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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 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 AUGUST 8, 2000
----- -----------------------------
Common stock, par value $.01 share 12,094,301
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BORON, LEPORE & ASSOCIATES, INC.
INDEX
<TABLE>
<CAPTION>
Page
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<S> <C> <C>
PART I FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements:
Consolidated Balance Sheets at June 30, 2000 (unaudited) and December 31, 1999............ 3
Consolidated Statements of Operations for the Three Months Ended June 30, 2000
and 1999 (unaudited) and the Six Months Ended June 30, 2000 and 1999 (unaudited).......... 4
Consolidated Statements of Cash Flows for the Six Months Ended June 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................................................................................ 9-13
PART II OTHER INFORMATION
Item 1: Legal Proceedings......................................................................... 14
Item 2: Changes in Securities..................................................................... 14
Item 3: Defaults in Senior Securities............................................................. 14
Item 4: Submission of Matters to a Vote of Security Holders....................................... 15
Item 5: Other Information......................................................................... 15
Item 6: Exhibits and Reports on Form 8-K.......................................................... 15
(a) Exhibits
27 Financial Data Schedules
(b) Reports on Form 8-K
Signatures......................................................................................... 16
Exhibit Index
</TABLE>
2
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BORON, LEPORE & ASSOCIATES, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
------------ ----------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................................ $ 28,149 $ 44,631
Accounts receivable, net......................................... 36,312 27,567
Prepaid expense and other current assets......................... 4,602 1,387
-------- --------
Total current assets......................................... 69,063 73,585
Furniture, fixtures and equipment, at cost, net of accumulated
depreciation of $5,658 and $4,391 at June 30, 2000 and
December 31, 1999, respectively.................................. 6,702 7,397
Intangible assets, net............................................. 45,661 36,476
Other assets....................................................... 568 686
-------- --------
Total assets................................................. $121,994 $118,144
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................. $ 4,900 $ 3,568
Accrued payroll.................................................. 3,043 1,532
Accrued expenses................................................. 10,375 8,536
Deferred revenue................................................. 7,583 9,808
-------- --------
Total current liabilities.................................... 25,901 23,444
-------- --------
Other liabilities.................................................. 23 -
-------- --------
Commitments and contingencies - -
Stockholders' equity:
Common stock, $.01 par value, 50,000 shares authorized,
17,110 issued and 12,169 outstanding at June 30, 2000; 16,938
issued and 12,302 outstanding at December 31, 1999............. 171 169
Treasury stock at cost, 4,941 and 4,636 shares at June 30, 2000
and December 31, 1999, respectively............................ (29,456) (26,989)
Additional paid-in capital....................................... 120,250 118,789
Retained earnings................................................ 5,105 2,731
-------- --------
Total stockholders' equity................................... 96,070 94,700
-------- --------
Total liabilities and stockholders' equity................... $121,994 $118,144
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
3
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BORON, LEPORE & ASSOCIATES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
----------------------------- ---------------------------
2000 1999 2000 1999
----------- ----------- ---------- ---------
<S> <C> <C> <C> <C>
Revenues................................. $41,099 $38,568 $78,213 $72,417
Cost of sales............................ 29,724 28,265 57,177 53,248
------- ------- ------- -------
Gross profit........................ 11,375 10,303 21,036 19,169
------- ------- ------- -------
Selling, general and
administrative expenses.............. 9,782 10,067 18,363 20,440
Provision for restructuring............. - 1,700 - 1,700
Goodwill impairment charge.............. - - - 754
------- ------- ------- -------
Total expenses.................... 9,782 11,767 18,363 22,894
------- ------- ------- -------
Operating income (loss)................. 1,593 (1,464) 2,673 (3,725)
Interest income, net.................... 607 409 1,301 793
------- ------- ------- -------
Income (loss) before provision (benefit)
for income taxes...................... 2,200 (1,055) 3,974 (2,932)
Provision (benefit) for income taxes.... 890 (370) 1,600 (1,120)
------- ------- ------- -------
Net income (loss)....................... $ 1,310 $ (685) $ 2,374 $(1,812)
======= ======= ======= =======
Net income (loss) per common and common
equivalent share:
Basic................................ $0.11 $(0.05) $0.19 $(0.14)
======= ======= ======= =======
Diluted.............................. $0.11 $(0.05) $0.19 $(0.14)
======= ======= ======= =======
Weighted average number of common and
common equivalent shares:
Basic................................ 12,172 12,699 12,236 12,699
======= ======= ======= =======
Diluted.............................. 12,291 12,699 12,383 12,699
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
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BORON, LEPORE & ASSOCIATES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
--------------------------------------
2000 1999
----------------- ---------------
<S> <C> <C>
Cash Flows From Operating Activities:
Net income (loss)....................................................... $ 2,374 $(1,812)
Adjustments to reconcile net income (loss) to net cash
(used in) provided by operating activities:
Depreciation and amortization......................................... 2,155 1,938
Provision for doubtful accounts and credit memo reserves.............. 152 570
Provision for restructuring........................................... -- 1,700
Goodwill impairment charge............................................ -- 754
Deferred income taxes................................................. (100) (300)
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable.......................... (3,998) 922
Increase in prepaid expenses and other assets....................... (1,675) (2,945)
Decrease in other assets............................................ 58 119
Increase in accounts payable and accrued expenses................... 1,948 2,471
Decrease in deferred revenue........................................ (5,785) (631)
Increase in other liabilities....................................... 23 --
-------- -------
Net cash (used in) provided by operating activities............... (4,848) 2,786
-------- -------
Cash Flows From Investing Activities:
Purchases of furniture, fixtures and equipment....................... (338) (1,441)
Business acquisitions, net of acquired cash........................... (8,829) --
Business acquisitions, contingent consideration....................... -- (6,100)
-------- -------
Net cash used in investing activities............................. (9,167) (7,541)
-------- -------
Cash Flows From Financing Activities:
Purchase of treasury stock............................................ (2,467) --
Proceeds from the exercise of stock options........................... -- 114
-------- -------
Net cash (used in) provided by financing activities............... (2,467) 114
-------- -------
Decrease in cash and cash equivalents............................. (16,482) (4,641)
Cash and cash equivalents, beginning of period............................. 44,631 36,924
-------- -------
Cash and cash equivalents, end of period................................... $ 28,149 $32,283
======== =======
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Interest.............................................................. $ 24 $ --
Taxes................................................................. $ 1,466 $ 1,471
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
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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 Six months ended
June 30, June 30,
---------------------------------- -----------------------------------
2000 1999 2000 1999
------------- --------------- -------------- ----------------
<S> <C> <C> <C> <C>
Numerator:
Net Income (Loss) - Diluted.................. $ 1,310 $ (685) $ 2,374 $(1,812)
======= ======= ======= =======
Net Income (Loss) - Basic.................... $ 1,310 $ (685) $ 2,374 $(1,812)
======= ======= ======= =======
Denominator:
Weighted average shares outstanding - Basic.. 12,172 12,699 12,236 12,699
Incremental shares from assumed conversions
of options................................. 119 -- 147 --
------- ------- ------- -------
Weighted average shares outstanding - Diluted 12,291 12,699 12,383 12,699
======= ======= ======= =======
Earnings (loss) per share - Basic.............. $ 0.11 $ (0.05) $ 0.19 $ (0.14)
======= ======= ======= =======
Earnings (loss) per share - Diluted............ $ 0.11 $ (0.05) $ 0.19 $ (0.14)
======= ======= ======= =======
</TABLE>
6
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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 June 30, 2000 and March 31, 2000, the actual
cash payments and charges related to these restructurings amounted to
approximately $633, $492 and $407, respectively. The remaining balance of the
combined restructuring reserves at June 30, 2000 was approximately $1,388.
(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 $2,100. 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., 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 $8,200.
7
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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 Six Months
Ended June 30, Ended June 30,
2000 1999 2000 1999
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues:
Marketing and educational services......... $ 22,098 $ 18,974 $ 40,389 $ 36,376
Field sales force logistics services....... 17,712 13,961 33,656 23,304
Contract sales services and other.......... 1,289 5,633 4,168 12,737
--------- --------- --------- ---------
Total revenues......................... $ 41,099 $ 38,568 $ 78,213 $ 72,417
========= ========= ========= =========
</TABLE>
8
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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 which was renewed 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 subject to 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.
During the six months ended June 2000, a contract sales service contract
was terminated. During 1999 and for the six month period ended June 30, 2000,
such contract represented $15.4 million or 10.3% and $3.5 million or 4.5% of our
revenues, respectively.
9
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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 Six months ended
June 30, June 30,
-------------------------- ---------------------------
2000 1999 2000 1999
-------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues....................................... 100.0% 100.0 % 100.0% 100.0 %
Cost of sales.................................. 72.3 73.3 73.1 73.5
----- ----- ----- -----
Gross profit................................... 27.7 26.7 26.9 26.5
----- ----- ----- -----
Selling, general and administrative expenses... 23.8 26.1 23.5 28.2
Provision for restructuring.................... -- 4.4 -- 2.3
Goodwill impairment charge..................... -- -- -- 1.1
----- ----- ----- -----
Total expenses............................ 23.8 30.5 23.5 31.6
----- ----- ----- -----
Operating income (loss)........................ 3.9 (3.8) 3.4 (5.1)
Interest income, net........................... 1.5 1.1 1.7 1.1
----- ----- ----- -----
Income (loss) before provision (benefit)
for income taxes............................ 5.4 (2.7) 5.1 (4.0)
Provision (benefit) for income taxes........... 2.2 (0.9) 2.1 (1.5)
----- ----- ----- -----
Net income (loss).............................. 3.2% (1.8)% 3.0% (2.5)%
===== ===== ===== =====
</TABLE>
THREE MONTHS ENDED JUNE 30, 2000 COMPARED TO THE THREE MONTHS ENDED JUNE 30,
1999
Revenues increased $2.5 million, or 7%, from $38.6 million in the three-month
period ended June 30, 1999 to $41.1 million in the three-month period ended June
30, 2000. This growth primarily resulted from a $3.8 million increase in field
sales force logistics services revenue and an increase of $3.1 million in
marketing and educational services revenue (with approximately $2.0 million of
the increase a result of the acquisition of C2P), offset by a $4.4 million
decrease in contract sales services revenue.
Cost of sales increased $1.4 million, or 5%, from $28.3 million in the three-
month period ended June 30, 1999 to $29.7 million in the three-month period
ended June 30, 2000. Cost of sales as a percentage of revenues decreased from
73.3% in the prior year period to 72.3% 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
10
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and educational services 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 $0.3 million, or 3%, from
$10.1 million in the three-month period ended June 30, 1999 to $9.8 million in
the three-month period ended June 30, 2000. This decrease was primarily due to
the reduction in other operating costs of approximately $0.7 million offset by
an additional $0.4 million of additional expenses related to C2P that were not
reflected in the 1999 amounts. Selling, general and administrative expenses
decreased as a percentage of revenues from 26.1% in the prior year period to
23.8% in the current year period. This percentage decrease was primarily the
result of the aforementioned improved operational efficiencies as a result of
the 1999 restructuring plans.
During the three-month period ended June 30, 1999, we initiated a restructuring
plan, which involved a 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 three-month period ended June 30, 1999. As a
percentage of revenues, this charge represented 4.4% of revenues for the three-
month period ended June 30, 1999.
Operating income (loss) increased $3.1 million, or 209%, from a loss of $1.5
million in the three-month period ended June 30, 1999 to income of $1.6 million
in the three-month period ended June 30, 2000. Operating income (loss) as a
percentage of revenues increased from a loss of 3.8% in the prior year period to
income of 3.9% in the current year period. The increase in operating income
(loss) as a percentage of revenues was due to the aforementioned decreases in
cost of sales, selling, general and administrative expenses and restructuring
charge as a percentage of revenues.
Interest income was $0.4 million in the three-month period ended June 30, 1999
compared to $0.6 million in the three-month period ended June 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 (benefit) for income taxes for the three-month periods ended June
30, 2000 and June 30, 1999 reflect estimated Federal and state income tax
expense (benefit) at our estimated effective tax rate.
SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 1999
Revenues increased $5.8 million, or 8%, from $72.4 million in the six-month
period ended June 30, 1999 to $78.2 million in the six-month period ended June
30, 2000. This growth primarily resulted from an increase of $10.4 million in
field force logistics services revenue and an increase of $4.0 million in
marketing and educational services revenue (with approximately $2.0 million of
the increase a result of the acquisition of C2P), offset by a $8.6 million
decrease in contract sales services revenue.
Cost of sales increased $3.9 million, or 7%, from $53.2 million in the six-month
period ended June 30, 1999 to $57.2 million in the six-month period ended June
30, 2000. Cost of sales as a percentage of revenues decreased from 73.5% in the
prior year period to 73.1% 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. 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 $2.1 million, or 10%,
from $20.4 million in the six-month period ended June 30, 1999 to $18.4 million
in the six-month period ended June 30, 2000. This decrease was due to the cost
of personnel reductions of approximately $0.9 million, a decrease in bad debts
of approximately $0.4 million and a decrease in other operating costs of
approximately $0.8 million,
11
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partially offset by approximately $0.4 million of operating expenses for C2P
reflected in the June 30, 2000 amounts. Selling, general and administrative
expenses decreased as a percentage of revenues from 28.2% in the prior year
period to 23.5% 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 six-month period ended June 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 six-month period ended
June 30, 1999. As a percentage of revenues, this charge represented 1.1% of the
revenues for the six-month period ended June 30, 1999.
During the six-month period ended June 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 six-month period ended June 30, 1999. As a
percentage of revenues, this charge represented 2.3% of revenues for the six-
month period ended June 30,1999.
Operating income (loss) increased $6.4 million, or 172%, from a loss of $3.7
million in the six-month period ended June 30, 1999 to income of $2.7 million in
the six-month period ended June 30, 2000. Operating income (loss) as a
percentage of revenues increased from a loss of 5.1% in the prior year period to
income of 3.4% in the current year period. The increase in operating income
(loss) as a percentage of revenues was due to the aforementioned decreases in
cost of sales, selling, general and administrative expenses, restructuring
charge and goodwill impairment charge as a percentage of revenues.
Interest income was $0.8 million in the six-month period ended June 30, 1999
compared to $1.3 million in the six-month period ended June 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 six-month periods ended June
30, 2000 and June 30, 1999 reflect estimated Federal and state income tax
expense (benefit) at our estimated effective tax rate.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 2000, we had $43.2 million in net working capital, a decrease
of $7.0 million from December 31, 1999. Our primary sources of liquidity as of
June 30, 2000 consisted of cash and cash equivalents and accounts receivable.
Our accounts receivable turnover averaged 74, 57 and 93 days for the
periods ended June 30, 2000, December 31, 1999 and December 31, 1998. The
allowance for doubtful accounts was $1.5 million at June 30, 2000, $1.3 million
at December 31, 1999 and $0.5 million at December 31, 1998. The increase from
December 31, 1999 to June 30, 2000 was due to more prepayments of accounts
receivable balances as of December 31, 1999.
During the six months ended June 30, 2000, we used $4.9 million in
operating activities as compared to $2.8 million generated from operating
activities during the same period in 1999. This change resulted primarily from
the increase in accounts receivable and a decrease in deferred revenue at June
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 six months ended June 30, 2000, we used $9.2 million of cash in
investing activities which was comprised of $8.8 million of cash related to
business acquisitions and $0.4 million used to purchase computer, telephone and
office equipment.
Financing activities during the six-month period ended June 30, 2000 used
$2.5 million of cash in the repurchase of our common stock. During the six-month
period ended June 30, 2000, the Board of
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Directors authorized us to repurchase an additional 500,000 shares of our common
stock under the stock repurchase program announced in 1999. This authorizes us
to repurchase up to 1,500,000 of our common stock through December 31, 2000. We
have repurchased 732,500 shares through June 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.
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 2000, 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
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, senior officer and
director of the Company, and Gregory F. Boron, 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.
On June 8, 2000, all of the parties to this action entered into a settlement
agreement pursuant to which Thomas Boron dismissed, with prejudice all of his
claims against the Company and the current and former officers and directors of
the Company. In addition, the Company and the current and former officers and
directors dismissed, with prejudice, their claims against Thomas S. Boron. No
payments were made by any parties under the settlement agreement.
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 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 February 17, 2000, the Company filed a motion to dismiss all claims
asserted against it and its officers and directors. The motion to dismiss
remains pending before the court and the Company is not in a position to make
any estimates regarding the probable outcome of the case. The Company intends to
vigorously defend the lawsuit.
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
(c ) In June 2000, pursuant to an Asset Purchase Agreement with Armand Scott,
Inc. ("AS"), the Company issued 172,167 shares of its Common Stock to AS
along with $7.5 million in exchange for substantially all of the assets of
AS, in reliance upon the exemption from registration under Section 4 (2) of
the Securities Act.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its 2000 Annual Meeting of Stockholders on May 22, 2000.
At the meeting, the following directors were elected to serve until the 2003
Annual Meeting.
Vote For Vote Withheld
-------- -------------
Patrick G. LePore 10,819,279 31,309
Roger Boissonneault 10,819,379 31,209
ITEM 5. OTHER INFORMATION
Not applicable.
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 June 1, 2000 and amended July 31, 2000, relating to the
acquisition of C2P.
Form 8-K filed July 13, 2000, relating to the acquisition of Armand
Scott, Inc.
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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: August 14, 2000 By: /s/ Patrick G. LePore
--------------------------
Patrick G. LePore
Chief Executive Officer
and Chairman of the Board
(Principal Executive Officer)
Date: August 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
17
