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 March 31, 1999
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 March 31, 1999
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Common stock, $.04 par value 28,547,282
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 March 31, 1999 and
December 31, 1998
Consolidated Statements of Income 2
for the Three Months Ended
March 31, 1999 and 1998
Consolidated Statements of Cash Flows 3
for the Three Months Ended
March 31, 1999 and 1998
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
HOOPER HOLMES, INC.
Consolidated Balance Sheets
03/31/99 12/31/98
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(unaudited) (audited)
ASSETS
Current Assets:
Cash and cash equivalents $ 30,762,678 $ 29,752,361
Accounts receivable - trade 24,566,061 18,145,856
Other current assets 5,569,498 5,396,202
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Total current assets 60,898,237 53,294,419
Property, plant and equipment:
Land and land improvements 591,213 591,213
Building 4,236,358 4,236,358
Furniture, fixtures and equipment 17,952,514 17,345,109
Leasehold improvements 315,478 314,545
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Total property, plant and equipment 23,095,563 22,487,225
Less: Accumulated depreciation 14,621,821 14,166,163
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Net property, plant and equipment 8,473,742 8,321,062
Cost in excess of net assets of acquired companies, net 16,229,548 16,398,245
Intangible assets, net 6,409,911 6,728,112
Other assets 411,365 274,547
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Total assets $ 92,422,803 $ 85,016,385
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Note payable $ 450,000 $ 450,000
Accounts payable 7,970,144 6,606,518
Accrued expenses:
Insurance benefits 1,623,655 1,662,747
Salaries, wages and fees 844,211 2,356,582
Payroll and other taxes 286,710 204,893
Income taxes payable 5,243,640 3,315,758
Discontinued operations 2,656,579 2,845,007
Other 1,570,607 2,377,001
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Total current liabilities 20,645,546 19,818,506
Deferred income taxes 2,349,858 2,518,487
Minority interest 345,194 385,441
Stockholders' equity:
Common stock, par value $.04 per share; authorized 80,000,000 shares
issued 28,651,614 in 1999, and 28,379,964 in 1998 1,146,265 1,135,198
Additional paid-in capital 31,895,405 29,515,099
Retained earnings 37,013,175 32,616,294
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70,054,845 63,266,591
Less: Treasury stock at cost, 104,332 shares in 1999 and 1998 972,640 972,640
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Total stockholders' equity 69,082,205 62,293,951
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Total liabilities and stockholders' equity $ 92,422,803 $ 85,016,385
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See accompanying notes to unaudited consolidated financial statements.
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HOOPER HOLMES, INC.
Consolidated Statements Of Income
(unaudited)
THREE MONTHS ENDED
MARCH 31,
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1999 1998
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Revenues $ 52,939,420 $ 46,111,306
Cost of operations 35,890,332 31,613,838
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Gross profit 17,049,088 14,497,468
Selling, general and administrative expenses 8,570,415 8,578,592
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Operating income 8,478,673 5,918,876
Other income (expense)
Interest expense (9,528) 0
Interest income 205,477 129,538
Other 3,186 (38,353)
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199,135 91,185
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Income before income taxes 8,677,808 6,010,061
Income taxes 3,927,000 2,821,000
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Net income $ 4,750,808 $ 3,189,061
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Net income per common share:
Basic 0.17 0.11
Diluted $ 0.16 $ 0.11
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Weighted average number of shares: (1)
Basic 28,391,733 27,925,210
Diluted 30,284,656 29,502,824
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(1) Adjusted to reflect a two for one stock split effective January 8, 1999.
See accompanying notes to unaudited consolidated financial statements.
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HOOPER HOLMES, INC.
Consolidated Statements of Cash Flows
(unaudited)
THREE MONTHS ENDED MARCH 31,
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1999 1998
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 4,750,808 $ 3,189,061
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,074,967 1,237,268
Provision for bad debt expense 0 120,000
Minority interest (40,247) 0
Deferred tax benefit (168,629) (168,628)
Issuance of stock awards 64,050 0
Loss on sale of fixed assets 0 3,016
Change in assets and liabilities:
Accounts receivable (6,420,205) (2,858,251)
Other current assets (275,114) (169,266)
Accounts payable and accrued expenses 2,289,041 3,948,792
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Net cash provided by operating activities 1,274,671 5,301,992
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CASH FLOWS FROM INVESTING ACTIVITIES:
Business acquisition, net of cash acquired (177,792) 0
Capital expenditures (597,958) (345,764)
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Net cash used in investing activities (775,750) (345,764)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of long term debt 100,000 0
Principal payments on long term debt (100,000) 0
Proceeds related to the exercise of stock options 865,323 304,480
Dividends paid (353,927) (209,303)
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Net cash provided by financing activities 511,396 95,177
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Net increase in cash and cash equivalents 1,010,317 5,051,405
Cash and cash equivalents at beginning of year 29,752,361 13,159,431
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Cash and cash equivalents at end of period $ 30,762,678 $ 18,210,836
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See accompanying notes to unaudited consolidated financial statements.
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HOOPER HOLMES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
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 month period ended March 31, 1999 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 COMMON SHARE
"Basic" net inome 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. All appropriate share and per share amounts have been restated for
the January 8, 1999 stock split.
NOTE 3: CAPITAL STOCK
The Company declared a two for one stock split effective January 8, 1999.
The net tax benefit derived from the exercise of stock options was $1.5 million.
Options exercised during the first quarter 1999 were 271,650 shares.
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HOOPER HOLMES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
RESULTS OF OPERATION - THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO
THREE MONTHS ENDED MARCH 31, 1998
Revenues for the first quarter of 1999 were $52.9 million compared to $46.1
million for the first quarter of 1998, an increase of 14.8%. This growth results
from an increase in the number of examinations performed and increases in
services performed per exam.
The Company's cost of operations for the first quarter of 1999 totaled $35.9
million compared to $31.6 million for the first quarter of 1998. Cost of
operations as a percentage of revenues, decreased from 68.6% for the first
quarter of 1998 to 67.8% for the first quarter of 1999. This percentage decrease
is due to ongoing efforts to control branch operating expenses despite
significant revenue growth.
Selling, general and administrative expenses totaled $8.6 million for the first
quarters of 1999 and 1998, respectively, and as a percentage of revenue totaled
16.2% compared to 18.6%. As a percentage of revenues, the decrease is due to
ongoing efforts to control corporate level expenses.
Accordingly, the Company's operating income improved to $8.5 million from $5.9
million and as a percentage of revenues, increased to 16.0% from 12.8% for the
first quarter of 1999 compared to the first quarter of 1998.
The effective tax rate was 45% and 47% for the quarters ended March 31, 1999 and
1998, respectively. The decrease is the result of increased profitability which
lessened the impact of non-tax deductible goodwill amortization. Interest income
increased to $.2 million, due to higher levels of invested funds.
Net income and earnings per share for the first quarter of 1999 were $4.8
million or $.16 per diluted share versus $3.2 million or $.11 per diluted share
for the first quarter of 1998. Average diluted shares for the respective
periods were 30,284,656 and 29,502,824.
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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 first quarter of 1999 was $1.3
million compared to $5.3 million for the first quarter of 1998. The significant
sources were net income of $4.8 million, $1.1 million of depreciation and
amortization, $2.2 million increase in accounts payable and accrued expenses,
and was offset by a $6.4 million increase in accounts receivable.
Accounts Receivable increased $6.4 million during the first quarter 1999,
compared to year end 1998, and is primarily due to revenue growth of $5.0
million during the first quarter 1999, compared to the fourth quarter 1998. Days
Sales Outstanding (DSO) was 47 days at the end of the first quarter 1999 and
1998.
The Company had no borrowings against its revolver credit facility at March 31,
1999. As of March 31, 1999, a total credit line of $18.6 million is available
under the revolver, with $1.4 million committed to outstanding letters of
credit. The note payable of $450,000 is an obligation of our majority owned
subsidiary.
The Company's current ratio at the end of March 1999 stood at 2.9:1 as compared
to 2.7:1 at December 31, 1998. Inflation has not, nor is it expected to have a
material impact on the Company's financial results in 1999 and there have been
no material commitments for capital expenditures.
Dividends declared in January 1999 were declared at $.0125 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.
YEAR 2000 COMPUTER SYSTEMS COMPLIANCE
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.
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 whose operations could impact
those of the Company. Phase one was completed on schedule. The second phase
consisted of determining whether those systems are Year 2000
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compliant, based on certifications received from suppliers and customers, 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
complaint during 1999. The second phase was completed in the fourth quarter of
1998. Phase three is already underway, and consists of remediating non-compliant
systems, as well as developing a worse case contingency plan. The Company
expects to complete this phase early in the second quarter, 1999.
Since the Company's Year 2000 compliance is dependent upon key third parties
also being Year 2000 compliant on a timely basis, there can be no guarantee that
the Company's efforts will prevent a material adverse impact on its results of
operations, financial condition or cash flows. If our systems, or those of key
third parties are not fully Year 2000 functional, we estimate that up to a one
month disruption in operations could occur. Such a disruption could result in
delays in providing services and in issuing billings to customers. These
consequences could have a material adverse impact on our results of operations,
financial condition and cash flows if we are unable to substantially conduct our
business in the ordinary course. We believe that our efforts, including the
development of a contingency plan, scheduled for completion in the second
quarter 1999, will significantly reduce the adverse impact that any disruption
in business might have. 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, 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
believe our ongoing efforts to address the Year 2000 issue will minimize
possible negative consequences to our Company.
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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: May 13, 1999
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