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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 September 30, 2001
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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 NOVEMBER 8, 2001
----- -------------------------------
Common stock, par value $.01 share 11,622,666
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BORON, LEPORE & ASSOCIATES, INC.
INDEX
Page
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PART I FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements:
Consolidated Balance Sheets at September 30, 2001 (unaudited) and December 31, 2000.................. 3
Consolidated Statements of Income for the Three Months Ended September 30, 2001 and 2000
(unaudited) and the Nine Months Ended September 30, 2001 and 2000 (unaudited)........................ 4
Consolidated Statements of Cash Flows for the Nine Months Ended September 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........................................................................................... 9-13
Item 3. Quantitative and Qualitative Disclosures About Market Risk........................................... 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...................................... 16
Item 5: Other Information........................................................................ 16
Item 6: Exhibits and Reports on Form 8-K......................................................... 16
(a) Exhibits
(b) Reports on Form 8-K
Signatures........................................................................................... 17
2
BORON, LEPORE & ASSOCIATES, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
September 30, December 31,
2001 2000
--------- ---------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents ............................................................ $ 1,435 $ 22,063
Short-term investments ............................................................... 2,053 --
Accounts receivable, net ............................................................. 62,720 42,402
Prepaid expenses and other current assets ............................................ 3,663 3,866
--------- ---------
Total current assets ................................................................ 69,871 68,331
Furniture, fixtures and equipment, at cost, net of accumulated depreciation of
$8,196 and $6,210 at September 30, 2001 and December 31, 2000, respectively ......... 10,804 8,221
Intangible assets, net ............................................................... 51,385 43,620
Other assets ......................................................................... 921 530
--------- ---------
Total assets ........................................................................ $ 132,981 $ 120,702
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ..................................................................... $ 4,076 $ 6,112
Accrued payroll ...................................................................... 3,486 2,770
Accrued expenses ..................................................................... 12,996 9,014
Deferred revenue ..................................................................... 13,460 12,448
--------- ---------
Total current liabilities ........................................................... 34,018 30,344
--------- ---------
Other liabilities ................................................................... 591 196
--------- ---------
Commitments and contingencies ......................................................... -- --
Stockholders' equity:
Common stock, $.01 par value, 50,000 shares authorized, 17,370 issued and
11,616 outstanding at September 30, 2001; 17,185 issued and 11,245 outstanding
at December 31, 2000 ................................................................ 174 172
Treasury stock at cost, 5,754 and 5,940 shares at September 30, 2001 and
December 31, 2000, respectively ..................................................... (37,692) (38,958)
Deferred Compensation ................................................................ (897) --
Additional paid-in capital ........................................................... 123,984 120,774
Retained earnings .................................................................... 12,803 8,174
--------- ---------
Total stockholders' equity .......................................................... 98,372 90,162
--------- ---------
Total liabilities and stockholders' equity .......................................... $ 132,981 $ 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 Nine months ended
September 30, September 30,
------------------ --------------------
2001 2000 2001 2000
------- ------- -------- --------
Revenues ................................... $45,970 $39,591 $145,364 $117,804
Cost of sales .............................. 32,587 28,276 101,817 85,453
------- ------- -------- --------
Gross profit ............................... 13,383 11,315 43,547 32,351
------- ------- -------- --------
Selling, general and administrative expenses 11,250 9,772 36,265 28,135
Loss on disposal of fixed assets............ -- -- 144 --
------- ------- -------- --------
Total expenses ........................... 11,250 9,772 36,409 28,135
------- ------- -------- --------
Operating income ........................... 2,133 1,543 7,138 4,216
Interest income, net ....................... 82 551 578 1,852
------- ------- -------- --------
Income before provision for income taxes ... 2,215 2,094 7,716 6,068
Provision for income taxes ................. 886 830 3,087 2,430
------- ------- -------- --------
Net income ................................. $ 1,329 $ 1,264 $ 4,629 $ 3,638
======= ======= ======== ========
Net income per common and common
equivalent share:
Basic ..................................... $ 0.12 $ 0.11 $ 0.41 $ 0.30
======= ======= ======== ========
Diluted ................................... $ 0.11 $ 0.10 $ 0.38 $ 0.30
======= ======= ======== ========
Weighted average number of common and
common equivalent shares:
Basic ..................................... 11,544 11,915 11,426 12,128
======= ======= ======== ========
Diluted ................................... 12,306 12,146 12,106 12,303
======= ======= ======== ========
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)
Nine Months Ended
September 30,
---------------------
2001 2000
-------- --------
Cash Flows From Operating Activities:
Net income ........................................................................ $ 4,629 $ 3,638
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization ................................................... 4,682 3,453
Provision for doubtful accounts and credit memo reserves ........................ 70 (25)
Non-cash compensation ........................................................... 76 --
Loss on disposal of fixed assets ................................................ 144 --
Deferred income taxes ........................................................... -- 150
Changes in operating assets and liabilities:
Increase in accounts receivable ................................................ (20,698) (2,484)
Decrease (increase) in prepaid expenses and other assets ....................... 202 (2,657)
(Increase) decrease in other assets ............................................ (391) 64
Increase in accounts payable and accrued expenses .............................. 1,082 3,052
Increase (decrease) in deferred revenue ........................................ 1,012 (1,890)
Increase in other liabilities .................................................. 395 23
-------- --------
Net cash (used in) provided by operating activities ........................... (8,797) 3,324
-------- --------
Cash Flows From Investing Activities:
Purchases of furniture, fixtures and equipment .................................. (5,197) (829)
Business acquisitions, net of acquired cash ..................................... (2,485) (8,881)
Business acquisitions, contingent consideration ................................. (3,801) --
Increase in short-term investments .............................................. (2,053) --
-------- --------
Net cash used in investing activities ......................................... (13,536) (9,710)
-------- --------
Cash Flows From Financing Activities:
Purchase of treasury stock ...................................................... (3) (7,869)
Proceeds from the exercise of stock options ..................................... 1,708 --
-------- --------
Net cash provided by (used in) financing activities ........................... 1,705 (7,869)
-------- --------
Decrease in cash and cash equivalents ......................................... (20,628) (14,255)
Cash and cash equivalents, beginning of period .................................... 22,063 44,631
-------- --------
Cash and cash equivalents, end of period .......................................... $ 1,435 $ 30,376
======== ========
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Interest .......................................................................... $ -- $ 25
Taxes ............................................................................. $ 3,109 $ 2,969
The accompanying notes are an
integral part of these consolidated financial statements.
5
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") 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 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 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 Nine months ended
September 30, September 30,
------------------ ------------------
2001 2000 2001 2000
------- ------- ------- -------
Numerator:
Net Income - Diluted ................................ $ 1,329 $ 1,264 $ 4,629 $ 3,638
======= ======= ======= =======
Net Income - Basic .................................. $ 1,329 $ 1,264 $ 4,629 $ 3,638
======= ======= ======= =======
Denominator:
Weighted average shares outstanding - Basic .......... 11,544 11,915 11,426 12,128
Incremental shares from assumed conversions of options 762 231 680 175
------- ------- ------- -------
Weighted average shares outstanding - Diluted ........ 12,306 12,146 12,106 12,303
======= ======= ======= =======
Earnings per share - Basic ............................ $ 0.12 $ 0.11 $ 0.41 $ 0.30
======= ======= ======= =======
Earnings per share - Diluted .......................... $ 0.11 $ 0.10 $ 0.38 $ 0.30
======= ======= ======= =======
6
BORON, LEPORE & ASSOCIATES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(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. The activity impacting the accrual for
restructuring and other severance during the nine months ended September 30,
2001 is summarized in the following table:
Balance at Charges Balance at
December 31, Utilized in September 30,
(in thousands) 2000 2001 2001
---- ----- ----
Workforce reductions and transition $ 87 $ (83) $ 4
Idle facilities ................... 16 (16) --
Disposition of assets ............. 615 (179) 436
Other ............................. 9 -- 9
---- ----- ----
Total ......................... $727 $(278) $449
==== ===== ====
(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," the goodwill related to this acquisition will be amortized over a
15 year period through December 31, 2001, at which time, amortization will stop
and the asset will be periodically judged 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 Education Services" revenues.
7
(5) SEGMENT INFORMATION:
The Company's management considers its business to be a single business
entity-the providing of integrated medical education 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 Nine Months
Ended September 30, Ended September 30,
---------------------- ------------------------
2001 2000 2001 2000
------- ------- -------- --------
Revenues:
Medical education services.... $35,644 $23,298 $112,530 $ 63,687
Sales services ............... 10,326 16,293 32,834 54,117
------- ------- -------- --------
Total revenues ............. $45,970 $39,591 $145,364 $117,804
======= ======= ======== ========
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 October 2001, the Company paid $1,800 in cash based on the achievement of
certain operating goals during the twelve-month period subsequent to the date of
acquisition of Armand Scott, Inc.
In October 2001, the Company entered into a $15,000 revolving credit agreement
with a bank, secured by substantially all of the Company's assets. The agreement
contains sublimits of up to $10,000 to be used for acquisition related
activities and $500 for standby letters of credit. Interest rates are based on
the London Interbank Offered Rate ("LIBOR") plus 1.75% or the prime rate. A
facility fee is charged on the unused amount at a rate of .125%. The credit
agreement matures on December 31, 2003.
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 sales service offerings.
The principal elements of our strategy in order to continue to offer integrated
solutions that include educational, promotional, 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 education
communication programs as an effective promotional technique and increased
levels of marketing and educational spending in the pharmaceutical industry. Our
portfolio of services includes traditional educational and promotional 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 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 medical
education and peer-to-peer meeting businesses, 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 Nine months ended
September 30, September 30,
--------------------- ---------------------
2001 2000 2001 2000
------ ------ ------ ------
Revenues ................................... 100.0% 100.0% 100.0% 100.0%
Cost of sales .............................. 70.9 71.4 70.0 72.5
------ ------ ------ ------
Gross profit ............................... 29.1 28.6 30.0 27.5
------ ------ ------ ------
Selling, general and administrative expenses 24.5 24.7 25.0 23.9
Loss on disposal of fixed assets ........... -- -- .1 --
------ ------ ------ ------
Total expenses ........................... 24.5 24.7 25.1 23.9
------ ------ ------ ------
Operating income ........................... 4.6 3.9 4.9 3.6
Interest income, net ....................... .2 1.4 .4 1.6
------ ------ ------ ------
Income before provision for income taxes ... 4.8 5.3 5.3 5.2
Provision for income taxes ................. 1.9 2.1 2.1 2.1
------ ------ ------ ------
Net income ................................. 2.9% 3.2% 3.2% 3.1%
====== ====== ====== ======
THREE MONTHS ENDED SEPTEMBER 30, 2001 COMPARED TO THE THREE MONTHS ENDED
SEPTEMBER 30, 2000
Revenues increased $6.4 million, or 16%, from $39.6 million in the three-month
period ended September 30, 2000 to $46.0 million in the three-month period ended
September 30, 2001. This growth primarily resulted from an increase of $12.4
million in medical education services revenue, of which approximately $3.2
million was generated from the acquisition of MMC. This increase in medical
education services revenue is offset by a $6.0 million decrease in sales
services revenues, which includes our field sales force logistics service 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 September 30, 2001 when compared to the three-month
period ended September 30, 2000.
Cost of sales increased $4.3 million, or 15%, from $28.3 million in the three-
month period ended September 30, 2000 to $32.6 million in the three-month period
ended September 30, 2001. Cost of sales as a percentage of revenues decreased
from 71.4% in the prior year period to 70.9% 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 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 $1.5 million, or 15%,
from $9.8 million in the three-month period ended September 30, 2000 to $11.3
million in the three-month period ended September 30, 2001. This increase was
primarily due to increased personnel related costs of approximately $0.9
million, which is net of certain revisions to employee incentive plans awarded
at the discretion of management and includes $0.2 million of expenses related to
employees of MMC, $0.1 million in operating expenses for MMC not reflected in
the 2000 amounts, an increase of approximately $0.5 million in depreciation and
amortization, and approximately $0.3 million of non-recurring costs incurred due
to meeting cancellations and certain employee costs resulting from
10
the events of September 11, 2001. These amounts are partially offset by a
decrease of approximately $0.3 of professional fees. Selling, general and
administrative expenses decreased as a percentage of revenues from 24.7% in the
prior year period to 24.5% in the current year period. This percentage decrease
was primarily the result of increased revenues, the employee incentive plan
adjustment and operational efficiencies achieved through our acquisitions.
Operating income increased $0.6 million, or 40%, from $1.5 million in the
three-month period ended September 30, 2000 to $2.1 million in the three-month
period ended September 30, 2001. Operating income as a percentage of revenues
increased from 3.9% in the prior year period to 4.6% in the current year period.
The increase in operating income as a percentage of revenues was primarily due
to the aforementioned decreases in cost of sales and selling, general and
administrative expenses as a percentage of revenue.
Interest income was $0.6 million in the three-month period ended September 30,
2000 compared to $0.1 million in the three-month period ended September 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 capital
expenditures, 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 periods ended September 30,
2001 and September 30, 2000 reflect estimated Federal and state income tax
expense at our estimated effective tax rate.
NINE MONTHS ENDED SEPTEMBER 30, 2001 COMPARED TO THE NINE MONTHS ENDED
SEPTEMBER 30, 2000
Revenues increased $27.6 million, or 23%, from $117.8 million in the nine-
month period ended September 30, 2000 to $145.4 million in the nine-month period
ended September 30, 2001. This growth primarily resulted from an increase of
$48.9 million in medical education services revenue, of which approximately
$21.8 million was generated from the acquisitions of Consumer2Patient and Armand
Scott in 2000 and $4.1 million was generated from the acquisition of MMC in
2001. The increase in medical education services revenue is partially offset by
a $21.3 million decrease in sales services revenues, which includes our field
sales force logistics service 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 nine-month period
ended September 30, 2001 when compared to the nine-month period ended September
30, 2000. Additionally, our contract sales service business was de-emphasized at
the beginning of 2000 and represents a decrease in revenue of approximately $3.5
million for the nine-month period ended September 30, 2001 when compared to the
nine-month period ended September 30, 2000.
Cost of sales increased $16.4 million, or 19%, from $85.4 million in the nine-
month period ended September 30, 2000 to $101.8 million in the nine-month period
ended September 30, 2001. Cost of sales as a percentage of revenues decreased
from 72.5% in the prior year period to 70.0% 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 education services revenue, which has a higher
average gross profit than our field sales force logistics service revenue. The
higher gross profit on 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 $8.2 million, or 29%,
from $28.1 million in the nine-month period ended September 30, 2000 to $36.3
million in the nine-month period ended September 30, 2001. This increase was
primarily due to increased personnel related costs of approximately $6.5
million, which is net of certain revisions to employee incentive plans awarded
at the discretion of management and includes $2.6 million of expenses related to
the employees of acquired companies, $1.0 million of operating expenses for
Consumer2Patient, Armand Scott and MMC not reflected in the 2000 amounts, an
increase of approximately $1.2 in depreciation and amortization, $0.7 million of
increased rent and certain costs incurred as a result of moving corporate
headquarters to a new facility and approximately $0.3 of non-recurring costs
incurred due to meeting cancellations and certain employee costs resulting from
the events of September 11, 2001. These amounts are partially offset by a
decrease of approximately $0.9 million in professional fees and consulting
expenses and approximately $0.6 million in other operating expense accounts.
Selling, general and administrative expenses increased as a percentage of
revenues from 23.9% in the prior year period to
11
25.0% in the current year period. This percentage increase was primarily the
result of additional operational costs incurred in the first half of the year to
support our acquisitions and revenue growth.
The loss on the disposal of fixed assets was $0.1 million in the nine months
ended September 30, 2001 and related primarily to the disposition of computer
equipment.
Operating income increased $2.9 million, or 70%, from $4.2 million in the
nine-month period ended September 30, 2000 to $7.1 million in the nine-month
period ended September 30, 2001. Operating income as a percentage of revenues
increased from 3.6% in the prior year period to 4.9% in the current year period.
The increase in operating income as a percentage of revenues was primarily due
to the aforementioned decreases in cost of sales as a percentage of revenue,
partially offset by an increase in selling, general and administrative expenses.
Interest income was $1.9 million in the nine-month period ended September 30,
2000 compared to $0.6 million in the three-month period ended September 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 capital
expenditures, 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 periods ended September 30,
2001 and September 30, 2000 reflect estimated Federal and state income tax
expense at our estimated effective tax rate.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2001, we had $35.9 million in net working capital, a decrease
of $2.1 million from December 31, 2000. Our primary sources of liquidity as of
September 30, 2001 consisted of cash and cash equivalents, short-term
investments and accounts receivable. Additionally, during October 2001, we
secured a $15 million line of credit. We believe the above sources of liquidity
are adequate to meet our future obligations.
Our accounts receivable turnover averaged 123, 76 and 57 days for the periods
ended September 30, 2001, December 31, 2000 and December 31, 1999. The increase
in accounts receivable turnover from December 31, 2000 to September 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 nine
months ended September 30, 2001. Additionally, customers have implemented new
payment policies, which have slowed the collection process, but have not
materially affected the collectibility of receivables. The allowance for
doubtful accounts was $1.0 million at September 30, 2001, $1.3 million at
December 31, 2000 and $1.3 million at December 31, 1999.
During the nine months ended September 30, 2001, we used $8.8 million in cash
from operating activities as compared to generating $3.3 million in cash during
the same period in 2000. In 2001, the use of operating cash resulted primarily
from higher accounts receivable, due to increased sales and decreased advanced
billings to our customers. These amounts are partially offset by net income,
higher depreciation and amortization, and an increase in deferred revenue,
accounts payable and accrued expense balances at September 30, 2001.
During the nine months ended September 30, 2001, we used $13.5 million of cash
in investing activities which was comprised of $2.5 million net of cash acquired
related to the acquisition of MMC, $3.8 million of cash paid based on the
attainment of contingent payment goals established during the acquisitions of
Consumer2Patient and Armand Scott, $5.2 million of cash to purchase computer,
telephone and office equipment, resulting from our office relocation, and 2.0
million of cash to purchase a short-term investment which matures in November
2001.
Financing activities during the nine-month period ended September 30, 2001
generated $1.7 million of cash through the exercise of stock options as compared
to the use of $7.9 million of cash for the repurchase of common stock during the
same period last year.
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 is in the process of assessing 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 as of September 30, 2001 and December 31, 2000
was $7,664 and $5,232, respectively.
In March 2000, the Financial Accounting Standards Board ("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 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.
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, the length and
severity of the downturn in the airline and travel industries, including the
Company's meetings business resulting from the September 11th terrorist attacks,
a general recession, reduced spending by pharmaceutical companies, and those
risks and uncertainties contained under the headings "Risk Factors" in the
Company's Form 10-K for the year ended December 31, 2000.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
None
14
PART II - OTHER INFORMATION
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
"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 or about October
9, 2001, the Company entered into a memorandum of understanding to settle all
claims in connection with the shareholder class action litigation pending in the
Court. The proposed settlement will result in the release of all claims brought
by the participating class action plaintiffs against the Company and its current
and former officers and directors. The proposed settlement is subject to several
significant conditions, including the negotiation and execution of definitive
documentation, satisfaction by the Company that the settlement agreement
includes the appropriate class members, and preliminary and final approval by
the Court. The proposed settlement has no admission of liability by the Company
or its current or former officers or directors and will be funded by payment
from the Company's insurance carriers.
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
In July 2001, under the terms of the Asset Purchase Agreement ("Purchase
Agreement") pursuant to which the Company purchased substantially all of the
assets of Armand Scott, Inc. ("Armand Scott"), and upon the achievement of
certain operating goals during the twelve-month period subsequent to the date of
the purchase of Armand Scott, the Company issued 125,523 shares of its common
stock to Armand Scott as a component of a contingent payment required to be made
under the Purchase Agreement, in reliance upon the exemption from registration
under Section 4(2) of the Securities Act.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
15
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND 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: November 14, 2001 By: /s/ Patrick G. LePore
-------------------------------
Patrick G. LePore
Chief Executive Officer
and Chairman of the Board
(Principal Executive Officer)
Date: November 14, 2001 By: /s/ Anthony J. Cherichella
-------------------------------
Anthony J. Cherichella
Chief Financial Officer, Secretary and
Treasurer (Principal Financial and
Accounting Officer)
17