10-Q 1 d10q.txt FORM 10-Q 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 March 31, 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) 703-3000 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 MAY 9, 2001 ----- -------------------------- Common stock, par value $.01 share 11,393,382 BORON, LEPORE & ASSOCIATES, INC. INDEX

2 BORON, LEPORE & ASSOCIATES, INC. CONSOLIDATED BALANCE SHEETS (In thousands, except per share data)

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)

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)

The accompanying notes are an integral part of these consolidated financial statements. 5 BORON, LEPORE & ASSOCIATES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (1) Description of the Business and Basis of Presentation: Boron, LePore & Associates, Inc. (the "Company ") provides outsourced 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 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.

6 BORON, LEPORE & ASSOCIATES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Cont.) (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 three months ended March 31, 2001 is summarized in the following table:

(4) Segment Information: The Company's management considers its business to be a single business entity - the providing of outsourced marketing, educational and sales services to the 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.

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. 7 (5) Subsequent Event 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 acquistition. 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 will be allocated to goodwill and non-compete agreements and will be amortized over a period that approximates the estimated useful life of the assets. 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 "Marketing and Educational Service" revenues. 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 marketing, educational 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) as discussed below, the renewal of a contract with a large pharmaceutical company to provide field sales force logistics services. 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. During March 2000, a customer notified us that it would be terminating its contract sales service contract on May 31, 2000. During the three month period ended March 31, 2000, such contract represented $2.5 million or 6.7% of our revenues. Accordingly, no revenues were generated from this contract during the three months ended March 31, 2001. 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. 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 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 9 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 the Company's Statements of Income for the periods indicated.

Three Months Ended March 31, 2001 Compared to the Three Months Ended March 31, 2000 Revenues increased $9.0 million, or 24%, from $37.1 million in the three-month period ended March 31, 2000 to $46.1 million in the three-month period ended March 31, 2001. This growth primarily resulted from an increase of $17.3 million in marketing and educational service revenue, of which approximately $11 million was generated from the acquisitions of Consumer2Patient and Armand Scott in 2000, offset by a $8.3 million decrease in sales service revenue, which includes our field sales force logistics and contract sales service businesses. The contract sales service business was de-emphasized at the beginning of fiscal 2000 and accounted for approximately $3 million of revenue in the first quarter of 2000. Cost of sales increased $4.5 million, or 16%, from $27.5 million in the three-month period ended March 31, 2000 to $32.0 million in the three-month period ended March 31, 2001. Cost of sales as a percentage of revenues decreased from 74.0% in the prior year period to 69.5% in the current year period. The decrease in cost of sales as a percentage of revenues was primarily due to the increased proportion of marketing and educational service revenue, which has a higher average gross profit than our sales service business. Selling, general and administrative expenses increased $3.4 million, or 40%, from $8.6 million in the three-month period ended March 31, 2000 to $12.0 million in the three-month period ended March 31, 2001. This increase was primarily due to increased personnel related costs of approximately $2.7 million, of which $1.2 million relates to employees of acquired companies, an increase in depreciation and amortization expense of approximately $0.4 million and approximately $0.3 million of 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 23.1% in the prior year period to 26.1% in the current year period. This increase is primarily the result of the aforementioned operational costs incurred to support our revenue growth. Operating income increased $0.9 million, or 82%, from $1.1 million in the three-month period ended March 31, 2000 to $2.0 million in the three-month period ended March 31, 2001. Operating income as a 10 percentage of revenues increased from 2.9% in the prior year period to 4.4% in the current year period. The increase in operating income as a percentage of revenues was primarily 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 as a percentage of revenues. Interest income was $0.7 million in the three-month period ended March 31, 2000 compared to $0.3 million in the three-month period ended March 31, 2001. This decrease in interest income was primarily due to our lower average cash balance 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 March 31, 2001 and March 31, 2000 reflect estimated Federal and state income tax expense. Liquidity and Capital Resources At March 31, 2001, we had $40.1 million in net working capital, an increase of $2.1 million from December 31, 2000. Our primary sources of liquidity as of March 31, 2001 consisted of cash and cash equivalents and accounts receivable. Our accounts receivable turnover averaged 102, 76 and 57 days for the periods ended March 31, 2001, December 31, 2000 and December 31, 1999, respectively. The increase in accounts receivable turnover from December 31, 2000 to March 31, 2001 was due to increased sales and additional revenue recognized for services provided but unbilled due to the terms of certain contracts fulfilled during the three months ended March 31, 2001. The allowance for doubtful accounts and credit memo reserves was $0.9 million at March 31, 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 three months ended March 31, 2001, we used $7.1 million for operating activities as compared to $5.6 million during the same period in 2000. In 2001, this increased use of operating cash resulted primarily from higher accounts receivable due to increased sales, partially offset by income, depreciation and amortization, and a decrease in prepaid expenses at March 31, 2000. During the three months ended March 31, 2001, we used $2.1 million of cash in investing activities to purchase computer, telephone and office equipment and to build leasehold improvements in our new facility. Financing activities during the three-month period ended March 31, 2001 provided $1.4 million of cash from the exercise of stock options as compared to the use of $0.2 million of cash for the repurchase of common stock during the same period in 2000. We did not repurchase any shares of common stock during the three months ended March 31, 2001. New Accounting Pronouncements 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. 11 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. 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 for 10-K as filed with the Securities and Exchange Commission. Quantitative and Qualitative Disclosures about Market Risk None. 12 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. Item 4. Submission of Matters to a Vote of Security Holders Not applicable. Item 5. Other information Not applicable. 13 Item 6. Exhibits and Reports on Form 8-K (a) Exhibits None. (b) Reports on Form 8-K None. 14 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: May 14, 2001 By: /s/ Patrick G. LePore -------------------------------- Patrick G. LePore Chief Executive Officer and Chairman of the Board (Principal Executive Officer) Date: May 14, 2001 By: /s/ Anthony J. Cherichella -------------------------------- Anthony J. Cherichella Chief Financial Officer, Secretary and Treasurer (Principal Financial and Accounting Officer) 15

BORON LEPORE & ASSOCIATES INC 10-Q