FORM 10Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended June 30, 1995
SEC File No. 1-9972
HOOPER HOLMES, INC.
-------------------------------------------------------
(Exact name of registrant as specified in its charter)
New York 22-1659359
------------------------------ ---------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
170 Mt. Airy Rd., Basking Ridge, NJ 07920
--------------------------------------- ----------
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (908) 766-5000
None
-------------------------------------------------------
(Former name, former address and former fiscal year, if
changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 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 March 31, 1995
---------------------------- -----------------------------
Common stock, $.04 per value 6,707,110
<PAGE>
HOOPER HOLMES, INC. AND SUBSIDIARIES
INDEX
Page No.
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PART I - Financial Information
ITEM 1 - Financial Statements
Consolidated Balance Sheets 1
as of June 30, 1995 and
December 31, 1994
Consolidated Statements of Income 2
for the Quarter and Six Months Ended
June 30, 1995 and 1994
Consolidated Statements of Cash Flows 3
for the Six Months Ended
June 30, 1995 and 1994
Notes to Consolidated Financial Statements 4,5
ITEM 2 - Management's Discussion and Analysis 6,7,8
of Financial Condition and Results
of Operations
PART II - Other Information
ITEM 1 - Legal Proceedings 9
ITEM 4 - Submission of Matters to a vote of 10
Security Holders
ITEM 6 - Exhibits and Reports on Form 8-K 11
<PAGE>
HOOPER HOLMES, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
ASSETS 06/30/95 12/31/94
------------------- -------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 0 $ 1,695,844
Accounts receivable 13,220,972 12,706,513
Prepaid expenses 1,645,723 2,347,383
Deferred/refundable taxes 9,215,575 0
------------------- -------------------
Total current assets 24,082,270 16,749,740
Property, plant, and equipment:
Land 570,116 567,947
Building 3,438,634 3,432,655
Furniture & fixtures 8,766,783 8,179,498
Leasehold improvements 118,676 110,726
------------------- -------------------
Total property, plant & equipment 12,894,209 12,290,826
Less: accumulated depreciation 6,674,241 6,027,686
------------------- -------------------
Net property, plant & equipment 6,219,968 6,263,140
Cost in excess of net assets of acquired companies 3,970,333 4,283,384
Intangibles assets 180,868 197,284
Other assets 2,117,596 1,632,763
Net assets - discontinued operations (Note 3) 59,768,092 74,045,993
------------------- -------------------
$ 96,339,127 $ 103,172,304
=================== ===================
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Current maturities of long term debt $ 2,800,000 $ 2,150,000
Accounts payable 4,495,919 5,043,424
Accrued expenses:
Insurance benefits 101,915 117,717
Salaries and wages 92,952 522,181
Payroll and other taxes 354,988 422,392
Income taxes payable 0 450,518
Discontinued operations 8,957,941 0
Other 2,938,789 1,636,722
------------------- -------------------
Total current liabilities 19,742,504 10,342,954
Long term debt, less current maturities 43,126,942 46,326,942
Stockholders' equity:
Common stock 269,777 269,777
Additional paid-in capital 24,097,717 24,114,410
Retained earnings 9,515,299 22,589,370
------------------- -------------------
33,882,793 46,973,557
Less: treasury stock 413,112 471,149
------------------- -------------------
Total stockholders' equity 33,469,681 46,502,408
------------------- -------------------
$ 96,339,127 $ 103,172,304
=================== ===================
<FN>
See Notes to Consolidated Financial Statements
</FN>
</TABLE>
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<PAGE>
<TABLE>
HOOPER HOLMES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
------------------------------------ -----------------------------------
1995 1994 1995 1994
---------------- ---------------- ---------------- ---------------
<S> <C> <C> <C> <C>
Revenues $ 24,395,611 $ 23,015,621 $ 48,393,054 $ 45,677,792
Cost of operations 18,455,901 18,003,982 36,437,112 34,990,360
---------------- ---------------- ---------------- ---------------
Gross profit 5,939,710 5,011,639 11,955,942 10,687,432
Selling, general and administrative expenses 4,907,781 4,515,114 9,847,289 8,576,949
---------------- ---------------- ---------------- ---------------
Operating income 1,031,929 496,525 2,108,653 2,110,483
Other income (expense):
Interest expense (377,295) (254,697) (746,625) (261,310)
Interest income 120,366 7,480 187,219 18,061
Other 0 0 0 0
---------------- ---------------- ---------------- ---------------
(256,929) (247,217) (559,406) (243,249)
---------------- ---------------- ---------------- ---------------
Income before income taxes 775,000 249,308 1,549,247 1,867,234
Income taxes 328,971 108,487 697,161 812,699
---------------- ---------------- ---------------- ---------------
Income from continuing operations 446,029 140,821 852,086 1,054,535
---------------- ---------------- ---------------- ---------------
Discontinued operations: (Note 3)
Income (loss) from operations, net of taxes (2,984,258) 301,069 (3,331,864) 576,512
Loss on disposal, net of taxes (10,326,068) 0 (10,326,068) 0
---------------- ---------------- ---------------- ---------------
Income (loss) from discontinued operations (13,310,326) 301,069 (13,657,932) 576,512
---------------- ---------------- ---------------- ---------------
Net income (loss) $ (12,864,297) $ 441,890 $ (12,805,846) $ 1,631,047
================ ================ ================ ===============
Earnings (loss) per share:
Weighted average number of shares 6,707,110 6,710,660 6,704,398 6,709,628
Income from continuing operations $0.07 $0.02 $0.13 $0.16
Income (loss) from discontinued operations (1.98) 0.05 (2.03) 0.08
---------------- ---------------- ---------------- ---------------
Net income (loss) ($1.91) $0.07 ($1.90) $0.24
================ ================ ================ ===============
See Notes to Consolidated Financial Statements
</TABLE>
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<PAGE>
HOOPER HOLMES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30,
-----------------------------------------
1995 1994
------------------ -------------------
<S> <C> <C>
Cash flows from operating activities:
Income from continuing operations $ 852,086 $ 1,054,535
Adjustments to reconcile income from continuing
operations to net cash provided by operating activities:
Depreciation and amortization 922,767 618,289
Provision for bad debt expense 47,500 40,883
Change in assets and liabilities:
Accounts receivable (561,959) (566,889)
Prepaid expenses and other assets 216,827 (1,608,624)
Deferred/refundable taxes (9,215,575) 0
Accrued expenses--discontinued operations 8,957,941 0
Accounts payable and accrued expenses (208,393) 125,879
------------------ -------------------
Net cash provided by (used in) operating activities of continuing operations 1,011,194 (335,927)
------------------ -------------------
Net cash provided by (used in) operating activities of discontinued operations 921,121 (11,422,893)
------------------ -------------------
Net cash provided by (used in) operating activities 1,932,315 (11,758,820)
------------------ -------------------
Cash flows from investing activities:
Capital expenditures, net of disposals (550,127) (627,363)
Net investing activities of discontinued operations (301,152) (158,106)
------------------ -------------------
Net cash used in investing activities (851,279) (785,469)
------------------ -------------------
Cash flows from financing activities:
Issuance of long term debt 6,000,000 15,500,000
Principal payments on long term debt (8,550,000) (550,000)
Payment of note 0 (3,000,000)
Proceeds from exercise of stock options 0 15,472
Issuance of stock awards 41,344 0
Dividends paid (268,224) (1,006,382)
------------------ -------------------
Net cash (used in) provided by financing activities (2,776,880) 10,959,090
------------------ -------------------
Net (decrease) in cash and cash equivalents (1,695,844) (1,585,199)
Cash and cash equivalents at beginning of year 1,695,844 1,585,199
------------------ -------------------
Cash and cash equivalents at end of period $ 0 $ 0
================== ===================
<FN>
See Notes to Consolidated Financial Statements
</FN>
</TABLE>
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<PAGE>
HOOPER HOLMES, INC.
Notes to Financial Statements
(Unaudited)
June 30, 1995
Note 1: Basis of Presentation
The financial information included herein is unaudited unless otherwise
indicated; however, such information reflects all adjustments (consisting solely
of normal recurring adjustments) which are, in the opinion of management,
necessary for a fair statement of results for the interim periods.
The results of operations for the second quarter and six month period ended June
30, 1995 are not necessarily indicative of the results to be expected for the
full year. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" for additional information.
Note 2: Earnings Per Share
Earnings per share are computed by dividing net earnings by the weighted average
number of shares of common stock outstanding during the respective periods as
outlined in Part I.
Note 3: Discontinued Operations
The Company has entered into an agreement that relates to the proposed sale,
transfer and assignment of substantially all of the assets and business of the
health care division of Hooper Holmes, Inc. a New York corporation, to Olsten
Corporation, a Delaware corporation, or an affiliate thereof (the "NHC
Transaction"), pursuant to an Agreement of Acquisition between the Company and
Olsten, dated as of the 26th day of May, 1995. The NHC Division consists of the
assets and business of the Company and its wholly-owned subsidiary Hooper Holmes
Health Care, Inc. which are utilized principally in (a) providing comprehensive
home health care services, including, without limitation, skilled and unskilled
home health care services, pharmaceutical and ancillary services and products,
(b) providing private duty nursing services in institutional settings; (c)
providing supplemental staffing services to or on behalf of health care
facilities, providers and payors, and (d) operating six pharmacies. The NHC
Division includes the assets and business of Nurse's House Call.
The Acquisition Agreement provides that as consideration for the sale of the NHC
Assets, Olsten will transfer, assign and deliver to the Company all of the
issued and outstanding capital stock of American Service Bureau, Inc., an
Illinois corporation engaged in the business of providing paramedical
examinations and related services to the life and health insurance industries
under the name ASB Meditest, pay the Company Thirty-Four Million Five Hundred
Thousand Dollars ($34,500,000) in cash as adjusted to reflect changes in the NHC
Division Net Asset Amount between November 30, 1994 and the Closing Date, and in
the ASB Meditest Net Asset Amount between December 31, 1994 and the Closing Date
and assume certain specified
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<PAGE>
liabilities relating to the NHC Division. If the Closing had taken place on June
30, 1995, the Cash Portion of the Purchase Price would have been $29.8 million
after making this adjustment, and the liabilities to be assumed by Olsten would
have been approximately $4.5 million. The Purchase Price was determined through
arm's-length negotiation between the officers and financial advisors of Olsten
and those of the Company.
In anticipation of the sale of Nurse's House Call which is subject to
shareholder approval, the Company has presented the Nurse's House Call Division
as a discontinued operation. Accordingly, the accompanying consolidated
financial statements have been restated to conform with the discontinued
operations presentation.
Net sales for the Company's discontinued operation (the "NHC Division") for the
three and six months ended June 30, 1995 were $39.4 million and $79.7 million
respectively, compared to $39.8 million and $79.1 million for three and six
months ended June 30, 1994, respectively.
In the second quarter ended June 30, 1995, the Company has taken an after tax
operating charge totaling $3.0 million pertaining to the discontinued
operations. This charge relates to losses of the Nurse's House Call division in
the second quarter and other aspects of the Nurse's House Call division.
The loss on disposal of $10.3 million (net of tax benefits of $7.6 million)
includes a provision of $.9 million for operating losses during the phase out
period.
Earnings (loss), from discontinued operations for the three months and six
months ended June 30, 1995 and 1994 are net of taxes (benefits) of $(0.5)
million and $(0.8) million, $0.2 million and $0.4 million, respectively. The net
assets of discontinued operations consist primarily of accounts receivable,
fixed assets, goodwill and intangibles, net of its related accounts payable and
other accrued expenses.
-5-
<PAGE>
HOOPER HOLMES, INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operation
Results of Operations -- Three months ended June 30, 1995 compared to
Three months ended June 30, 1994
Revenues from continuing operations for the second quarter of 1995 were
$24,396,000 compared to $23,016,000 for the second quarter of 1994, an increase
of 6.0%. This increase results from Portamedic continuing to be the preferred
provider of examination services and the utilization of a large percentage of
our premium priced services.
The Company's direct cost of operations from continuing operations, as a
percentage of revenues, decreased from 78.2% for the second quarter of 1994 to
75.7% for the second quarter of 1995. This improvement resulted from the review
in 1994 of unprofitable operations of the businesses acquired during late 1993,
which resulted in the closing of nine (9) offices, and the elimination of
certain contractor revenue sources with less than acceptable margins.
Selling, general and administrative expenses increased slightly, as a percentage
of revenues to 20.1% from 19.6% for the second quarter of 1995 compared to the
second quarter of 1994. This increase is primarily the result of additional
sales and marketing expenses and data processing resources required to maintain
and grow Health Information Services as the premier and preferred provider of
examination services. Additionally, overall general corporate expenses have
increased.
Operating income grew to $1.0 million from $497,000 and as a percentage of
revenues, increased to 4.2% from 2.2% for the second quarter of 1995 compared to
the second quarter of 1994. This increase is the result of improvement in cost
of sales, offset by slightly higher selling, general and administrative
expenses. Interest expense for the second quarter of 1995 was up just over $.1
million as a result of higher interest rates and higher net borrowings. The
increase in interest expense was offset by the $.1 million increase in interest
income. This increase is due primarily to a deferred gain recognized on the
partial payment of the fully reserved note receivable resulting from the sale of
our Direct Marketing business in 1992.
Earnings per share from continuing operations, for the second quarter of 1995
was $.07 per share versus $.02 per share for the second quarter of 1994. Average
shares for the respective periods were 6,707,110 and 6,710,660, respectively.
The Company incurred a $13.3 million or $1.98 per share loss from discontinued
operations in the second quarter of 1995. The loss relates to the planned sale
of the "NHC Division" to Olsten Corporation and includes an after tax loss from
operations of $3.0 million and an after tax loss of $10.3 million on the
disposition of the "NHC Division."
-6-
<PAGE>
Results of Operations -- Six months ended June 30, 1995 compared to
Six months ended June 30, 1994
Revenues from continuing operations for the first six months ended June 30, 1995
were $48,393,000 compared to $45,678,000 for the six months ended June 30, 1994,
an increase of 5.9%. The growth in Health Information Services revenue is
primarily due to internal growth, resulting in part to increased utilization of
our premium priced services for the first six months of 1995 compared to the
first six months of 1994.
The Company's direct cost of operations from continuing operations for the six
months ended June 30, 1995 decreased to 75.3%, as a percentage of revenues,
compared to 76.6% for the same period in 1994. This improvement resulted from
the review, in 1994, of unprofitable operations of the businesses acquired
during late 1993, which resulted in the closing of nine (9) offices, and the
elimination of certain contractor revenue sources with less than acceptable
margins.
Selling, general and administrative (SG&A) expenses increased as a percentage of
revenues, to 20.3% from 18.8% for the first six months of 1995 compared to the
first six months of 1994. This increase is primarily the result additional sales
and marketing expenses and data processing resources required to maintain and
grow Health Information Services as the premier and preferred provider of
examination services. Additionally, overall general corporate expenses have
increased.
The Company's operating profit for the six months ended June 30, 1995, decreased
slightly as a percentage of revenue to 4.4% from 4.6% as a result of the above
increase in SG&A. Interest expense for the six months ended June 1995 was up
nearly $.5 million as a result of higher interest rates and higher net
borrowings. The increase in interest expense was partially offset by the $.2
million increase in interest income. This increase is due primarily to a
deferred gain recognized on the partial payment of the fully reserved note
receivable resulting from the sale of our Direct Marketing operation in 1992.
Earning per share from continuing operations, for the six months ended June 1995
was $.13 per share versus $.16 per share for the six months ended June 1994.
Average shares outstanding for the respective periods were 6,704,398 and
6,709,628, respectively.
-7-
<PAGE>
Financial Condition
The Company's primary sources of cash are the Company's bank credit facility and
internally generated funds. As of June 30, 1995, the Company had total
outstanding debt of $45.9 million, compared to $48.5 million as of December 31,
1994.
The Company's current ratio, as of June 30, 1995 was 1.2 to 1. The Company
closed the first six months of 1995 with $4.3 million in working capital.
The assets and liabilities classified as "Net Assets - Discontinued
Operation"are those net assets expected to be sold to Olsten Corporation and in
return a substantial cash payment will be received. Had the closing occurred on
June 30, 1995, the proceeds would have been $29.8 million. The proceeds will be
utilized to ultimately pay down the Company's outstanding long term debt. It is
anticipated that our bank credit facility, cash flows from operations and
proceeds from the sale of Nurse's House Call to Olsten Corporation will provide
sufficient capital resources over the next twelve months. It is anticipated that
the sale transaction, improved cash flows and a revised bank debt arrangement
will provide longer term liquidity.
Due to the current performance of the Nurse's House Call Division, and in the
event that the Nurse's House Call transaction is not consummated, the Company
would be required to renegotiate its debt financing arrangements or obtain other
sources of debt financing. While management expects this would be available,
there is no assurance that the financing could be obtained on terms favorable to
the Company.
Following the sale of the Nurse's House Call division and the acquisition of ASB
Meditest business, the Company's business will be primarily health information
services. Historically, Health Information Services has experienced lower
accounts receivable days sales outstanding (DSO's) than the DSO of the Nurse's
House Call business. Management believes if this trend continues it should
further strengthen the balance sheet, and provide increased liquidity.
Inflation has not nor will it have a material impact on the Company results nor
have there been any material commitments for capital expenditures.
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<PAGE>
PART II -- Other Information
Item 1: Legal Proceedings
On July 18, 1995, a lawsuit was filed in the Superior Court of California,
County of Santa Barbara, by Stephani Johnson Scoles, an Independent Agent of the
Company's Nurse's House Call Division. The lawsuit, names Norrell Health Care,
Inc. (The Company's predecessor to the Agency Agreement), Olsten Kimberly
Quality Care, Inc. and the Company as defendants. The Complaint alleges
violations of the California Franchise Investment Law, breach of contract and
fraud on the part of the Company and Norrell in connection with the
establishment of the Agency Agreement. The Complaint seeks injunctive and
declaratory relief, as well as recission, and compensatory damages in the amount
of $700,000, or according to proof, plus interest and costs and punitive
damages.
On April 4, 1995, the Company was served with a Civil Investigative Demand
("CID") by the United States Department of Justice ("DOJ"), relating to an
investigation by the DOJ of allegations the Hooper Holmes, Inc.'s Nurse's House
Call Division, and specifically its Columbus, Ohio office, falsified records and
submitted false claims for reimbursement under Medicare and/or Medicaid. The CID
requires the Company to provide documents and answers to interrogatories to the
DOJ. The Company is cooperating with the DOJ to resolve this matter.
While it is not feasible to predict the outcome of these pending matters, based
on a recent review, management is of the opinion that these matters will not
have a material adverse impact on the Company's business or financial condition.
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<PAGE>
Item 4: Submission of Matters to a vote of Security Holders
At the Company's Annual Meeting of Shareholders on May 16, 1995, the
shareholders (1) elected James M. McNamee, Kenneth R. Rossano and G. Earle Wight
to serve as directors until the 1998 Annual Meeting, and (2) ratified the
selection of KPMG Peat Marwick LLP to serve as the Company's auditors for 1995.
The chart below names each director nominated for election by the shareholders
at the 1995 Annual Meeting, the number of votes cast for, against or withheld
and the number of broker nonvotes with respect to each such person:
Votes Cast
---------------------------------- Broker
Nominee For Against Withheld Nonvotes
------- --------- -------- -------- --------
James M. McNamee 4,423,888 -- 74,868 0
Kenneth R. Rossano 4,424,075 -- 74,681 0
G. Earle Wight 4,424,586 -- 74,170 0
The name of each director whose term of office as a director continued after the
annual meeting is as follows:
Frederick D. King
Quentin Kennedy, Sr.
John Nolan
Elaine La Monica
Anne King Sullivan
With respect to the ratification of KPMG Peat Marwick LLP as auditors, the
number of votes cast for was 4,486,831, cast against 7,250 and the number of
abstentions was 4,675 and the number of broker nonvotes was 0.
ITEM 6: Exhibits and Reports on Form 8-K
Page No.
--------
Exhibit 27 10
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Company
has caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
Hooper Holmes, Inc.
Dated: August 15, 1995
BY: JAMES M. McNAMEE
--------------------------
President and
Chief Executive Officer
BY: FRED LASH
--------------------------
Senior Vice President
Chief Financial Officer &
Treasurer
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<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 13,377,794
<ALLOWANCES> 156,822
<INVENTORY> 0
<CURRENT-ASSETS> 24,082,270
<PP&E> 12,894,209
<DEPRECIATION> 6,674,241
<TOTAL-ASSETS> 96,339,127
<CURRENT-LIABILITIES> 19,742,504
<BONDS> 43,126,942
<COMMON> 269,777
0
0
<OTHER-SE> 33,199,904
<TOTAL-LIABILITY-AND-EQUITY> 96,339,127
<SALES> 24,395,611
<TOTAL-REVENUES> 24,515,977
<CGS> 18,455,901
<TOTAL-COSTS> 18,455,901
<OTHER-EXPENSES> 4,907,781
<LOSS-PROVISION> 660,930
<INTEREST-EXPENSE> 377,295
<INCOME-PRETAX> 775,000
<INCOME-TAX> 328,971
<INCOME-CONTINUING> 446,029
<DISCONTINUED> (13,310,326)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (12,864,297)
<EPS-PRIMARY> ($1.91)
<EPS-DILUTED> $0.00
</TABLE>
