<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 June 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
- --------------------------------------- -----------------------------
(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 June 30, 1997
- ------------------------------- -----------------------------------
Common stock, $.04 par value 6,890,924
<PAGE>
HOOPER HOLMES, INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
PART I - Financial Information
ITEM 1 - Financial Statements
Consolidated Balance Sheets 1
as of June 30, 1997 and
December 31, 1996
Consolidated Statements of Operations 2
for the Quarter and Six Months Ended
June 30, 1997 and 1996
Consolidated Statements of Cash Flows 3
for the Six Months Ended
June 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 4 - Submission of Matters to a vote of 8
Security Holders
ITEM 6 - Exhibits and Reports on Form 8-K
Exhibit 27 -
</TABLE>
<PAGE>
Hooper Holmes, Inc.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
06/30/97 12/31/96
---------------- ----------------
(unaudited) (audited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 6,376,820 $ 2,936,447
Accounts receivable - trade 18,284,637 17,035,255
Accounts receivable - other 304,077 1,095,772
Refundable taxes 1,178,046 1,230,198
Other current assets 3,431,928 3,474,226
---------------- ----------------
Total current assets 29,575,508 25,771,898
Property, plant and equipment:
Land and land improvements 571,314 571,314
Building 3,586,977 3,545,546
Furniture, fixtures and equipment 15,038,016 14,782,996
Leasehold improvements 295,286 296,157
---------------- ----------------
Total property, plant and equipment 19,491,593 19,196,013
Less: Accumulated depreciation 10,915,863 9,712,650
---------------- ----------------
Net property, plant and equipment 8,575,730 9,483,363
Cost in excess of net assets of acquired companies 15,517,765 15,948,735
Intangible assets 8,515,613 9,394,485
Other assets 533,379 697,185
---------------- ----------------
Total assets $ 62,717,995 $ 61,295,666
================ ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long term debt $ 1,830,000 $ 1,030,000
Accounts payable 5,638,263 6,168,864
Accrued expenses:
Insurance benefits 1,959,329 1,536,315
Salaries, wages and fees 1,637,458 1,264,739
Payroll and other taxes 208,753 167,013
Income taxes payable 1,554,835 334,879
Discontinued operations 658,127 1,287,700
Other 3,059,228 2,175,651
---------------- ----------------
Total current liabilities 16,545,993 13,965,161
Long term debt, less current maturities 0 5,250,000
Deferred income taxes 4,023,792 4,361,049
Common stock 275,664 271,658
Additional paid-in capital 25,704,850 24,645,945
Retained earnings 16,186,198 12,820,355
---------------- ----------------
42,166,712 37,737,958
Less: Treasury stock 18,502 18,502
---------------- ----------------
Total stockholders' equity 42,148,210 37,719,456
---------------- ----------------
Total liabilities and stockholders' equity $ 62,717,995 $ 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 June 30, Six months ended June 30,
----------------------------------- --------------------------------------
1997 1996 1997 1996
---------------- ---------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Revenues $ 41,398,735 $ 39,813,823 $ 82,112,603 $ 78,424,823
Cost of operations 29,732,528 29,916,991 59,379,799 59,330,679
---------------- ---------------- ----------------- -----------------
Gross profit 11,666,207 9,896,832 22,732,804 19,094,144
Selling, general and administrative expenses 7,651,109 7,795,964 15,754,138 15,619,582
---------------- ---------------- ----------------- -----------------
Operating income 4,015,098 2,100,868 6,978,666 3,474,562
Other income (expense)
Interest expense (37,616) (425,848) (120,738) (1,004,665)
Interest income 39,727 102,394 69,259 283,828
Other 49,962 41,451 96,026 112,889
---------------- ---------------- ----------------- -----------------
52,073 (282,003) 44,547 (607,948)
---------------- ---------------- ----------------- -----------------
Income before income taxes 4,067,171 1,818,866 7,023,213 2,866,614
Income taxes 1,952,000 873,000 3,384,000 1,375,000
---------------- ---------------- ----------------- -----------------
Net income $ 2,115,171 $ 945,866 $ 3,639,213 $ 1,491,614
================ ================ ================= =================
Net income per common share:
Primary $ 0.30 $ 0.14 $ 0.52 $ 0.22
Fully diluted $ 0.30 $ 0.14 $ 0.51 $ 0.22
================ ================ ================= =================
Weighted average shares outstanding:
Primary 7,043,242 6,714,614 6,997,424 6,713,378
Fully diluted 7,143,540 6,714,614 7,109,964 6,713,378
================ ================ ================= =================
</TABLE>
See accompanying notes to consolidated financial statements.
-2-
<PAGE>
Hooper Holmes, Inc.
Consolidated Statements of Cash Flows
(unaudited)
<TABLE>
<CAPTION>
Six months ended June 30,
--------------------------------------------
1997 1996
------------------- ------------------
<S> <C> <C>
Cash flows from operating activities:
Income from continuing operations $ 3,639,213 $ 1,491,314
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 2,547,538 2,512,620
Provision for bad debt expense 240,000 190,000
Deferred tax (benefit) expense (337,257) 0
Issuance of stock awards 0 31,875
Loss on sale of fixed assets 24,964 11,749
Change in assets and liabilities, net of effect from acquisitions/
dispositions of businesses:
Accounts receivable (697,686) 4,230,726
Other current assets 206,104 698,770
Income tax receivable 52,152 350,000
Accounts payable and accrued expenses 1,780,831 (7,868,868)
-------------------- -------------------
Net cash provided by operating activities 7,455,859 1,648,187
-------------------- -------------------
Cash flows from investing activities:
Net proceeds from dispositions 0 13,953,281
Capital expenditures, net of disposals (355,027) (550,787)
-------------------- -------------------
Net cash (used in) provided by investing activities (355,027) 13,402,494
-------------------- -------------------
Cash flows from financing activities:
Issuance of long term debt 0 7,500,000
Principal payments on long term debt (4,450,000) (23,250,000)
Proceeds from issuance of common stock 300,244 0
Proceeds related to the exercise of stock options 762,667 0
Dividends paid (273,370) (134,292)
-------------------- -------------------
Net cash used in financing activities (3,660,459) (15,884,292)
-------------------- -------------------
Net increase (decrease) in cash and cash equivalents 3,440,373 (833,611)
Cash and cash equivalents at beginning of year 2,936,447 1,065,464
-------------------- -------------------
Cash and cash equivalents at end of period $ 6,376,820 $ 231,853
==================== ===================
</TABLE>
See accompanying notes to consolidated financial statements.
-3-
<PAGE>
HOOPER HOLMES, INC.
Notes to Financial Statements
June 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 six month period ended June 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 will issue
the additional shares on September 5, 1997. Common share and per share amounts
in the Financial Statements do not reflect the impact of the stock split. If
restated for the split, full dilutive earnings per share for the quarter ended
June 30 would be $.15 in 1997 and $.07 in 1996, and for the six months ended
June 30 would be $.26 in 1997 and $.11 in 1996.
-4-
<PAGE>
HOOPER HOLMES, INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operation
Results of Operation - Three months ended June 30, 1997 compared to
Three months ended June 30, 1996
Revenues for the second quarter of 1997 were $41.4 million compared to $39.8
million for the second quarter of 1996, an increase of 4.0%. 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 second quarter of 1997 totaled $29.7
million compared to $29.9 million for the second quarter of 1996. Cost of
operations as a percentage of revenues, decreased from 75.1% for the second
quarter of 1996 to 71.8% for the second quarter of 1997. This decrease is due to
ongoing efforts to control branch operating expenses.
Selling, general and administrative expenses totaled $7.7 million as compared to
$7.8 million for the second quarter of 1997 and 1996, respectively, and as a
percentage of revenue totaled 18.5% compared to 19.6%. 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 $4.0 million from $2.1
million and as a percentage of revenues, increased to 9.7% from 5.3% for the
second quarter of 1997 compared to the second quarter of 1996.
Interest expense in the second quarter of 1997 decreased significantly from the
second quarter of 1996 due to lower amounts borrowed. The Company had no
revolver borrowings as of June 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 second quarter of 1997 were $2.1
million or $.30 per share on a fully dilutive basis versus $.9 million or $0.14
per share for the second quarter of 1996. Fully dilutive shares for the
respective periods were 7,143,540 and 6,714,614.
-5-
<PAGE>
Results of Operation - Six months ended June 30, 1997 compared to
Six months ended June 30, 1996
Revenues for the six months ended June 30, 1997 were $82.1 million compared to
$78.4 million for the six months ended June 30, 1996, an increase of 4.7%.
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 six months ended June 30, 1997 totaled
$59.4 million compared to $59.3 million for the six months ended June 30, 1996.
Cost of operations as a percentage of revenues, decreased from 75.7% for the six
months ended June 30, 1996 to 72.3% for the six months ended June 30, 1997.
The decrease is due to ongoing efforts to control branch operating expenses.
Selling, general and administrative expenses totaled $15.8 million as compared
to $15.6 million for the six months ended June 30, 1997 and 1996, respectively,
and as a percentage of revenue totaled 19.2% compared to 19.9%. The slight
dollar increase is due to management's efforts to closely monitor and control
corporate level expenses, as 1996 included residual ASB corporate costs that
were not present in 1997.
Accordingly, the Company's operating income improved to $7.0 million from $3.5
million and as a percentage of revenues, increased to 8.5% from 4.4% for the six
months ended June 30, 1997, and 1996, respectively.
Interest expense decreased for the six months ended June 30, 1997 to $.1 million
compared to $1.0 million for the six months ended June 30, 1996, due to lower
amounts borrowed. Total debt at June 30, 1997 was $1.8 million compared to
$19.3 million as of June 30, 1996. The Company had no revolver debt at June 30,
1997.
Net income and earnings per share for the six months ended June 30, 1997 were
$3.6 million or $.51 per share, on a fully dilutive basis, versus $1.5 million
or $.22 per share for the six months ended June 30, 1996. Fully dilutive shares
for the respective periods were 7,109,964 and 6,713,378.
-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 six months ended June 30, 1997
was $7.5 million compared to $1.6 million for the six months ended July 30,
1996. The significant sources were income from continuing operations of $3.6
million, $2.5 million of depreciation and amortization, $1.8 million increase in
accounts payable and accrued expenses, and was partially offset by a $.7 million
increase in accounts receivable.
At June 30, 1997, $17.5 million of the Company's revolver credit facility of $20
million ($2.5 million committed to outstanding letters of credit) was available
for use compared to the $3.8 million available at June 30, 1996.
The Company's current ratio at the end of June 1997 and December 31, 1996 stood
at 1.8:1. 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 May 1997 were declared at $.02 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>
PART II - Other Information
Item 4: Submission of Matters to a vote of Security Holders
At the Company's Annual Meeting of Shareholders on May 27, 1997, the
shareholders (1) elected John E. Nolan, Jr., Elaine L. La Monica and Quentin J.
Kennedy to serve as directors until the 2000 Annual Meeting, (2) ratified the
selection of KPMG Peat Marwick LLP to serve as the Company's auditors for 1997,
(3) approved the 1997 Director Option Plan, (4) approved the 1997 Stock Option
Plan and (5) approved the 1997 CEO Stock Option Agreement.
The chart below names each director nominated for election by the shareholders
at the 1997 Annual Meeting, the number of votes cast for, against or withheld
and the number of broker nonvotes with respect to each such person:
<TABLE>
<CAPTION>
Votes Cast Broker
Nominee For Against Withheld Nonvotes
- ------- ---------------------------- --------
<S> <C> <C> <C> <C>
John E. Nolan 6,128,209 - 18,155 0
Elaine L. La Monica 5,760,899 - 385,465 0
Quentin J. Kennedy 5,762,414 - 383,950 0
</TABLE>
The name of each director whose term of office as a director continued after the
annual meeting is as follows:
James M. McNamee
Kenneth R. Rossano
G. Earle Wight
Benjamin A. Currier
With respect to the ratification of KPMG Peat Marwick LLP as auditors, the
number of votes cast was 6,124,746 For, 5,724 Against, 15,894 Abstained and 0
Broker Nonvotes.
With respect to the approval of the 1997 Director Option Plan, the number of
votes cast was 4,082,310 For, 818,038 Against, 43,907 Abstained and 0 Broker
Nonvotes.
With respect to the approval of the 1997 Stock Option Plan, the number of votes
cast was 4,796,374 For, 103,856 Against, 44,025 Abstained and 0 Broker Nonvotes.
With respect to the approval of the 1997 CEO Stock Option Agreement, the number
of votes cast was 4,379,663 For, 516,516 Against, 48,076 Abstained and 0 Broker
Nonvotes.
-8-
<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 11, 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 JUNE
30, 1997 AND THE RELATED CONSOLIDATED STATEMENTS OF INCOME AND CASH FLOWS FOR
THE PERIOD ENDED JUNE 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 6,376,820
<SECURITIES> 0
<RECEIVABLES> 19,168,806
<ALLOWANCES> 884,169
<INVENTORY> 0
<CURRENT-ASSETS> 29,575,508
<PP&E> 19,491,593
<DEPRECIATION> 10,915,863
<TOTAL-ASSETS> 62,717,995
<CURRENT-LIABILITIES> 16,545,993
<BONDS> 0
0
0
<COMMON> 275,664
<OTHER-SE> 41,872,546
<TOTAL-LIABILITY-AND-EQUITY> 42,148,210
<SALES> 82,112,603
<TOTAL-REVENUES> 82,112,603
<CGS> 59,379,799
<TOTAL-COSTS> 59,379,799
<OTHER-EXPENSES> 15,754,138
<LOSS-PROVISION> 240,000
<INTEREST-EXPENSE> 120,738
<INCOME-PRETAX> 7,023,213
<INCOME-TAX> 3,384,000
<INCOME-CONTINUING> 3,639,213
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,639,213
<EPS-PRIMARY> .52
<EPS-DILUTED> .51
</TABLE>
