<PAGE>
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 September 30, 1997
Commission 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
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(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
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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 September 30, 1997
- ------------------------------ ---------------------------------
Common stock, $.04 par value 13,858,798
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HOOPER HOLMES, INC. AND SUBSIDIARIES
INDEX
Page No.
--------
PART I - Financial Information
ITEM 1 - Financial Statements
Consolidated Balance Sheets 1
as of September 30, 1997 and
December 31, 1996
Consolidated Statements of Operations 2
for the Quarter and Nine Months Ended
September 30, 1997 and 1996
Consolidated Statements of Cash Flows 3
for the Nine Months Ended
September 30, 1997 and 1996
Notes to Financial Statements 4
ITEM 2 - Management's Discussion and Analysis 5,6,7
of Financial Condition and Results
of Operations
PART II - Other Information
ITEM 6 - Exhibits and Reports on Form 8-K
Exhibit 27 -
<PAGE>
Hooper Holmes, Inc.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
09/30/97 12/31/96
-------------------- -------------------
(unaudited) (audited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 9,173,973 $ 2,936,447
Accounts receivable - trade 19,444,712 17,035,255
Accounts receivable - other 733,568 1,095,772
Refundable taxes 193,206 1,230,198
Other current assets 4,336,039 3,474,226
-------------------- -------------------
Total current assets 33,881,498 25,771,898
Property, plant and equipment:
Land and land improvements 571,314 571,314
Building 3,620,515 3,545,546
Furniture, fixtures and equipment 15,157,555 14,782,996
Leasehold improvements 300,115 296,157
-------------------- -------------------
Total property, plant and equipment 19,649,499 19,196,013
Less: Accumulated depreciation 11,449,242 9,712,650
-------------------- -------------------
Net property, plant and equipment 8,200,257 9,483,363
Cost in excess of net assets of acquired companies 15,303,205 15,948,735
Intangible assets 8,076,489 9,394,485
Other assets 499,962 697,185
-------------------- -------------------
Total assets $ 65,961,411 $ 61,295,666
==================== ===================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long term debt $ 1,250,000 $ 1,030,000
Accounts payable 5,432,649 6,168,864
Accrued expenses:
Insurance benefits 2,059,730 1,536,315
Salaries, wages and fees 1,837,263 1,264,739
Payroll and other taxes 194,807 167,013
Income taxes payable 2,185,917 334,879
Discontinued operations 1,270,065 1,287,700
Other 3,172,926 2,175,651
-------------------- -------------------
Total current liabilities 17,403,357 13,965,161
Long term debt, less current maturities 0 5,250,000
Deferred income taxes 3,855,164 4,361,049
Common stock 554,487 271,658
Additional paid-in capital 25,908,094 24,645,945
Retained earnings 18,258,811 12,820,355
-------------------- -------------------
44,721,392 37,737,958
Less: Treasury stock 18,502 18,502
-------------------- -------------------
Total stockholders' equity 44,702,890 37,719,456
-------------------- -------------------
Total liabilities and stockholders' equity $ 65,961,411 $ 61,295,666
==================== ===================
</TABLE>
See accompanying notes to consolidated financial statements.
-1-
<PAGE>
Hooper Holmes, Inc.
Consolidated Statements Of Operations
(unaudited)
<TABLE>
<CAPTION>
Three months ended September 30, Nine months ended September 30,
---------------------------------- -----------------------------------
1997 1996 1997 1996
--------------- ---------------- ---------------- -----------------
<S> <C> <C> <C> <C>
Revenues $ 40,701,044 $ 37,907,218 $ 122,813,646 $ 116,332,041
Cost of operations 29,156,919 28,631,068 88,536,718 87,962,047
--------------- ---------------- ---------------- -----------------
Gross profit 11,544,125 9,276,150 34,276,928 28,369,994
Selling, general and administrative expenses 7,236,692 6,917,970 22,990,829 22,537,552
--------------- ---------------- ---------------- -----------------
Operating income 4,307,433 2,358,179 11,286,099 5,832,442
Other income (expense)
Interest expense (26,987) (261,418) (147,724) (1,266,083)
Interest income 80,464 34,501 149,723 318,328
Other 25,299 (12,687) 121,325 100,202
--------------- ---------------- ---------------- -----------------
78,777 (239,604) 123,324 (847,553)
--------------- ---------------- ---------------- -----------------
Income before income taxes 4,386,210 2,118,575 11,409,423 4,984,889
Income taxes 2,106,000 1,018,000 5,490,000 2,393,000
--------------- ---------------- ---------------- -----------------
Net income $ 2,280,210 $ 1,100,575 $ 5,919,423 $ 2,591,889
=============== ================ ================ =================
Net income per common share:
Primary $ 0.16 $ 0.08 $ 0.42 $ 0.19
Fully diluted $ 0.16 $ 0.08 $ 0.41 $ 0.19
=============== ================ ================ =================
Weighted average shares outstanding: (1)
Primary 14,424,705 13,431,812 14,138,297 13,426,774
Fully diluted 14,424,705 13,431,812 14,295,295 13,426,774
=============== ================ ================ =================
</TABLE>
(1) Adjusted to reflect a two for one stock split effective August 22, 1997.
See accompanying notes to consolidated financial statements.
-2-
<PAGE>
Hooper Holmes, Inc.
Consolidated Statements of Cash Flows
(unaudited)
<TABLE>
<CAPTION>
Nine months ended September 30,
---------------------------------------------
1997 1996
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<S> <C> <C>
Cash flows from operating activities:
Net income $ 5,919,423 $ 2,591,889
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 3,767,620 3,748,023
Provision for bad debt expense 360,000 285,000
Deferred tax (benefit) expense (505,885) 0
Issuance of stock awards 0 31,875
Loss on sale of fixed assets 53,974 13,183
Change in assets and liabilities, net of effect from acquisitions /
dispositions of businesses:
Accounts receivable (2,407,252) 5,719,031
Other current assets (664,591) 999,717
Income tax receivable 1,036,992 7,390,817
Accounts payable and accrued expenses 3,218,196 (8,966,008)
------------------- ---------------------
Net cash provided by operating activities 10,778,477 11,813,528
------------------- ---------------------
Cash flows from investing activities:
Net proceeds from dispositions 0 14,986,381
All other acquisitions 0 (30,000)
Capital expenditures, net of disposals (574,962) (880,578)
------------------- ---------------------
Net cash (used in) provided by investing activities (574,962) 14,075,803
------------------- ---------------------
Cash flows from financing activities:
Issuance of long term debt 0 12,500,000
Principal payments on long term debt (5,030,000) (38,800,000)
Proceeds from issuance of common stock 23,301 0
Proceeds related to the exercise of stock options 1,521,677 80,203
Dividends paid (480,967) (268,585)
------------------- ---------------------
Net cash used in financing activities (3,965,989) (26,488,381)
------------------- ---------------------
Net increase (decrease) in cash and cash equivalents 6,237,526 (599,051)
Cash and cash equivalents at beginning of year 2,936,447 1,065,464
------------------- ---------------------
Cash and cash equivalents at end of period $ 9,173,973 $ 466,413
=================== =====================
</TABLE>
See accompanying notes to consolidated financial statements.
-3-
<PAGE>
HOOPER HOLMES, INC.
Notes to Financial Statements
September 30, 1997
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 interim financial statements should be read in conjunction with the
financial statements and notes thereto included in the Company's annual report
on Form 10-K.
The results of operations for the nine month period ended September 30, 1997 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 is based on the weighted average number of common shares and
common share equivalents resulting from options outstanding during the periods.
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings per Share." The new statement
replaces the calculations currently used with "basic earnings per share" that
includes only actual weighted shares outstanding and "diluted earnings per
share" that includes the effect of any common stock equivalents or other items
that dilute earnings per share. The new rules are effective at the end of 1997
and are retroactively applied to the quarterly periods. The adoption of this
statement is not expected to be material.
Note 3: Stock Split
On July 22, 1997 the Board of Directors approved a two-for-one stock split to
all shareholders who owned shares on August 22, 1997. The Company issued the
additional shares on September 5, 1997. Common share and per share amounts in
the Financial Statements have been adjusted to reflect the impact of the stock
split.
- 4 -
<PAGE>
HOOPER HOLMES, INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Results of Operations - Three months ended September 30, 1997 compared to
Three months ended September 30, 1996
Revenues for the third quarter of 1997 were $40.7 million compared to $37.9
million for the third quarter of 1996, an increase of 7.4%. This growth
results from an increase in revenues per unit of service performed combined with
the Company's efforts to gain market share.
The Company's cost of operations for the third quarter of 1997 totaled $29.2
million compared to $28.6 million for the third quarter of 1996. Cost of
operations as a percentage of revenues, decreased from 75.5% for the third
quarter of 1996 to 71.6% for the third quarter of 1997. This decrease is due to
ongoing efforts to control branch operating expenses.
Selling, general and administrative expenses totaled $7.2 million as compared to
$6.9 million for the third quarter of 1997 and 1996, respectively, and as a
percentage of revenue totaled 17.8% compared to 18.3%. This moderate decrease,
as a percentage of revenues, is due to management's ongoing efforts to control
corporate level expenses.
Accordingly, the Company's operating income improved to $4.3 million from $2.4
million and as a percentage of revenues, increased to 10.6% from 6.2% for the
third quarter of 1997 compared to the third quarter of 1996.
Interest expense in the third quarter of 1997 decreased significantly from the
third quarter of 1996 due to lower amounts borrowed. The Company had no revolver
borrowings as of September 30, 1997 and its remaining "mortgage" debt is
classified as short term since it will be fully paid by January 1998.
Net income and earnings per share for the third quarter of 1997 were $2.3
million or $.16 per share on a fully dilutive basis versus $1.1 million or $0.08
per share for the third quarter of 1996. Fully dilutive shares for the
respective periods were 14,424,705 and 13,431,812.
- 5 -
<PAGE>
Results of Operations - Nine months ended September 30, 1997 compared to
Nine months ended September 30, 1996
Revenues for the nine months ended September 30, 1997 were $122.8 million
compared to $116.3 million for the nine months ended September 30, 1996, an
increase of 5.6%. This growth results from an increase in revenues per unit of
service performed combined with the Company's efforts to gain market share.
The Company's cost of operations for the nine months ended September 30, 1997
totaled $88.5 million compared to $88.0 million for the nine months ended
September 30, 1996. Cost of operations as a percentage of revenues, decreased
from 75.6% for the nine months ended September 30, 1996 to 72.1% for the nine
months ended September 30, 1997. The decrease is due to ongoing efforts to
control branch operating expenses.
Selling, general and administrative expenses totaled $23.0 million as compared
to $22.5 million for the nine months ended September 30, 1997 and 1996,
respectively, and as a percentage of revenue totaled 18.7% compared to 19.4%.
This decrease, as a percentage of revenues, is due to management's ongoing
efforts to control corporate expense despite continued revenue growth.
Accordingly, the Company's operating income improved to $11.3 million from $5.8
million and as a percentage of revenues, increased to 9.2% from 5.0% for the
nine months ended September 30, 1997, and 1996, respectively.
Interest expense decreased for the nine months ended September 30, 1997 to $.1
million compared to $1.3 million for the nine months ended September 30, 1996,
due to lower amounts borrowed. Total debt at September 30, 1997 was $1.3
million compared to $8.8 million as of September 30, 1996. The Company had no
revolver debt at September 30, 1997.
Net income and earnings per share for the nine months ended September 30, 1997
were $5.9 million or $.41 per share, on a fully dilutive basis, versus $2.6
million or $.19 per share for the nine months ended September 30, 1996. Fully
dilutive shares for the respective periods were 14,295,295 and 13,426,774.
- 6 -
<PAGE>
Financial Condition
The Company's primary sources of cash are internally generated funds and the
Company's bank credit facility.
Net cash provided by operating activities for the nine months ended September
30, 1997 was $10.8 million compared to $11.8 million for the nine months ended
September 30, 1996. The significant sources were net income of $5.9 million,
$3.8 million of depreciation and amortization, $3.2 million increase in accounts
payable and accrued expenses, and was partially offset by a $2.4 million
increase in accounts receivable.
At September 30, 1997, $17.7 million of the Company's revolver credit facility
of $20 million ($2.3 million committed to outstanding letters of credit) was
available for use compared to the $14.3 million available at September 30, 1996.
The Company's current ratio at the end of September 1997 was 1.9:1 compared to
1.8:1 at December 31, 1996. Also, inflation has not, nor is it expected to have
a material impact on the Company's financial results in 1997 and there have been
no material commitments for capital expenditures.
Dividends declared in January and April 1997 were declared at $.01 per share,
and July 1997 at $.015 per share.
Management believes that the combination of cash and cash equivalents, other
working capital sources, and borrowings under the Company's credit facility,
along with the anticipated cash flows from continuing operations, will provide
sufficient capital resources for the foreseeable future.
- 7 -
<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: November 10, 1997
BY:
---------------------------------
James M. McNamee
President and
Chief Executive Officer
BY:
---------------------------------
Fred Lash
Senior Vice President
Chief Financial Officer &
Treasurer
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET OF HOOPER HOLMES, INC. AND SUBSIDIARIES AS OF
SEPTEMBER 30, 1997 AND THE RELATED CONSOLIDATED STATEMENTS OF INCOME AND CASH
FLOWS FOR THE PERIOD ENDED SEPTEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 9,173,973
<SECURITIES> 0
<RECEIVABLES> 20,301,722
<ALLOWANCES> 857,010
<INVENTORY> 0
<CURRENT-ASSETS> 33,881,498
<PP&E> 19,649,499
<DEPRECIATION> 11,449,242
<TOTAL-ASSETS> 65,961,411
<CURRENT-LIABILITIES> 17,403,357
<BONDS> 0
0
0
<COMMON> 554,487
<OTHER-SE> 44,148,402
<TOTAL-LIABILITY-AND-EQUITY> 65,961,411
<SALES> 122,813,646
<TOTAL-REVENUES> 122,813,646
<CGS> 88,536,718
<TOTAL-COSTS> 88,536,718
<OTHER-EXPENSES> 22,990,829
<LOSS-PROVISION> 360,000
<INTEREST-EXPENSE> 147,724
<INCOME-PRETAX> 11,409,423
<INCOME-TAX> 5,490,000
<INCOME-CONTINUING> 5,919,423
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,919,423
<EPS-PRIMARY> .42<F1>
<EPS-DILUTED> .41<F1>
<FN>
<F1>Prior period financial data schedules have not been restated to reflect the
two-for-one stock split effective August 22, 1997.
</FN>
</TABLE>
