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, 2001
--------------------------------------------
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.)
1800 VALLEY ROAD, WAYNE NEW JERSEY 07470
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (973) 709-3000
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 06, 2001
----- ------------------------------
Common stock, par value $.01 share 11,422,893
1
INDEX
Page
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PART I FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements:
Consolidated Balance Sheets at June 30, 2001 (unaudited) and December 31, 2000.............................. 3
Consolidated Statements of Income for the Three Months Ended June 30, 2001 and 2000 (unaudited) and the
Six Months Ended June 30, 2001 and 2000 (unaudited)......................................................... 4
Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2001 and 2000
(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
Item 3. Quantitative and Qualitative Disclosures About Market Risk
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............................................. 16
Item 5: Other Information............................................................................... 16
Item 6: Exhibits and Reports on Form 8-K
(a) Exhibits 16
(b) Reports on Form 8-K 16
Signatures.................................................................................................. 17
2
BORON, LEPORE & ASSOCIATES, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
June 30, December 31,
2001 2000
------------------- ----------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents.............................................. $ 7,544 $ 22,063
Short-term investments................................................. 2,032 --
Accounts receivable, net............................................... 53,394 42,402
Prepaid expense and other current assets............................... 3,224 3,866
-------- --------
Total current assets................................................. 66,194 68,331
Furniture, fixtures and equipment, at cost, net of accumulated
depreciation of $7,426 and $6,210 at June 30, 2001 and
December 31, 2000, respectively.......................................... 10,585 8,221
Intangible assets, net................................................... 52,311 43,620
Other assets............................................................. 837 530
-------- --------
Total assets......................................................... $129,927 $120,702
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable...................................................... $ 4,367 $ 6,112
Accrued payroll....................................................... 4,207 2,770
Accrued expenses...................................................... 17,573 9,014
Deferred revenue...................................................... 8,254 12,448
-------- --------
Total current liabilities........................................... 34,401 30,344
-------- --------
Other liabilities...................................................... 503 196
-------- --------
Commitments and contingencies -- --
Stockholders' equity:
Common stock, $.01 par value, 50,000 shares authorized, 17,350
issued and 11,428 outstanding at June 30, 2001; 17,185 issued
and 11,245 outstanding at December 31, 2000.......................... 174 172
Treasury stock at cost, 5,922 and 5,940 shares at June 30, 2001
and December 31, 2000, respectively.................................. (38,840) (38,958)
Deferred compensation................................................ (251) --
Additional paid-in capital........................................... 122,466 120,774
Retained earnings.................................................... 11,474 8,174
-------- --------
Total stockholders' equity......................................... 95,023 90,162
-------- --------
Total liabilities and stockholders' equity......................... $129,927 $120,702
======== ========
The accompanying notes are an integral part of these consolidated balance
sheets.
3
BORON, LEPORE & ASSOCIATES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)
Three months ended Six months ended
June 30, June 30,
----------------------------------------- ----------------------------------------
2001 2000 2001 2000
------------------ ----------------- ----------------- -----------------
Revenues................................. $53,327 $41,099 $99,394 $78,213
Cost of sales............................ 37,196 29,724 69,230 57,177
------- ------- ------- -------
Gross profit........................... 16,131 11,375 30,164 21,036
------- ------- ------- -------
Selling, general and administrative
expenses................................ 12,990 9,782 25,015 18,363
Loss on disposal of fixed assets........ 144 -- 144 --
------- ------- ------- -------
Total expenses........................ 13,134 9,782 25,159 18,363
------- ------- ------- -------
Operating income........................ 2,997 1,593 5,005 2,673
Interest income, net.................... 189 607 496 1,301
------- ------- ------- -------
Income before provision for income
taxes................................... 3,186 2,200 5,501 3,974
Provision for income taxes.............. 1,275 890 2,201 1,600
------- ------- ------- -------
Net income.............................. $ 1,911 $ 1,310 $ 3,300 $ 2,374
======= ======= ======= =======
Net income per common and common
equivalent share:
Basic.................................. $0.17 $0.11 $0.29 $0.19
======= ======= ======= =======
Diluted................................ $0.16 $0.11 $0.28 $0.19
======= ======= ======= =======
Weighted average number of common and
common equivalent shares:
Basic................................... 11,404 12,172 11,366 12,236
======= ======= ======= =======
Diluted................................ 12,074 12,291 12,005 12,383
======= ======= ======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
4
BORON, LEPORE & ASSOCIATES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Six Months Ended
June 30,
---------------------------------------
2001 2000
------------------ ---------------
Cash Flows From Operating Activities:
Net income................................................................. $ 3,300 $ 2,374
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization............................................ 2,946 2,155
Provision for doubtful accounts and credit memo reserves................. 170 152
Non-cash compensation.................................................... 8 --
Loss on disposal of fixed assets......................................... 144 --
Deferred income taxes.................................................... -- (100)
Changes in operating asset and liabilities:
Increase in accounts receivable........................................ (11,474) (3,998)
Decrease (increase) in prepaid expenses and other current assets....... 642 (1,675)
(Increase) decrease in other assets.................................... (307) 58
Increase in accounts payable and accrued expenses...................... 998 1,948
Decrease in deferred revenue........................................... (4,194) (5,785)
Increase in other liabilities.......................................... 306 23
-------- --------
Net cash used in operating activities............................... (7,461) (4,848)
-------- --------
Cash Flows From Investing Activities:
Purchases of furniture, fixtures and equipment............................ (4,096) (338)
Business acquisitions, net of acquired cash............................... (2,484) (8,829)
Increase in short-term investments........................................ (2,032) --
-------- --------
Net cash used in investing activities................................... (8,612) (9,167)
-------- --------
Cash Flows From Financing Activities:
Purchase of treasury stock................................................ -- (2,467)
Proceeds from the exercise of stock options............................... 1,554 --
-------- --------
Net cash provided by (used in) financing activities.................. 1,554 (2,467)
-------- --------
Decrease in cash and cash equivalents................................ (14,519) (16,482)
Cash and cash equivalents, beginning of period............................ 22,063 44,631
-------- --------
Cash and cash equivalents, end of period.................................. $ 7,544 $ 28,149
======== ========
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Interest..................................................................... $ -- $ 24
Taxes........................................................................ $ 2,744 $ 1,466
The accompanying notes are an integral part of these consolidated financial
statements.
5
(1) DESCRIPTION OF THE BUSINESS AND BASIS OF PRESENTATION:
Boron, LePore & Associates, Inc. (the ''Company'') provides integrated medical
education 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 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 PER SHARE:
The following table reconciles net income and share amounts used to calculate
basic earnings per share and diluted earnings per share.
Three months ended Six months ended
June 30, June 30,
------------------------------------ -------------------------------------
2001 2000 2001 2000
--------------- ---------------- ---------------- ----------------
Numerator:
Net Income - Diluted....................... $ 1,911 $ 1,310 $ 3,300 $ 2,374
======= ======= ======= =======
Net Income - Basic......................... $ 1,911 $ 1,310 $ 3,300 $ 2,374
======= ======= ======= =======
Denominator:
Weighted average shares outstanding - Basic 11,404 12,172 11,366 12,236
Incremental shares from assumed conversions
of options................................. 670 119 639 147
------- ------- ------- -------
Weighted average shares outstanding - Diluted 12,074 12,291 12,005 12,383
======= ======= ======= =======
Earnings per share - Basic................. $ 0.17 $ 0.11 $ 0.29 $ 0.19
======= ======= ======= =======
Earnings per share - Diluted............... $ 0.16 $ 0.11 $ 0.28 $ 0.19
======= ======= ======= =======
6
(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. The activity impacting the accrual for
restructuring and other severance during the six months ended June 30, 2001 is
summarized in the following table:
Balance at Charges Balance at
December 31, Utilized in June 30,
(in thousands) 2000 2001 2001
-------------------------------------------------------------------------------------------------
Workforce reductions and transition............... $ 87 $ (83) $ 4
Idle facilities................................... 16 (16) --
Disposition of assets............................. 615 (105) 518
Other............................................. 9 -- 9
----------- --------- -----------
Total $ 727 $(196) $ 531
=========== ========= ===========
(4) ACQUISITIONS:
On April 30, 2001, the Company purchased substantially all of the assets and
assumed certain liabilities of Medical Media Communications, Inc. ("MMC"), an
Illinois Corporation. The purchase price was $2,625 in cash. In addition, the
Company may be required to pay up to an additional $3,150 in contingent cash
payments based on the achievement of certain operating goals of the acquired
business during the two-year period subsequent to the date of the acquisition.
The acquisition has been accounted for using the purchase method of accounting.
The excess of the purchase price over the fair market value of the acquired
assets was allocated to goodwill and non-compete agreements. In accordance with
Statement of Financial Accounting Standards No. 142 "Goodwill and Other
Intangibles Assets," ("FAS 142"), the goodwill related to this acquisition will
be amortized over a 15 year period through December 31, 2001, at which time, as
permitted by FAS 142, amortization expense related to goodwill will no longer be
recognized and the asset will be periodically tested for impairment. All
amounts allocated to non-compete agreements will be amortized over a period of
five years. MMC is based in Chicago, Illinois and provides accredited and non-
accredited medical education services. Accordingly, all revenues generated from
MMC will be included in "Medical and Education Services" revenues.
7
(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.
For the Three Months For the Six Months
Ended June 30, Ended June 30,
2001 2000 2001 2000
------- ------- ------- -------
Revenues:
Medical and education services........... $41,354 $22,098 $76,886 $40,389
Sales services........................... 11,973 19,001 22,508 37,824
------- ------- ------- -------
Total revenues......................... $53,327 $41,099 $99,394 $78,213
======= ======= ======= =======
In 2001, the Company changed the classification of its revenues due to the
development of new product offerings and merging markets. "Contract Sales
Services" and "Field Sales Force Logistics" have been combined and disclosed as
"Sales Services." Management believes this new classification provides the most
useful and relevant measurements to evaluate its business.
(6) SUBSEQUENT EVENTS:
In July 2001, the Company paid $2,000 in cash based on the achievement of
certain operating goals during the twelve-month period subsequent to the date of
acquisition of Consumer2Patient, Inc.
8
BORON, LEPORE & ASSOCIATES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Boron, LePore & Associates, Inc. (the "Company") provides integrated medical
education and sales services to the healthcare industry. 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.
Our objective is to enhance our position as a leading provider of medical
communications programs, continue to expand our educational services,
particularly content development and delivery, 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 in order to continue
to offer integrated solutions that include promotional, educational, and sales
services, including a variety of internet-based solutions related to these
services are to; (i) increase business with existing customers; (ii) obtain new
customers; (iii) target new audiences; and (iv) pursue strategic acquisitions.
We believe that the increase in business with existing customers and the
addition of new customers reflect increased recognition of medical
communications programs as an effective promotional technique and increased
levels of marketing and educational spending in the pharmaceutical industry.
Our portfolio of services includes traditional peer-to-peer meetings,
teleconferences, satellite conferences, visiting faculty meetings, promotional
and educational content development, symposia, web casts and various other
internet based solutions, as well as, our field sales force logistics services
and contract sales services. The continued expansion of these services resulted
primarily from (i) the fiscal 2000 acquisitions of Consumer2Patient, Inc.,
Physician to Physician, LLC, and Alternative Media Solutions (collectively
"Consumer2Patient"), which provides patient, consumer and physician education,
and Armand Scott, Inc., ("Armand Scott"), which creates, designs, develops,
implements and monitors medical education programs and services for
pharmaceutical, medical device and biotechnology companies and (ii) the fiscal
2001 acquisition of Medical Media Communications, Inc. ("MMC"), which produces
multi-sponsored medical education programs.
In December 2000, we signed a three-year renewal of a field sales force
logistics contract, which runs through 2003, with a large pharmaceutical
company. The new contract replaces an agreement which was set to expire in
2001. As in the past, the renewed contract provides for a fixed fee component
and a fee for service component, which is dependant upon the amount of service
provided.
Certain of our services, particularly symposia and field sales force
logistics, have lower gross margin percentages than our traditional peer-to-peer
meeting business, while other services, particularly educational conferencing
and medical education content development, have higher gross margin percentages
than our traditional peer-to-peer meeting business. As such, the mix of
business generated from individual services could impact our operating profit
percentage.
9
RESULTS OF OPERATIONS
The following table sets forth as a percentage of revenues certain items
reflected in our Statements of Income for the periods indicated.
Three months ended Six months ended
June 30, June 30,
--------------------------------- ---------------------------------
2001 2000 2001 2000
------------ ------------- ------------- -------------
Revenues..................................... 100.0% 100.0% 100.0% 100.0%
Cost of sales................................ 69.8 72.3 69.7 73.1
------------ ------------- ------------- -------------
Gross profit................................ 30.2 27.7 30.3 26.9
------------ ------------- ------------- -------------
Selling, general and administrative
expenses.................................... 24.4 23.8 25.2 23.5
Loss on disposal of fixed assets............ 0.2 -- 0.1 --
------------ ------------- ------------- -------------
Total expenses.......................... 24.6 23.8 25.3 23.5
------------ ------------- ------------- -------------
Operating income............................ 5.6 3.9 5.0 3.4
Interest income, net........................ 0.4 1.5 0.5 1.7
------------ ------------- ------------- -------------
Income before provision for income taxes.... 6.0 5.4 5.5 5.1
Provision for income taxes.................. 2.4 2.2 2.2 2.1
------------ ------------- ------------- -------------
Net income.................................. 3.6% 3.2% 3.3% 3.0%
============ ============= ============= =============
THREE MONTHS ENDED JUNE 30, 2001 COMPARED TO THE THREE MONTHS ENDED JUNE 30,
2000
Revenues increased $12.2 million, or 30%, from $41.1 million in the three-
month period ended June 30, 2000 to $53.3 million in the three-month period
ended June 30, 2001. This growth primarily resulted from a $19.2 million
increase in medical and education services revenue, of which $8.4 million of the
increase was generated from the acquisitions of Consumer2Patient and Armand
Scott in 2000 and $0.9 million of the increase a result of the acquisition of
MMC. The increase in medical and education services revenue is offset by a $7.0
million decrease in sales services revenue, which includes our field sales force
logistics and contract sales service business. The decrease was primarily due
to a lower volume of programs performed by our field sales force logistics
services in the three-month period ended June 30, 2001 when compared to the
three-month period ended June 30, 2000. Additionally, our contract sales
service business was de-emphasized at the beginning of 2000 and accounted for
approximately $1.3 million of revenue in the second quarter of 2000.
Cost of sales increased $7.5 million, or 25%, from $29.7 million in the
three-month period ended June 30, 2000 to $37.2 million in the three-month
period ended June 30, 2001. Cost of sales as a percentage of revenues decreased
from 72.3% in the prior year period to 69.8% in the current year period. The
decrease in cost of sales as a percentage of revenues was primarily due to the
increased proportion of medical and education services revenue, which has a
higher average gross profit than our field sales force logistics service
revenue. The higher gross profit on our medical and education services revenue
is due to the lower proportion of production costs, which are passed through to
the customer with no markup.
Selling, general and administrative expenses increased $3.2 million, or 33%,
from $9.8 million in the three-month period ended June 30, 2000 to $13.0 million
in the three-month period ended June 30, 2001. This increase was primarily due
to increased personnel related costs of approximately $2.5 million, of which
$1.2 million related to the employees of acquired companies, $0.3 million of
operating expenses for Consumer2Patient, Armand Scott and MMC that were not
reflected in the 2000 amounts, and an increase of approximately $0.4 of
depreciation and amortization. Selling, general and administrative expenses
increased as a percentage of revenues from 23.8% in the prior year period to
24.4% in the current year period. This percentage increase was primarily the
result of the aforementioned operational costs incurred to support our
acquisitions and revenue growth.
10
Loss on disposal of fixed assets was $0.1 million in the three-month period
ended June 30, 2001 and related primarily to the disposition of computer
equipment.
Operating income increased $1.4 million, or 88%, from $1.6 million in the
three-month period ended June 30, 2000 to $3.0 million in the three-month period
ended June 30, 2001. The increase in operating income is the result of our
organic revenue growth and the revenue contributed by our acquisitions.
Operating income as a percentage of revenues increased from 3.9% in the prior
year period to 5.6% in the current year period. The increase in operating income
as a percentage of revenues was due to the aforementioned decrease in cost of
sales as a percentage of revenue, partially offset by the increase in selling,
general and administrative expenses.
Interest income was $0.6 million in the three-month period ended June 30,
2000 compared to $0.2 million in the three-month period ended June 30, 2001.
This decrease in interest income was primarily due to our lower average cash
balance, as a result of cash used for acquisitions and lower interest rates in
the current year period as compared to the prior year period.
The provision for income taxes for the three-month period ended June 30,
2001 and June 30, 2000 reflect estimated Federal and state income tax expense at
our estimated effective tax rate.
SIX MONTHS ENDED JUNE 30, 2001 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 2000
Revenues increased $21.2 million, or 27%, from $78.2 million in the six-
month period ended June 30, 2000 to $99.4 million in the six-month period ended
June 30, 2001. This growth primarily resulted from a $36.5 million increase in
medical and education services revenue, of which approximately $21.8 million was
generated from the acquisitions of Consumer2Patient and Armand Scott and
$0.9 million of the increase, a result of the acquisition of MMC. The increase
in medical and education services revenue is offset by a $15.3 million decrease
in sales services revenue, which includes our field sales force logistics and
contract sales service business. The decrease in sales service revenue was
primarily due to a lower volume of programs performed by our field sales force
logistics services in the six-month period ended June 30, 2001 when compared to
the six-month period ended June 30, 2000. Additionally, our contract sales
service business was de-emphasized at the beginning of 2000 and accounted for
approximately $3.5 million of revenue in the first six months of 2000.
Cost of sales increased $12.0 million, or 21%, from $57.2 million in the
six-month period ended June 30, 2000 to $69.2 million in the six-month period
ended June 30, 2001. Cost of sales as a percentage of revenues decreased from
73.1% in the prior year period to 69.7% in the current year period. The decrease
in cost of sales as a percentage of revenues was primarily due to the increased
proportion of medical and education services revenue, which has a higher average
gross profit than our field sales force logistics service revenue. The higher
gross profit on our medical education services revenue is due to the lower
proportion of production costs, which are passed through to the customer with no
markup.
Selling, general and administrative expenses increased $6.6 million, or
36%, from $18.4 million in the six-month period ended June 30, 2000 to
$25.0 million in the six-month period ended June 30, 2001. This increase was
primarily due to increased personnel related costs of approximately
$4.3 million, of which $2.4 million related to the employees of acquired
companies, $0.9 million of operating expenses for Consumer2Patient, Armand Scott
and MMC that were not reflected in the 2000 amounts, an increase of
approximately $0.8 of depreciation and amortization, and approximately
$0.4 million in increased rent and certain costs incurred as a result of moving
corporate headquarters to a new facility. Selling, general and administrative
expenses increased as a percentage of revenues from 23.5% in the prior year
period to 25.2% in the current year period. This percentage increase was
primarily the result of the aforementioned operational costs incurred to support
our acquisitions and revenue growth.
11
Loss on disposal of fixed assets was $0.1 million in the six-month period
ended June 30, 2001 and related primarily to the disposition of computer
equipment.
Operating income increased $2.3 million, or 85%, from $2.7 million in the
six-month period ended June 30, 2000 to $5.0 million in the six-month period
ended June 30, 2001. The increase in operating income is the result of our
organic revenue growth and the revenue contributed by our acquisitions.
Operating income as a percentage of revenues increased from 3.4% in the prior
year period to 5.0% in the current year period. The increase in operating
income as a percentage of revenues was due to the aforementioned decrease in
cost of sales as a percentage of revenue, partially offset by the increase in
selling, general and administrative expenses.
Interest income was $1.3 million in the six-month period ended June 30, 2000
compared to $0.5 million in the six-month period ended June 30, 2001. This
decrease in interest income was primarily due to our lower average cash balance,
as a result of cash used for acquisitions and lower interest rates in the
current year period as compared to the prior year period.
The provision for income taxes for the six-month periods ended June 30, 2001
and June 30, 2000 reflect estimated Federal and state income tax expense at our
estimated effective tax rate.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 2001, we had $31.8 million in net working capital, a decrease of
$5.3 million from December 31, 2000. Our primary sources of liquidity as of
June 30, 2001 consisted of cash and cash equivalents, short-term investments and
accounts receivable.
Our accounts receivable turnover averaged 90, 76 and 57 days for the periods
ended June 30, 2001, December 31, 2000 and December 31, 1999. The increase in
accounts receivable turnover from December 31, 2000 to June 30, 2001 was due to
increased sales and additional revenue recognized for service provided, but
unbilled due to the terms of certain contracts fulfilled during the six months
ended June 30, 2001. The allowance for doubtful accounts was $1.1 million at
June 30, 2001, $1.3 million at December 31, 2000 and $1.3 million at December
31, 1999. The decrease in this reserve is the result of write-offs of past due
accounts receivable balances.
During the six months ended June 30, 2001, we used $7.5 million in operating
activities as compared to $4.9 million during the same period in 2000. In 2001,
the use of operating cash resulted primarily from higher accounts receivable and
lower deferred revenue, due to increased sales and less up front billings to our
customers. These amounts are partially offset by net income, higher
depreciation and amortization, and an increase in accounts payable and accrued
expense balances at June 30, 2001. We believe our cash flow from ongoing
operations will be sufficient to meet future obligations related to our
operating activities.
During the six months ended June 30, 2001, we used $8.6 million of cash in
investing activities which was comprised of $2.5 million of cash related to the
acquisition of MMC, $4.1 million used to purchase computer, telephone and office
equipment, and 2.0 million of cash to purchase a short term investment which
matures in November 2001.
Financing activities during the six-month period ended June 30, 2001 generated
$1.6 million of cash through the exercise of stock options as compared to the
use of $2.5 million of cash for the repurchase of common stock during the same
period last year. We did not repurchase any shares of common stock during the
six months ended June 30, 2001.
12
NEW ACCOUNTING PRONOUNCEMENTS
During June 2001, the Financial Accounting Standards Board ("FASB") issued
Statements of Financial Accounting Standards ("SFAS") No. 141, "Business
Combinations" and No. 142, "Goodwill and Other Intangible Assets". SFAS No. 141
changes the accounting for business combinations, requiring that all business
combinations be accounted for using the purchase method and that intangible
assets be recognized as assets apart from goodwill if they arise from
contractual or other legal rights, or if they are separable or capable of being
separated from the acquired entity and sold, transferred, licensed, rented or
exchanged. SFAS No. 141 is effective for all business combinations initiated
after June 30, 2001. SFAS No. 142 specifies the financial accounting and
reporting for acquired goodwill and other intangible assets. Goodwill and
intangible assets that have indefinite useful lives will not be amortized but
rather will be tested at least annually for impairment. SFAS No. 142 is
effective for fiscal years beginning after December 15, 2001.
SFAS No. 142 requires that the useful lives of intangible assets acquired on
or before June 30, 2001 be reassessed and the remaining amortization periods
adjusted accordingly. Previously recognized intangible assets deemed to have
indefinite lives will be tested for impairment. Goodwill recognized on or
before June 30, 2001, shall be assigned to one or more reporting units and will
be tested for impairment as of the beginning of the fiscal year in which SFAS
No. 142 is initially applied in its entirety.
The Company has not fully assessed the potential impact of the adoption of
SFAS No. 142, which is effective for the Company as of January 1, 2002. The
reassessment of intangible assets must be completed during the first quarter of
2002 and the assignment of goodwill to reporting units, along with completion of
the first step of the transitional goodwill impairment tests, must be completed
during the first six months of 2002. Total amortization of intangible assets
and goodwill for the six months ended June 30, 2001 and for the year ended
December 31, 2000 was $6,738 and $5,232, respectively.
In March 2000, the FASB issued Interpretation No. 44, "Accounting for Certain
Transactions Involving Stock Compensation--An Interpretation of APB Opinion No.
25". The interpretation clarifies the application of APB Opinion No. 25 in
specified events. The interpretation became effective July 1, 2000, but covers
certain events occurring during the period from December 15, 1998 through and
including the effective date. To the extent that events covered by this
interpretation occurred during the period after December 15, 1998, but prior to
the effective date, the effects of applying this interpretation would be
recognized on a prospective basis from the effective date. Accordingly, upon
initial application of the final interpretation, (a) no adjustments would be
made to the financial statements for periods before the effective date and (b)
no expense would be recognized for any additional compensation cost measured
that is attributable to periods before the effective date. The adoption of this
interpretation did not have a material impact on the Company's consolidated
financial position, results of operations and cash flows.
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 did not have a material impact on its financial
position or its results of operations.
In June 1998, the FASB issued 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. Management has concluded that the implementation
of these pronouncements did not have a material impact on its financial position
or its results of operations.
13
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,
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, operating performance and growth in 2001, 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: continuation of
trends in educational and marketing services, risks relating to the market for
our services, acceptance of our new services, difficulties inherent in locating
acquisition candidates and consummating acquisitions, the seasonality of our
business, our dependence on the pharmaceutical industry and those risks and
uncertainties contained under the heading ''Risk Factors'' on page 6 of our form
10-K as filed with the Securities and Exchange Commission.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
None
14
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On or about May 25, 1999, one 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. 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. On September 18, 2000, the court
issued an order and opinion on the motions to dismiss filed by the various
defendants. The court granted the motions to dismiss with respect to the claims
asserted against Roger D. Kafker, Jacqueline C. Morby, TA Investors, Ltd.
Partnership, TA Associates VII, L.P., TA Associates, Inc., TA Associates AAP
III, Advent VII, Associates 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. On February 14, 2001, the Court granted the plaintiff's motion
for class certification. The litigation is currently in discovery phase. 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.
15
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its 2001 Annual Meeting of Stockholders on May 23, 2001. At
the meeting, the following directors were elected to serve until the 2004 Annual
Meeting.
Vote For Vote Withheld
--------- -------------
John A. Staley 9,458,635 972,200
John T. Spitznagel 9,458,635 972,200
Ronald M. Nordmann 9,458,635 972,200
In addition the stockholders approved an amendment to the Company's Amended
and Restated 1996 Stock Option Plan ("the Plan") to increase the number of
shares of Common Stock reserved for issuance under the Plan by 1,200,000 shares.
Vote For Vote Against Vote Withheld Non Votes
-------- ------------- ------------- ---------
Amendment to Plan 5,012,802 2,250,219 6,850 3,115,986
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
None
16
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, 2001 By: /s/ Patrick G. LePore
---------------------------------
Patrick G. LePore
Chief Executive Officer
and Chairman of the Board
(Principal Executive Officer)
Date: August 14, 2001 By: /s/ Anthony J. Cherichella
----------------------------------
Anthony J. Cherichella
Chief Financial Officer, Secretary and
Treasurer (Principal Financial and
Accounting Officer)
17