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, 1999
Commission File No. 1-9972
Hooper Holmes, Inc.
--------------------------------
(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 June 30, 1999
- ---------------------------- ----------------------------
Common stock, $.04 par value 28,829,394
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 June 30, 1999 and
December 31, 1998
Consolidated Statements of Income 2
for the Three and Six Months Ended
June 30, 1999 and 1998
Consolidated Statements of Cash Flows 3
for the Six Months Ended
June 30, 1999 and 1998
Notes to Unaudited Financial Statements 4
ITEM 2 - Management's Discussion and Analysis 5,6,7,8
of Financial Condition and Results
of Operations
PART II - Other Information
ITEM 4 - Submission of Matters to a vote of 9
Security Holders
ITEM 6 - Exhibits and Reports on Form 8-K
Exhibit 27 -
Hooper Holmes, Inc.
Consolidated Balance Sheets
06/30/99 12/31/98
------------------- -------------------
(unaudited) (audited)
ASSETS
Current Assets:
Cash and cash equivalents $ 34,877,002 $ 29,752,361
Accounts receivable 23,364,188 18,145,856
Other current assets 5,809,249 5,396,202
------------------- -------------------
Total current assets 64,050,439 53,294,419
Property, plant and equipment:
Land and land improvements 618,972 591,213
Building 4,494,904 4,236,358
Furniture, fixtures and equipment 17,998,219 17,345,109
Leasehold improvements 318,843 314,545
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Total property, plant and equipment 23,430,938 22,487,225
Less: Accumulated depreciation 15,056,705 14,166,163
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Net property, plant and equipment 8,374,233 8,321,062
Cost in excess of net assets of acquired companies, net 16,017,321 16,398,245
Intangible assets, net 6,047,924 6,728,112
Other assets 401,256 274,547
------------------- -------------------
Total assets $ 94,891,173 $ 85,016,385
=================== ===================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Note payable $ 450,000 $ 450,000
Accounts payable 7,161,254 6,606,518
Accrued expenses:
Insurance benefits 1,565,171 1,662,747
Salaries, wages and fees 895,639 2,356,582
Payroll and other taxes 203,895 204,893
Income taxes payable 3,230,785 3,315,758
Discontinued operations 1,578,630 2,845,007
Other 1,343,004 2,377,001
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Total current liabilities 16,428,378 19,818,506
Deferred income taxes 2,181,230 2,518,487
Minority interest 270,755 385,441
Stockholders' equity:
Common stock, par value $.04 per share; authorized 80,000,000 shares
issued 28,933,726 in 1999, and 28,379,964 in 1998 1,157,349 1,135,198
Additional paid-in capital 34,352,028 29,515,099
Retained earnings 41,474,073 32,616,294
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76,983,450 63,266,591
Less: Treasury stock at cost, 104,332 shares in 1999 and 1998 972,640 972,640
------------------- -------------------
Total stockholders' equity 76,010,810 62,293,951
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Total liabilities and stockholders' equity $ 94,891,173 $ 85,016,385
=================== ===================
See accompanying notes to unaudited consolidated financial statements.
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Hooper Holmes, Inc.
Consolidated Statements Of Income
(unaudited)
Three months ended Six months ended
June 30, June 30,
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1999 1998 1999 1998
---------------- ---------------- ----------------- ----------------
Revenues $ 54,471,840 $ 45,568,683 $ 107,411,260 $ 91,679,989
Cost of operations 37,539,973 31,818,737 73,430,306 63,432,575
---------------- ---------------- ----------------- ----------------
Gross profit 16,931,867 13,749,946 33,980,954 28,247,414
Selling, general and administrative expenses 8,499,170 7,545,729 17,069,585 16,124,321
---------------- ---------------- ----------------- ----------------
Operating income 8,432,697 6,204,217 16,911,369 12,123,093
Other income (expense)
Interest expense (9,953) 0 (19,481) 0
Interest income 233,258 186,851 438,735 316,389
Other 23,054 (56,487) 26,241 (94,840)
---------------- ---------------- ----------------- ----------------
246,359 130,364 445,495 221,549
---------------- ---------------- ----------------- ----------------
Income before income taxes 8,679,056 6,334,581 17,356,864 12,344,642
Income taxes 3,858,000 2,945,000 7,785,000 5,766,000
---------------- ---------------- ----------------- ----------------
Net income $ 4,821,056 $ 3,389,581 $ 9,571,864 $ 6,578,642
================ ================ ================= ================
Net income per common share:
Basic 0.17 0.12 0.34 0.23
Diluted $ 0.16 $ 0.11 $ 0.31 $ 0.22
================ ================ ================= ================
Weighted average number of shares: (1)
Basic 28,745,066 28,162,455 28,569,375 28,044,488
Diluted 30,740,177 30,050,593 30,512,416 29,776,708
================ ================ ================= ================
(1) Adjusted to reflect a two for one stock split effective January 8, 1999.
See accompanying notes to unaudited consolidated financial statements.
-2-
Hooper Holmes, Inc.
Consolidated Statements of Cash Flows
(unaudited)
Six months ended June 30,
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1999 1998
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Cash flows from operating activities:
Net income $ 9,571,864 $ 6,578,642
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 2,169,226 2,492,566
Provision for bad debt expense 0 240,000
Minority interest (114,686) 0
Deferred tax benefit (337,256) (337,257)
Issuance of stock awards 64,050 38,250
Loss on sale of fixed assets 0 38,096
Change in assets and liabilities:
Accounts receivable (5,218,332) (365,718)
Other assets (467,694) (37,200)
Accounts payable and accrued expenses (658,128) 656,741
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Net cash provided by operating activities 5,009,044 9,304,120
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Cash flows from investing activities:
Business acquisition, net of cash acquired (273,307) 0
Capital expenditures (960,040) (685,193)
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Net cash used in investing activities (1,233,347) (685,193)
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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 from employee stock purchase plan 551,718 324,248
Proceeds related to the exercise of stock options 1,511,311 888,589
Dividends paid (714,085) (421,017)
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Net cash provided by financing activities 1,348,944 791,820
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Net increase in cash and cash equivalents 5,124,641 9,410,747
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 $ 34,877,002 $ 22,570,178
=================== ===================
Supplemental disclosure of cash flow information
Cash paid during the year for :
Interest $ 19,590 $ 0
Income taxes $ 5,925,229 $ 5,284,879
See accompanying notes to unaudited consolidated financial statements.
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HOOPER HOLMES, INC.
Notes to Unaudited Consolidated Financial Statements
June 30, 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 and six month period ended June 30,1999
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 income 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 (1,943,041 and 1,732,220 for June 30, 1999 and 1998, 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 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 $2.7 million,
for the six months ended June 30, 1999. Options exercised during the second
quarter 1999 were 209,050 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 June 30, 1999 compared to
Three months ended June 30, 1998
Revenues for the second quarter of 1999 were $54.5 million compared to $45.6
million for the second quarter of 1998, an increase of 20%. This growth is the
result of a 9% increase in the number of paramedical exams performed, and
increases in revenues per unit of service.
The Company's cost of operations for the second quarter of 1999 totaled $37.5
million compared to $31.8 million for the second quarter of 1998. Cost of
operations as a percentage of revenues, decreased from 69.8% for the second
quarter of 1998 to 68.9% for the second quarter of 1999. This decrease is due to
ongoing efforts to control branch operating expenses, despite significant
revenue growth.
Selling, general and administrative expenses totaled $8.5 million and $7.5
million for the second quarters of 1999 and 1998, respectively, and as a
percentage of revenue totaled 15.6% compared to 16.6%. 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 $8.4 million from $6.2
million and as a percentage of revenues, increased to 15.5% from 13.6% for the
second quarter of 1999 compared to the second quarter of 1998.
Interest income increased to $.2 million, due to higher levels of invested
funds. The effective tax rate was 44% and 46% for the quarters ended June 30,
1999 and 1998, respectively. The decrease is the result of increased
profitability which lessened the impact of non-tax deductible goodwill
amortization.
Net income and earnings per share for the second quarter of 1999 were $4.8
million or $.16 per share on a diluted basis versus $3.4 million or $0.11 per
share for the second quarter of 1998. Weighted average diluted shares for the
respective periods were 30,740,177 and 30,050,593.
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HOOPER HOLMES, INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operation
Results of Operation - Six months ended June 30, 1999 compared to
Six months ended June 30, 1998
Revenues for the six months ended June 30, 1999 were $107.4 million compared to
$91.7 million for the six months ended June 30, 1998, an increase of 17%. This
growth results from a 7% increase in the number of paramedical exams performed,
and an increase in revenues per unit of service.
The Company's cost of operations for the six months ended June 30, 1999 totaled
$73.4 million compared to $63.4 million for the six months ended June 30, 1998.
Cost of operations as a percentage of revenues, decreased from 69.2% for the six
months ended June 30, 1998 to 68.4% for the six months ended June 30, 1999. The
decrease is due to ongoing efforts to control branch operating expenses, despite
significant revenue growth.
Selling, general and administrative expenses totaled $17.1 million as compared
to $16.1 million for the six months ended June 30, 1999 and 1998, respectively,
and as a percentage of revenue totaled 15.9% compared to 17.6%. 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 $16.9 million from $12.1
million and as a percentage of revenues, increased to 15.7% from 13.2% for the
six months ended June 30, 1999, and 1998, respectively.
Interest income increased to $.4 million, due to higher levels of invested
funds. The effective tax rate was 45% and 47% for the six months ended June 30,
1999 and 1998, respectively. The decrease is the result of increased
profitability which lessened the impact of non-tax deductible goodwill
amortization.
Net income and earnings per share for the six months ended June 30, 1999 were
$9.6 million or $.31 per share, on a diluted basis, versus $6.6 million or $.22
per share for the six months ended June 30, 1998. Weighted average diluted
shares for the respective periods were 30,512,416 and 29,776,708.
- 6 -
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, 1999
was $5.0 million compared to $9.3 million for the six months ended June 30,
1998. The significant sources were net income of $9.6 million and $2.2 million
of depreciation and amortization, and was offset by an increase in accounts
receivables of $5.2 million.
Accounts Receivable increased $5.2 million during the six months ended June 30,
1999, compared to year end 1998, and is due primarily to revenue growth of $15.7
million during the six months ended June 30, 1999. Days Sales Outstanding (DSO)
was 41 days at June 30, 1999, compared to 47 days at the end of the first
quarter 1999 and 1998.
The Company has no borrowings against its $20 million revolver facility at June
30, 1999 and as of June 30, 1999, a total amount of $18.6 million is available
under the revolver, $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 June 1999 was 3.9:1, compared to 2.7:1
at December 31, 1998. Also, inflation has not, nor is it expected to have a
material impact on the Company's consolidated financial results in 1999 and
there have been no material commitments for capital expenditures.
Dividends declared in January and May 1999 were declared at $.0125 per share. At
its board meeting of July 27, 1999, the Company declared a quarterly dividend of
$.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 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 (Information Technology)
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 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
- 7 -
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 completed this phase in the second quarter,
1999. The contingency plan developed addresses critical areas of our business
and is designed to mitigate serious disruptions of our business flow beyond
1999. The plan primarily provides for using alternate systems processes and
procedures developed, as temporary substitutes, for existing systems that may
experience Year 2000 problems. These alternative systems and procedures have
been developed for the home office functions as well as the Company's network of
branch offices. Additionally, the Year 2000 committee, is prepared to address
unexpected Year 2000 problems that may arise.
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 consolidated results of
operations, financial condition and cash flows if we are unable to substantially
conduct our business in the ordinary course. 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 are Year
2000 compliant. We believe our ongoing efforts to address the Year 2000 issue
will minimize possible negative consequences to our Company.
- 8 -
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 25, 1999, the
shareholders elected Benjamin A. Currier and Elaine L. Rigolosi to serve as
directors until the 2002 Annual Meeting, adopted the 1999 Stock Option Plan,
amended the Company's Certificate of Incorporation to increase the amount of
authorized common stock from 80 million shares to 240 million shares and
ratified the selection of KPMG LLP to serve as the Company's auditors for 1999.
The chart below names each director nominated for election by the shareholders
at the 1999 Annual Meeting, the number of votes cast for, against or withheld
and the number of broker nonvotes with respect to each such person:
Votes Cast Broker
Nominee For Against Withheld Nonvotes
- ------- ------------------------------------------------- --------
Benjamin A. Currier 22,277,028 - 999,201 0
Elaine L. Rigolosi 22,270,280 - 1,005,949 0
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
John E. Nolan
Quentin J. Kennedy
G. Earle Wight
With respect to the 1999 Stock Option Plan, the number of votes cast was
21,038,726 For, 2,044,418 Against, 193,081 Abstained and 0 Broker Nonvotes.
With respect to the amendment to the Certificate of Incorporation, the number of
votes cast was 20,107,487 For, 3,026,778 Against, 141,963 Abstained and 0 Broker
Nonvotes.
With respect to the ratification of KPMG LLP as auditors, the number of votes
cast was 23,168,177 For, 21,634 Against, 85,818 Abstained and 0 Broker Nonvotes.
- 9 -
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 13, 1999
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