<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, 1998
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, 1998
- ---------------------------- ------------------------------------
Common stock, $.04 par value 14,077,416
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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 September 30, 1998 and
December 31, 1997
Consolidated Statements of Operations 2
for the Three and Nine Months Ended
September 30, 1998 and 1997
Consolidated Statements of Cash Flows 3
for the Nine Months Ended
September 30, 1998 and 1997
Notes to Unaudited 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>
09/30/98 12/31/97
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(unaudited)
ASSETS
Current Assets:
<S> <C> <C>
Cash and cash equivalents $ 24,727,890 $ 13,159,431
Accounts receivable - trade 18,635,982 18,011,490
Accounts receivable - other 751,743 508,857
Refundable taxes 7,408 23,535
Other current assets 2,865,191 2,458,283
-------------- --------------
Total current assets 46,988,214 34,161,596
Property, plant and equipment:
Land and land improvements 591,213 591,213
Building 3,964,974 3,931,574
Furniture, fixtures and equipment 16,549,022 15,675,217
Leasehold improvements 308,783 300,115
-------------- --------------
Total property, plant and equipment 21,413,992 20,498,119
Less: Accumulated depreciation 13,757,228 12,050,903
-------------- --------------
Net property, plant and equipment 7,656,764 8,447,216
Cost in excess of net assets of acquired companies, net 15,105,737 15,089,108
Intangible assets, net 6,509,293 7,647,711
Other assets 434,737 595,486
============== ==============
Total assets $ 76,694,745 $ 65,941,117
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 5,983,414 $ 5,577,158
Accrued expenses:
Insurance benefits 2,055,645 1,969,403
Salaries, wages and fees 2,175,662 1,935,277
Payroll and other taxes 103,557 170,152
Income taxes payable 2,040,658 610,487
Discontinued operations 284,669 573,970
Other 1,740,354 2,944,248
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Total current liabilities 14,383,959 13,780,695
Deferred income taxes 3,135,166 3,641,051
Common stock 565,183 557,565
Additional paid-in capital 29,268,422 27,079,265
Retained earnings 30,314,655 20,901,043
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60,148,260 48,537,873
Less: Treasury stock 972,640 18,502
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Total stockholders' equity 59,175,620 48,519,371
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Total liabilities and stockholders' equity $ 76,694,745 $ 65,941,117
============== ==============
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
- 1 -
<PAGE>
Hooper Holmes, Inc.
Consolidated Statements Of Operations
(unaudited)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
------------------------------- ---------------------------------
1998 1997 1998 1997
-------------- -------------- --------------- ---------------
<S> <C> <C> <C> <C>
Revenues $ 45,382,706 $ 40,701,044 $ 137,062,695 $ 122,813,646
Cost of operations 31,759,515 29,156,919 95,192,090 88,536,718
-------------- -------------- --------------- ---------------
Gross profit 13,623,191 11,544,126 41,870,605 34,276,928
Selling, general and administrative expenses 7,223,987 7,236,692 23,348,308 22,990,829
-------------- -------------- --------------- ---------------
Operating income 6,399,204 4,307,434 18,522,297 11,286,099
Other income (expense)
Interest expense 0 (26,986) 0 (147,724)
Interest income 205,890 80,464 522,278 149,723
Other (47,828) 25,299 (142,668) 121,325
-------------- -------------- --------------- ---------------
158,062 78,777 379,610 123,324
-------------- -------------- --------------- ---------------
Income before income taxes 6,557,266 4,386,210 18,901,907 11,409,423
Income taxes 3,019,000 2,106,000 8,785,000 5,490,000
-------------- -------------- --------------- ---------------
Net income $ 3,538,266 $ 2,280,210 $ 10,116,907 $ 5,919,423
============== ============== =============== ===============
Net income per common share:
Basic 0.25 0.16 0.72 0.43
Diluted $ 0.24 $ 0.16 $ 0.68 $ 0.42
============== ============== =============== ===============
Weighted average number of shares: (1)
Basic 14,098,614 13,830,887 14,047,981 13,719,870
Diluted 14,923,826 14,445,656 14,891,567 14,180,962
============== ============== =============== ===============
</TABLE>
(1) Adjusted to reflect a two for one stock split effective August 22, 1997.
See accompanying notes to unaudited consolidated financial statements.
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<PAGE>
Hooper Holmes, Inc.
Consolidated Statements of Cash Flows
(unaudited)
<TABLE>
<CAPTION>
Nine months ended September 30,
---------------------------------
1998 1997
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<S> <C> <C>
Cash flows from operating activities:
Net income $ 10,116,907 $ 5,919,423
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 3,697,390 3,767,620
Provision for bad debt expense 360,000 360,000
Deferred tax benefit (505,885) (505,885)
Issuance of stock awards 38,250 0
Loss on sale of fixed assets 44,924 53,974
Change in assets and liabilities:
Accounts receivable (1,227,378) (2,407,252)
Other current assets (243,227) (664,591)
Income tax receivable 16,127 1,036,992
Accounts payable and accrued expenses 1,511,263 3,218,196
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Net cash provided by operating activities 13,808,371 10,778,477
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Cash flows from investing activities:
Acquisitions (765,747) 0
Capital expenditures (1,067,257) (574,962)
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Net cash used in investing activities (1,833,004) (574,962)
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Cash flows from financing activities:
Principal payments on long term debt 0 (5,030,000)
Proceeds from employee stock purchase plan 324,248 23,301
Proceeds related to the exercise of stock options 926,277 1,521,677
Treasury stock acquired (954,138) 0
Dividends paid (703,295) (480,967)
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Net cash used in financing activities (406,908) (3,965,989)
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Net increase in cash and cash equivalents 11,568,459 6,237,526
Cash and cash equivalents at beginning of year 13,159,431 2,936,447
-------------- --------------
Cash and cash equivalents at end of period $ 24,727,890 $ 9,173,973
============== ==============
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
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<PAGE>
HOOPER HOLMES, INC.
Notes to Unaudited Consolidated Financial Statements
September 30, 1998
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, 1998 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
"Basic" earnings per common share equals net income divided by weighted average
common shares outstanding during the period. "Diluted" earnings per common share
equals net income divided by the sum of weighted average common shares
outstanding during the period plus common stock equivalents. Common stock
equivalents are shares assumed to be issued if outstanding stock options were
exercised.
- 4 -
<PAGE>
HOOPER HOLMES, INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operation
Results of Operation - Three months ended September 30, 1998 compared to
Three months ended September 30, 1997
Revenues for the third quarter of 1998 were $45.4 million compared to $40.7
million for the third quarter of 1997, an increase of 12%. This growth is the
result of a 7% increase in the number of paramedical exams performed, and
increases in revenues per unit of service.
The Company's cost of operations for the third quarter of 1998 totaled $31.8
million compared to $29.2 million for the third quarter of 1997. Cost of
operations as a percentage of revenues, decreased from 71.6% for the third
quarter of 1997 to 70.0% for the third quarter of 1998. This decrease is due to
ongoing efforts to control branch operating expenses.
Selling, general and administrative expenses totaled $7.2 million for the third
quarters of 1998 and 1997, and as a percentage of revenue totaled 15.9% compared
to 17.8%, respectively. As a percentage of revenues, the decrease is due to
management's ongoing efforts to control corporate level expenses.
Accordingly, the Company's operating income improved to $6.4 million from $4.3
million and as a percentage of revenues, increased to 14.1% from 10.6% for the
third quarter of 1998 compared to the third quarter of 1997.
The Company had no revolver borrowings as of September 30, 1998. Interest
income increased to $.2 million due to higher levels of invested funds.
Net income and earnings per share for the third quarter of 1998 were $3.5
million or $.24 per share on a diluted basis versus $2.2 million or $0.16 per
share for the third quarter of 1997. Weighted average diluted shares for the
respective periods were 14,923,826 and 14,445,656.
- 5 -
<PAGE>
HOOPER HOLMES, INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operation
Results of Operation - Nine months ended September 30, 1998 compared to
Nine months ended September 30, 1997
Revenues for the nine months ended September 30, 1998 were $137.0 million
compared to $122.8 million for the nine months ended September 30, 1997, an
increase of 11.6%. This growth results from a 9% increase in the number of
paramedical exams performed, and an increase in revenues per unit of service,
along with modest price increases.
The Company's cost of operations for the nine months ended September 30, 1998
totaled $95.2 million compared to $88.5 million for the nine months ended
September 30, 1997. Cost of operations as a percentage of revenues, decreased
from 72.1% for the nine months ended September 30, 1997 to 69.5% for the nine
months ended September 30, 1998. The decrease is due to ongoing efforts to
control branch operating expenses.
Selling, general and administrative expenses totaled $23.3 million as compared
to $23.0 million for the nine months ended September 30, 1998 and 1997,
respectively, and as a percentage of revenue totaled 17.0% compared to 18.7%.
As a percentage of revenue, the decrease is due to ongoing efforts to closely
monitor and control corporate level expenses.
Accordingly, the Company's operating income improved to $18.5 million from $11.3
million and as a percentage of revenues, increased to 13.5% from 9.2% for the
nine months ended September 30, 1998, and 1997, respectively.
The Company had no revolver borrowing as of September 30, 1998. Interest income
increased to $.5 million due to higher levels of invested funds.
Net income and earnings per share for the nine months ended September 30, 1998
were $10.1 million or $.68 per share, on a diluted basis, versus $5.9 million
or $.42 per share for the nine months ended September 30, 1997. Weighted average
diluted shares for the respective periods were 14,891,567 and 14,180,962.
- 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, 1998 was $13.8 million compared to $10.8 million for the nine months ended
September 30, 1997. The significant sources were net income of $10.1 million
and $3.7 million of depreciation and amortization.
The Company has no borrowings against its $20 million revolver facility at
September 30, 1998 and as of September 30, 1998, a total amount of $18.4 million
is available under the revolver, $1.6 million committed to outstanding letters
of credit.
The Company's current ratio at the end of September 1998 was 3.3:1, compared to
2.5:1 at December 31, 1997. Also, inflation has not, nor is it expected to have
a material impact on the Company's financial results in 1998. There are no
material commitments for capital expenditures.
Dividends declared in January and May 1998 were declared at $.015 per share, and
July 1998 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 operations, will provide sufficient
capital resources for the foreseeable future.
The Company recognizes the need to insure that its operations and relationships
with its customers, suppliers and other third parties will not be adversely
impacted by the Year 2000 software issue. In January 1997, the Company formed a
"Year 2000" compliance committee. The committee has been charged with
identifying all information and non-information technology systems that could be
affected by the Year 2000 issue, and has concluded this issue will not have a
material effect on the Company.
The Company has developed a phased program to address its Year 2000 issues. The
first phase consisted of identifying the company's IT Systems and Non-IT
Systems, and identifying suppliers and customers who operations could impact
those of the Company. Phase one was completed on schedule. The second phase
consists of determining whether those systems are Year 2000 compliant, based on
certifications received from suppliers and vendors, and on management's
assessment of its internal systems. Many of the Company's critical suppliers
and vendors have indicated that they already are or will be Year 2000 compliant
during 1999, and management has therefore determined there is no need for a
contingency plan. The second phase is expected to be completed in the fourth
quarter 1998. Phase three, is already underway, and consists of remediating
non-compliant systems and the Company expects to complete this phase by early
1999. Year 2000 costs are not expected to exceed one quarter of a million
dollars.
The Company has attempted to identify all of its Year 2000 problem areas, and
has communicated, and will continue to communicate with its suppliers,
customers, and other parties. Management believes that it is taking adequate
steps to insure that its systems will be Year 2000 compliant. We do not foresee
a situation where our results of operations or financial condition could be
impacted, but that remains a possibility.
- 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 13, 1998
BY: /s/ James M. McNamee
-----------------------------------
James M. McNamee
Chairman, President and
Chief Executive Officer
BY: /s/ Fred Lash
-----------------------------------
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, 1998 AND THE RELATED CONSOLIDATED STATEMENTS OF INCOME AND CASH
FLOWS FOR THE PERIOD ENDED SEPTEMBER 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 24,727,890
<SECURITIES> 0
<RECEIVABLES> 20,293,077
<ALLOWANCES> 1,657,095
<INVENTORY> 0
<CURRENT-ASSETS> 46,988,214
<PP&E> 21,413,992
<DEPRECIATION> 13,757,228
<TOTAL-ASSETS> 76,694,745
<CURRENT-LIABILITIES> 14,383,959
<BONDS> 0
0
0
<COMMON> 565,183
<OTHER-SE> 58,610,437
<TOTAL-LIABILITY-AND-EQUITY> 76,694,745
<SALES> 137,062,695
<TOTAL-REVENUES> 137,062,695
<CGS> 95,192,090
<TOTAL-COSTS> 95,192,090
<OTHER-EXPENSES> 23,348,308
<LOSS-PROVISION> 360,000
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 18,901,907
<INCOME-TAX> 8,785,000
<INCOME-CONTINUING> 10,116,907
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,116,907
<EPS-PRIMARY> 0.72
<EPS-DILUTED> 0.68
</TABLE>
