions in the first half of 2000, along with our strong balance sheet and
cash position, have resulted in a stabilization of our business and will enable
us to capitalize on opportunities in the evolving pharmaceutical services
marketplace. However, there can be no assurance that we will achieve our
operating performance objective.
RESULTS OF OPERATIONS
The following table sets forth as a percentage of revenues certain items
reflected in our Statements of Operations for the periods indicated.
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
----------------------------- -----------------------------
2000 1999 2000 1999
------------ ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues.................................................... 100.0% 100.0% 100.0% 100.0%
Cost of sales............................................. 71.4 71.1 72.5 72.8
---------- ---------- ----------- -----------
Gross profit.............................................. 28.6 28.9 27.5 27.2
---------- ---------- ----------- -----------
Selling, general and administrative expenses.............. 24.7 28.2 23.9 28.2
Provision for restructuring............................... -- -- -- 1.6
Goodwill impairment charge................................ -- -- -- 0.7
---------- ---------- ----------- -----------
Total expenses.................................... 24.7 28.2 23.9 30.5
---------- ---------- ----------- -----------
Operating income (loss)................................... 3.9 0.7 3.6 (3.3)
Interest income, net...................................... 1.4 1.2 1.6 1.1
---------- ---------- ----------- -----------
Income (loss) before provision (benefit)
for income taxes......................................... 5.3 1.9 5.2 (2.2)
Provision (benefit) for income taxes...................... 2.1 0.7 2.1 (0.9)
---------- ---------- ----------- -----------
Net income (loss)......................................... 3.2% 1.2% 3.1% (1.3)%
========== ========== =========== ===========
</TABLE>
Three Months Ended September 30, 2000 Compared to the Three Months Ended
September 30, 1999
Revenues increased $6.2 million, or 19%, from $33.4 million in the three-month
period ended September 30, 1999 to $39.6 million in the three-month period ended
September 30, 2000. This growth primarily resulted from a $4.2 million increase
in field sales force logistics services revenue and an increase of $7.3 million
in marketing and educational services revenue (with approximately $6.0 million
of this increase a result of the acquisitions of Armand Scott and C2P), offset
by a $5.3 million decrease in contract sales services and other revenues.
10
<PAGE>
Cost of sales increased $4.5 million, or 19%, from $23.8 million in the
three-month period ended September 30, 1999 to $28.3 million in the three-month
period ended September 30, 2000. Cost of sales as a percentage of revenues
increased from 71.1% in the prior year period to 71.4% in the current year
period. This increase was primarily the result of an increase in field sales
force logistics services revenue, which has a lower average gross profit than
our promotional and educational services, due to the higher proportion of
production costs which are passed through to the customer with no markup.
Selling, general and administrative expenses increased $0.4 million, or 4%, from
$9.4 million in the three-month period ended September 30, 1999 to $9.8 million
in the three-month period ended September 30, 2000. This increase was primarily
due to the $1.4 million in additional expenses related to the acquisitions of
Armand Scott and C2P offset by decreases in other operating expenses of $1.0
million. Selling, general and administrative expenses decreased as a percentage
of revenues from 28.2% in the prior year period to 24.7% in the current year
period. This percentage decrease was primarily the result of improved
operational efficiencies as a result of the 1999 restructuring plans.
Operating income increased $1.3 million, or 605%, from $0.2 million in the
three-month period ended September 30, 1999 to $1.5 million in the three-month
period ended September 30, 2000. Operating income as a percentage of revenues
increased from 0.7% in the prior year period to 3.9% in the current year period.
The increase in operating income as a percentage of revenues was primarily due
to the aforementioned decreases in selling, general and administrative expenses
as a percentage of revenues.
Interest income was $0.4 million in the three-month period ended September 30,
1999 compared to $0.6 million in the three-month period ended September 30,
2000. This increase in interest income was primarily due to our higher average
cash balance and higher interest rates in the current year period as compared to
the prior year period.
The provision for income taxes for the three-month periods ended September 30,
2000 and September 30, 1999 reflect estimated Federal and state income tax
expense at our estimated effective tax rate.
Net income was $0.4 million or $0.03 per diluted share for the three-month
period ended September 30, 1999 compared to net income of $1.3 million or $0.10
per diluted share for the three-month period ended September 30, 2000, with
approximately $0.01 per diluted share contribution in net income from the
acquisitions of Armand Scott and C2P.
Nine Months Ended September 30, 2000 Compared to the Nine Months Ended September
30, 1999
Revenues increased $12.0 million, or 11%, from $105.8 million in the nine-month
period ended September 30, 1999 to $117.8 million in the nine-month period ended
September 30, 2000. This growth primarily resulted from an increase of $14.6
million in field force logistics services revenue and an increase of $11.3
million in marketing and educational services revenue (with approximately $8.8
million of the increase a result of the acquisitions of Armand Scott and C2P),
offset by a $13.9 million decrease in contract sales services and other
revenues.
Cost of sales increased $8.5 million, or 11%, from $77.0 million in the
nine-month period ended September 30, 1999 to $85.5 million in the nine-month
period ended September 30, 2000. Cost of sales as a percentage of revenues
decreased from 72.8% in the prior year period to 72.5% in the current year
period. The decrease in cost of sales as a percentage of revenues was primarily
due to the increased proportion of promotional and educational services revenue
to total revenue. This increase was partially offset by an increase in field
sales force logistics services revenue, which has a lower average gross profit
than our promotional and educational services, due to the higher proportion of
production costs which are passed through to the customer with no markup.
Selling, general and administrative expenses decreased $1.7 million, or 6%, from
$29.9 million in the nine- month period ended September 30, 1999 to $28.2
million in the nine-month period ended September 30, 2000. This decrease when
compared to the 1999 amounts was due to the cost of personnel reductions of
approximately $0.2 million, a decrease in bad debts of approximately $0.9
million and a decrease in other
11
<PAGE>
operating costs of approximately $0.6 million, partially offset by approximately
$1.8 million of operating expenses for Armand Scott and C2P reflected in the
September 30, 2000 amounts. Selling, general and administrative expenses
decreased as a percentage of revenues from 28.2% in the prior year period to
23.9% in the current year period. This decrease is primarily the result of the
aforementioned improved operational efficiencies as a result of the 1999
restructuring plans.
During the nine-month period ended September 30, 1999, we 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, we incurred a
charge to write-down the asset value to zero during the nine-month period ended
September 30, 1999. As a percentage of revenues, this charge represented 0.7% of
the revenues for the nine-month period ended September 30, 1999.
During the nine-month period ended September 30, 1999, we initiated a
restructuring plan, which involved the reduction of approximately 10% of our
employees and the consolidation of our facilities. As a result, we incurred a
restructuring charge of $1.7 million during the nine-month period ended
September 30, 1999. As a percentage of revenues, this charge represented 1.6% of
revenues for the nine-month period ended September 30,1999.
Operating income (loss) increased $7.7 million, or 220%, from a loss of $3.5
million in the nine-month period ended September 30, 1999 to income of $4.2
million in the nine-month period ended September 30, 2000. Operating income
(loss) as a percentage of revenues increased from a loss of 3.3% in the prior
year period to income of 3.6% in the current year period. The increase in
operating income (loss) as a percentage of revenues was due to the
aforementioned increases in revenue as well as the decreases in cost of sales,
selling, general and administrative expenses, restructuring charge and goodwill
impairment charge as a percentage of revenues.
Interest income was $1.2 million in the nine-month period ended September 30,
1999 compared to $1.9 million in the nine-month period ended September 30, 2000.
This increase was primarily due to our higher average cash balance and higher
interest rates in the current year period as compared to the prior year period.
The provision (benefit) for income taxes for the nine-month periods ended
September 30, 2000 and September 30, 1999 reflect estimated Federal and state
income tax expense (benefit) at our estimated effective tax rate.
Net loss was $1.4 million or $0.11 per diluted share for the nine-month period
ended September 30, 1999 compared to net income of $3.6 million or $0.30 per
diluted share for the nine-month period ended September 30, 2000, with
approximately $0.01 per diluted share contribution in net income from the
acquisitions of Armand Scott and C2P.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2000, we had $40.9 million in net working capital, a
decrease of $9.2 million from December 31, 1999. Our primary sources of
liquidity as of September 30, 2000 consisted of cash and cash equivalents and
accounts receivable.
Our accounts receivable turnover averaged 80, 57 and 93 days for the
periods ended September 30, 2000, December 31, 1999 and December 31, 1998. The
allowance for doubtful accounts and credit memo reserves was $1.9 million at
September 30, 2000, $1.3 million at December 31, 1999 and $0.5 million at
December 31, 1998. The increase in accounts receivable turnover from December
31, 1999 to September 30, 2000 was due to more prepayments of accounts
receivable balances as of December 31, 1999.
During the nine months ended September 30, 2000, we generated $3.3 million
in cash from operating activities as compared to $13.1 million of cash generated
from operating activities during the same period
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in 1999. This change resulted primarily from the increase in accounts receivable
and a decrease in deferred revenue at September 30, 2000. We believe our ability
to generate cash flow from operations is inversely related to our revenue
growth. As such, during periods of revenue growth we will use cash, whereas
during periods of slow growth or decline we believe we will be able to generate
cash from operations.
During the nine months ended September 30, 2000, we used $9.7 million of
cash in investing activities which was comprised of $8.9 million of net cash
related to business acquisitions and $0.8 million used to purchase computer,
telephone and office equipment.
Financing activities during the nine-month period ended September 30, 2000
used $7.9 million of cash in the repurchase of our common stock. During the
nine-month period ended September 30, 2000, the Board of Directors authorized us
to repurchase an additional 1,000,000 shares of our common stock under the stock
repurchase program announced in 1999. This authorizes us to repurchase up to
2,000,000 of our common stock. We have repurchased 1,331,000 shares through
September 30, 2000 under the repurchase program.
NEW ACCOUNTING PRONOUNCEMENTS
The Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin
(SAB) No. 101 "Revenue Recognition", in December 1999. SAB No. 101 expresses the
views of the SEC staff in applying generally accepted accounting principles to
certain revenue recognition issues. In June 2000, the SEC issued SAB No. 101B to
defer the effective date of the implementation of SAB No. 101 until the fourth
quarter of fiscal 2000. Management has concluded that the implementation of this
SAB will not have a material impact on its financial position or its results of
operations.
In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivatives
and Hedging Activities," which establishes accounting and reporting standards of
derivative instruments. In July 1999, the FASB approved SFAS No. 137,
"Accounting for Derivative Instruments and Hedging Activities - Deferral of the
Effective Date of FASB Statement No. 133," and in June 2000 approved SFAS No.
138, "Accounting for Certain Derivative Instruments and Certain Hedging
Activities - an Amendment of FASB Statement No. 133," both of which amend SFAS
No. 133. The Company will be required to adopt SFAS No. 133 in fiscal 2001 in
accordance with SFAS No. 137. The adoption of this pronouncement is expected to
have no material impact on its financial position, results of operations or cash
flows.
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CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
Certain statements contained in this report, including statements regarding
the anticipated development of our business, the intent, belief or current
expectations of our Company, our directors or our officers, primarily with
respect to our business model and future operating performance of our business,
including expectations regarding the possible cost savings associated with our
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 future periods, the effects of loss of revenue and the magnitude and
timing of revenues from new and existing clients, and expectations regarding
business units within our business, 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 our services, our ability to secure
new contracts for our contract sales organization, acceptance of our new
services, difficulties inherent in locating acquisition candidates and
consummating acquisitions, and those risks and uncertainties contained under the
heading "Risk Factors" on page 6 of our Registration Statement on Form S-1 as
amended, as filed with the Securities and Exchange Commission.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
None.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings
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
in the United States District Court for the District of New Jersey (the
"Court"). 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. On November 22, 1999
an amended class action complaint was filed on behalf of five stockholders of
the Company containing substantially the same allegations. The suit seeks
unspecified damages. On September 18, 2000, the Court issued an order and
opinion on the motions to dismiss filed by various defendants in this lawsuit.
The Court granted the motions to dismiss with respect to claims asserted against
Roger D. Kafner, Jacqueline C. Morby, TA Investors, Ltd. Partnership, TA
Associates VII, L.P., TA Associates, Inc., TA Associates AAP III, Advent VII,
L.P., Advent Atlantic and Pacific III, L.P., Bear Stearns and Co., Inc. and
Smith Barney, Inc. The Court denied the motions to dismiss with respect to the
claims asserted against Boron LePore & Associates, Inc., Patrick G. LePore,
Gregory F. Boron, Timothy J. McIntyre and Martin Veilleux. The Company and the
remaining defendants intend to continue their vigorous defense of this action.
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
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.
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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 September 27, 2000 related to the stockholder
lawsuit.
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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 14, 2000 By: /s/ Patrick G. LePore
-------------------------------
Patrick G. LePore
Chief Executive Officer
and Chairman of the Board
(Principal Executive Officer)
Date: November 14, 2000 By: /s/ Anthony J. Cherichella
----------------------------------
Anthony J. Cherichella
Chief Financial Officer, Secretary and
Treasurer (Principal Financial and
Accounting Officer)
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EXHIBIT INDEX
Exhibit Number Description
-------------- -----------
27 Financial Data Schedule
