<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, 2000
Commission File No. 1-9972
Hooper Holmes, Inc.
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(Exact name of registrant as specified in its charter)
New York 22-1659359
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(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
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(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, 2000
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Common stock, $.04 par value 66,047,810
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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, 2000 and
December 31, 1999
Consolidated Statements of Income 2
for the Three and Nine Months Ended
September 30, 2000 and 1999
Consolidated Statements of Cash Flows 3
for the Nine Months Ended
September 30, 2000 and 1999
Notes to Unaudited Consolidated
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 -
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Hooper Holmes, Inc.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
09/30/00 12/31/99
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(unaudited) (audited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 78,325,113 $ 41,363,019
Accounts receivable 30,173,161 36,836,412
Other current assets 6,008,256 5,233,884
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Total current assets 114,506,530 83,433,315
Property, plant and equipment:
Land and land improvements 618,972 618,972
Building 4,540,898 4,502,638
Furniture, fixtures and equipment 21,762,806 21,020,009
Leasehold improvements 371,617 324,328
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Total property, plant and equipment 27,294,293 26,465,947
Less: Accumulated depreciation 17,545,184 16,075,132
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Net property, plant and equipment 9,749,109 10,390,815
Goodwill, net 70,892,010 73,276,965
Intangible assets, net 14,007,211 16,523,290
Other assets 573,211 846,943
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Total assets $ 209,728,071 $ 184,471,328
===================== ====================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long term debt $ 152,676 $ 142,953
Accounts payable 7,468,754 11,543,665
Accrued expenses:
Insurance benefits 493,839 1,559,552
Salaries, wages and fees 1,158,635 3,209,031
Payroll and other taxes 356,106 357,029
Income taxes payable - 5,033,946
Discontinued operations 287,658 293,736
Other 2,016,235 5,217,684
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Total current liabilities 11,933,903 27,357,596
Long term debt, less current maturities 3,279,817 65,307,047
Deferred income taxes 1,438,892 1,911,027
Minority interest 135,085 203,962
Stockholders' equity:
Common stock, par value $.04 per share; authorized 240,000,000 2,696,779 2,335,642
shares issued 67,419,474 in 2000 and 58,391,052 in 1999
Additional paid-in capital 135,242,339 36,357,092
Retained earnings 66,989,247 51,971,602
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204,928,365 90,664,336
Less: Treasury stock at cost, 1,371,664 shares in 2000
and 208,664 in 1999 11,987,991 972,640
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Total stockholders' equity 192,940,374 89,691,696
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Total liabilities and stockholders' equity $ 209,728,071 $ 184,471,328
===================== ====================
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
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Hooper Holmes, Inc.
Consolidated Statements Of Income
(unaudited)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
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2000 1999 2000 1999
----------------- ----------------- ------------------- -------------------
<S> <C> <C> <C> <C>
Revenues $ 61,270,178 $ 53,830,084 $ 214,624,137 $ 161,241,344
Cost of operations 44,699,923 37,752,753 153,532,920 111,183,059
----------------- ----------------- ------------------- -------------------
Gross profit 16,570,255 16,077,331 61,091,217 50,058,285
Selling, general and administrative expenses 10,881,505 7,752,361 34,491,723 24,821,945
----------------- ----------------- ------------------- -------------------
Operating income 5,688,750 8,324,970 26,599,494 25,236,340
Other income (expense):
Interest expense (68,893) (10,466) (1,221,642) (29,947)
Interest income 1,189,409 309,984 3,038,793 748,719
Other Income (expense), net (6,872) 119,122 373,681 145,363
----------------- ----------------- ------------------- -------------------
1,113,644 418,640 2,190,832 864,135
----------------- ----------------- ------------------- -------------------
Income before income taxes 6,802,394 8,743,610 28,790,326 26,100,475
----------------- ----------------- ------------------- -------------------
Income taxes 2,915,000 3,754,000 12,341,000 11,539,000
----------------- ----------------- ------------------- -------------------
Net income $ 3,887,394 $ 4,989,610 $ 16,449,326 $ 14,561,475
================= ================= =================== ===================
Earnings per share:
Basic 0.06 0.09 0.25 0.25
Diluted $ 0.06 $ 0.08 $ 0.24 $ 0.24
================= ================= =================== ===================
Weighted average number of shares: (1)
Basic 66,120,725 57,786,140 64,526,766 57,356,918
Diluted 69,425,058 61,799,940 68,234,937 61,283,202
================= ================= =================== ===================
</TABLE>
(1) Adjusted to reflect a two for one stock split effective April 26, 2000.
See accompanying notes to unaudited consolidated financial statements.
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Hooper Holmes, Inc.
Consolidated Statements of Cash Flows
(unaudited)
<TABLE>
<CAPTION>
Nine months ended September 30,
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2000 1999
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<S> <C> <C>
Cash flows from operating activities:
Net income $ 16,449,326 $ 14,561,475
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 6,799,556 3,228,746
Minority interest (68,877) (182,680)
Deferred tax benefit (472,135) (505,885)
Issuance of stock awards 153,750 64,050
Loss on sale of fixed assets 33,137 0
Change in assets and liabilities:
Accounts receivable 6,663,251 (6,278,378)
Other current assets (500,640) (1,130,073)
Income tax receivable 0 7,408
Accounts payable and accrued expenses (8,358,396) 919,384
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Net cash provided by operating activities 20,698,972 10,684,047
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Cash flows from investing activities:
Business acquisition, net of cash acquired 0 (384,197)
Capital expenditures (1,289,953) (1,197,652)
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Net cash used in investing activities (1,289,953) (1,581,849)
---------------------- -----------------------
Cash flows from financing activities:
Issuance of long term debt 100,000 100,000
Principal payments on long term debt (62,117,507) (100,000)
Proceeds from offering of common stock, net 86,828,696 0
Proceeds from employee stock purchase plan 680,738 551,718
Proceeds related to the exercise of stock options 4,508,180 2,215,595
Treasury stock acquired (11,015,351) 0
Dividends paid (1,431,681) (1,074,471)
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Net cash provided by financing activities 17,553,075 1,692,842
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Net increase in cash and cash equivalents 36,962,094 10,795,040
Cash and cash equivalents at beginning of year 41,363,019 29,752,361
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Cash and cash equivalents at end of period $ 78,325,113 $ 40,547,401
====================== =======================
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
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HOOPER HOLMES, INC.
Notes to Unaudited Consolidated Financial Statements
September 30, 2000
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 three and nine month period ended September
30, 2000 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: Net Income Per Common Share
"Basic" net income per common share equals net income divided by weighted
average common shares outstanding during the period. "Diluted" net income 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 (3,304,333 and 4,013,800 for September 30, 2000 and 1999,
respectively) are shares assumed to be issued if outstanding stock options were
exercised. All appropriate share and per share amounts have been restated for
the April 26, 2000 stock split.
Note 3: Capital Stock
The Company declared a two for one stock split effective April 26, 2000.
The net tax benefit derived from the exercise of stock options was $7.1 million,
for the nine months ended September 30, 2000. Options exercised during the third
quarter 2000 were 347,000 shares.
On May 30, 2000, the Board of Directors authorized the repurchase of 2.5 million
shares of the Company's common stock during this calendar year for an aggregate
purchase price not to exceed $ 25 million. For the period ended September 30,
2000, the Company purchased 1,163,000 shares for a total cost of $ 11.0 million.
Note 4: Legal Matters
The Company is a party to a number of legal actions arising in the ordinary
course of its business. In the opinion of management, the Company has adequate
legal defense and/or insurance coverage respecting each of these actions and
does not believe their ultimate disposition will materially affect the Company's
consolidated results of operations or financial position.
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Item 2
HOOPER HOLMES, INC
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Results of Operations - Three months ended September 30, 2000 compared to
Three months ended September 30, 1999
Revenues for the third quarter of 2000 were $61.3 million compared to $53.8
million for the third quarter of 1999, an increase of 14%. This growth resulted
from a 17.0% increase in the number of paramedical examinations performed to
767,000 from 657,000 and is the result of the acquisition of Paramedical
Services of America, Inc. (PSA) on November 1, 1999, an increase in services
performed per examination, an increase in the number of Infolink reports to
102,000 from 87,000 and a modest price increase. The increase in Infolink
reports resulted from management reemphasizing branch generation of Infolink
reports.
The Company's cost of operations for the third quarter of 2000 totaled $44.7
million compared to $37.8 million for the third quarter of 1999. Cost of
operations as a percentage of revenues, increased to 73.0% for the third quarter
of 2000 from 70.1% for the third quarter of 1999. This percentage increase is
primarily due to higher direct costs associated with contractor affiliate
revenue as a result of the PSA acquisition and higher branch operating expenses
incurred to meet the volume increase experienced in the first quarter of 2000,
and our efforts to bring PSA's cost structure in line with Hooper Holmes' is
taking longer than previously anticipated.
Selling, general and administrative expenses totaled $10.9 million for the third
quarter of 2000, compared to $7.8 million for the third quarter of 1999, and as
a percentage of revenue totaled 17.8% compared to 14.4%, respectively. This
dollar increase is attributable to certain charges associated with the
acquisition of PSA, (largely amortization of goodwill and intangibles), and
additional corporate resources needed to handle the increased business as a
result of the PSA acquisition.
Accordingly, the Company's operating income decreased to $5.7 million from $8.3
million and as a percentage of revenues, decreased to 9.3% from 15.5% for the
third quarter of 2000 compared to the third quarter of 1999.
The effective tax rate was 43% for the quarters ended September 30, 2000 and
1999.
Interest income increased to $1.2 million, due to higher levels of invested
funds.
Net income and net income per share for the third quarter of 2000 were $3.9
million or $.06 per share on a diluted basis versus $5.0 million or $0.08 per
share for the third quarter of 1999. Weighted average diluted shares for the
respective periods were 69,425,058 and 61,799,940.
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<PAGE>
HOOPER HOLMES, INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Results of Operations - Nine months ended September 30, 2000 compared to
Nine months ended September 30, 1999
Revenues for the nine months ended September 30, 2000 were $214.6 million
compared to $161.2 million for the nine months ended September 30, 1999, an
increase of 33%. This growth resulted from a 33% increase in the number of
paramedical examinations performed to 2,650,000 from 1,999,000 and is the result
of the acquisition of Paramedical Services of America, Inc. (PSA) on November 1,
1999, a one time positive impact from revenue generated due to a life insurance
regulatory phenomenon referred to as "Triple X," which appears to have caused a
rush in early 2000 to buy certain policies before a rate increase or change in
premium structure went into effect, an increase in services performed per
examination, an increase in the number of Infolink reports to 307,000 from
260,000 and a modest price increase. The increase in Infolink reports resulted
from management reemphasizing branch generation of Infolink reports.
The Company's cost of operations for the nine months ended September 30, 2000
totaled $153.5 million compared to $111.2 million for the nine months ended
September 30, 1999. Cost of operations as a percentage of revenues, increased
from 69.0% for the nine months ended September 30, 1999 to 71.5% for the nine
months ended September 30, 2000. This percentage increase is primarily due to
higher costs associated with contractor affiliate revenue required as a result
of the PSA acquisition, and higher branch operating expenses incurred in the
first quarter of 2000, to meet the increased volume associated with the "Triple
X" phenomenon.
Selling, general and administrative expenses totaled $34.5 million as compared
to $24.8 million for the nine months ended September 30, 2000 and 1999,
respectively, and as a percentage of revenue totaled 16.1% compared to 15.4%.
This dollar increase is attributable to certain charges associated with the
acquisition of PSA, (largely amortization of goodwill and intangibles), and
additional corporate resources needed to handle the increased business as a
result of the PSA acquisition.
Accordingly, the Company's operating income improved to $26.6 million from $25.2
million and as a percentage of revenues, decreased to 12.4% from 15.7% for the
nine months ended September 30, 2000, and 1998, respectively.
Interest expense increased to $1.2 million for the nine months ended September
30, 2000, as a result of the borrowings against the Company's term loan, used to
finance the acquisition of PSA. Interest income increased to $3.0 million, due
to higher levels of invested funds
Net income and net income per share for the nine months ended September 30, 2000
were $16.4 million or $.24 per diluted share, versus $14.6 million or $.24 per
share for the nine months ended September 30, 1999. Average diluted shares for
the respective periods were 68,234,937 and 61,283,202.
The effective tax rate was 43% and 44% for the nine months ended September 30,
2000 and 1999, respectively. The decrease is the result of increased
profitability which lessened the impact of non-tax deductible goodwill
amortization from a 1995 acquisition.
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Liquidity and Financial Resources
The Company's primary sources of cash are internally generated funds and cash
and cash equivalents, as well as the company's bank credit facility.
Net cash provided by operating activities for the nine months ended September
30, 2000 was $20.7 million compared to $10.7 million for the nine month's ended
September 30, 1999. The significant sources for the nine months ended September
30, 2000 were net income of $16.5 million, $6.8 million of depreciation and
amortization, a $6.7 million decrease in accounts receivable, and was offset by
an $8.4 million decrease in accounts payable and accrued expenses.
Days Sales Outstanding (DSO) for the nine months ended September 30, 2000 was
40.0 days, compared to 54.5 days for the year ended December 31, 1999.
As of September 30, 2000, the Company has outstanding borrowings against the
term loan in the amount of $ 3 million, and has no borrowings against the $ 35
million revolving loan.
The Company's current ratio at the end of September 2000 stood at 9.6:1 as
compared to 3.0:1 at December 31, 1999. Inflation has not, nor is it expected to
have a material impact on the Company's financial results in 2000 and there have
been no material commitments for capital expenditures.
On May 30, 2000, the Board of Directors authorized the repurchase of 2.5 million
shares of the Company's common stock during this calendar year for an aggregate
purchase price not to exceed $ 25 million. For the period ended September 30,
2000, the Company purchased 1,163,000 shares for a total cost of $ 11.0 million.
Dividends paid in February, May and August 2000 were $.0075 per share. At its
board meeting of October 24, 2000, the company declared a quarterly dividend of
$.0075 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.
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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, 2000
BY: /s/ James M. McNamee
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James M. McNamee
Chairman, President and
Chief Executive Officer
BY: /s/ Fred Lash
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Fred Lash
Senior Vice President
Chief Financial Officer &
Treasurer
