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, 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 September 30, 1999
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Common stock, $.04 par value 29,076,094
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, 1999 and
December 31, 1998
Consolidated Statements of Income 2
for the Three and Nine Months Ended
September 30, 1999 and 1998
Consolidated Statements of Cash Flows 3
for the Nine Months Ended
September 30, 1999 and 1998
Notes to Unaudited Consolidated
Financial Statements 4, 5
ITEM 2 - Management's Discussion and Analysis 6,7,8,9
of Financial Condition and Results
of Operations
PART II - Other Information 10
ITEM 6 - Exhibits and Reports on Form 8-K
Exhibit 27 -
Item 1
Hooper Holmes, Inc.
Consolidated Balance Sheets
09/30/99 12/31/98
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(unaudited) (audited)
ASSETS
Current Assets:
Cash and cash equivalents $ 40,547,401 $ 29,752,361
Accounts receivable 23,719,228 18,145,856
Other current assets 6,626,153 5,396,202
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Total current assets 70,892,782 53,294,419
Property, plant and equipment:
Land and land improvements 618,972 591,213
Building 4,497,789 4,236,358
Furniture, fixtures and equipment 18,216,421 17,345,109
Leasehold improvements 319,323 314,545
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Total property, plant and equipment 23,652,505 22,487,225
Less: Accumulated depreciation 15,457,649 14,166,163
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Net property, plant and equipment 8,194,856 8,321,062
Goodwill, net 15,912,310 16,398,245
Intangible assets, net 5,621,295 6,728,112
Other assets 944,329 274,547
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Total assets $ 101,565,572 $ 85,016,385
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Note payable $ 450,000 $ 450,000
Accounts payable 7,242,071 6,606,518
Accrued expenses:
Insurance benefits 1,225,138 1,662,747
Salaries, wages and fees 1,221,358 2,356,582
Payroll and other taxes 246,780 204,893
Income taxes payable 2,386,658 3,315,758
Discontinued operations 1,577,633 2,845,007
Other 1,368,252 2,377,001
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Total current liabilities 15,717,890 19,818,506
Deferred income taxes 2,012,602 2,518,487
Minority interest 202,761 385,441
Commitments and contingencies
Stockholders' equity:
Common stock, par value $.04 per share; authorized 240,000,000 shares
issued 29,180,426 in 1999, and 28,379,964 in 1998 1,167,217 1,135,198
Additional paid-in capital 37,334,444 29,515,099
Retained earnings 46,103,298 32,616,294
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84,604,959 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 83,632,319 62,293,951
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Total liabilities and stockholders' equity $ 101,565,572 $ 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 Nine months ended
September 30, September 30,
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1999 1998 1999 1998
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Revenues $ 53,830,084 $ 45,382,706 $ 161,241,344 $ 137,062,694
Cost of operations 37,752,753 31,759,515 111,183,059 95,192,090
------------------- ----------------- -------------------- -------------------
Gross profit 16,077,331 13,623,191 50,058,285 41,870,604
Selling, general and administrative
expenses 7,752,361 7,223,987 24,821,945 23,348,308
------------------- ----------------- -------------------- -------------------
Operating income 8,324,970 6,399,204 25,236,340 18,522,296
Other income (expense)
Interest expense (10,466) 0 (29,947) 0
Interest income 309,984 205,890 748,719 522,278
Other 119,122 (47,828) 145,363 (142,667)
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418,640 158,062 864,135 379,611
------------------- ----------------- -------------------- -------------------
Income before income taxes 8,743,611 6,557,266 26,100,475 18,901,907
Income taxes 3,754,000 3,019,000 11,539,000 8,785,000
------------------- ----------------- -------------------- -------------------
Net income $ 4,989,611 $ 3,538,266 $ 14,561,475 $ 10,116,907
=================== ================= ==================== ===================
Net income per common share:
Basic 0.17 0.13 0.51 0.36
Diluted $ 0.16 $ 0.12 $ 0.48 $ 0.34
=================== ================= ==================== ===================
Weighted average number of shares: (1)
Basic 28,893,070 28,197,228 28,678,459 28,095,907
Diluted 30,899,970 29,847,653 30,641,601 29,783,122
=================== ================= ==================== ===================
(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)
Nine months ended September 30,
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1999 1998
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Cash flows from operating activities:
Net income $ 14,561,475 $ 10,116,907
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 3,228,746 3,697,390
Provision for bad debt expense 0 360,000
Minority interest (182,680) 0
Deferred tax benefit (505,885) (505,885)
Issuance of stock awards 64,050 38,250
Loss on sale of fixed assets 0 44,924
Change in assets and liabilities:
Accounts receivable (6,278,378) (1,227,378)
Other assets (1,130,073) (243,227)
Accounts payable and accrued expenses 926,792 1,527,391
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Net cash provided by operating activities 10,684,047 13,808,372
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Cash flows from investing activities:
Business acquisition, net of cash acquired (384,197) (765,747)
Capital expenditures (1,197,652) (1,067,257)
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Net cash used in investing activities (1,581,849) (1,833,004)
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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 2,215,595 926,277
Treasury stock acquired 0 (954,138)
Dividends paid (1,074,471) (703,296)
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Net cash provided by financing activities 1,692,842 (406,909)
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Net increase in cash and cash equivalents 10,795,040 11,568,459
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 $ 40,547,401 $ 24,727,890
======================== =======================
Supplemental disclosure of cash flow information
Cash paid during the year for:
Interest $ 29,947 $ 0
Income taxes $ 8,525,170 $ 5,284,879
See accompanying notes to unaudited consolidated financial statements.
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HOOPER HOLMES, INC.
Notes to Unaudited Consolidated Financial Statements
September 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 nine month period ended September
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" 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 (1,963,142 and 1,711,705 for September 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 $5.0 million,
for the nine months ended September 30, 1999. Options exercised during the
third quarter 1999 were 246,700 shares.
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Note 4: Subsequent Events
On November 1, 1999, the Company purchased certain assets of Paramedical
Services of America, Inc., (PSA), a national health information services
subsidiary of Pediatric Services of America, Inc., headquartered in Atlanta,
Georgia.
The purchase price was $81 million (subject to certain post closing adjustments)
and was financed with existing cash of $16 million and bank borrowings of $65
million. The acquisition will be accounted for using the purchase method of
accounting. The purchase price will be assigned to the net assets based on the
fair value of such assets and liabilities at the date of acquisition.
On October 29, 1999, the Company replaced its three year $20 million revolving
loan facility and entered into a credit agreement with three banks that included
a $65 million, six year term loan, and a $35 million dollar, three year
revolving loan. The loans bear interest at rates up to prime plus 1/4% or
Libor plus 1 3/4%, depending on the Company's Consolidated Funded Debit to
EBITDA Ratio. Interest payments only are due against the term loan for the
first eighteen months. On November 1, 1999, in conjunction with the PSA
acquisition, the Company borrowed the entire amount of the term loan. There are
no borrowings against the revolver loan.
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Item 2
HOOPER HOLMES, INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operation
Results of Operations - Three months ended September 30, 1999 compared to
Three months ended September 30, 1998
Revenues for the third quarter of 1999 were $53.8 million compared to $45.4
million for the third quarter of 1998, an increase of 19%. This growth is the
result of a 8% 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 1999 totaled $37.8
million compared to $31.8 million for the third quarter of 1998. Cost of
operations as a percentage of revenues, increased slightly to 70.1% for the
third quarter of 1999 from 70.0% for the third quarter of 1998.
Selling, general and administrative expenses totaled $7.8 million for the third
quarter of 1999, compared to $7.2 million for the third quarter of 1998, and as
a percentage of revenue totaled 14.4% compared to 15.9%, respectively. As a
percentage of revenues, the decrease is due to management's ongoing efforts to
control and leverage corporate level expenses, despite increased revenues.
Accordingly, the Company's operating income improved to $8.3 million from $6.4
million and as a percentage of revenues, increased to 15.5% from 14.1% for the
third quarter of 1999 compared to the third quarter of 1998.
The Company had no revolving loan borrowings as of September 30, 1999. Interest
income increased to $.3 million due to higher levels of invested funds.
Net income and net income per share for the third quarter of 1999 were $5.0
million or $.16 per share on a diluted basis versus $3.5 million or $0.12 per
share for the third quarter of 1998. Weighted average diluted shares for the
respective periods were 30,899,970 and 29,847,653.
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HOOPER HOLMES, INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operation
Results of Operations - Nine months ended September 30, 1999 compared to
Nine months ended September 30, 1998
Revenues for the nine months ended September 30, 1999 were $161.2 million
compared to $137.1 million for the nine months ended September 30, 1998, an
increase of 18%. This growth results from a 7% 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, 1999
totaled $111.2 million compared to $95.2 million for the nine months ended
September 30, 1998. Cost of operations as a percentage of revenues, decreased
from 69.4% for the nine months ended September 30, 1998 to 69.0% for the nine
months ended September 30, 1999. The decrease is due to ongoing efforts to
control branch operating expenses.
Selling, general and administrative expenses totaled $24.8 million as compared
to $23.3 million for the nine months ended September 30, 1999 and 1998,
respectively, and as a percentage of revenue totaled 15.4% compared to 17.0%.
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 $25.2 million from $18.5
million and as a percentage of revenues, increased to 15.7% from 13.5% for the
nine months ended September 30, 1999, and 1998, respectively.
The Company had no revolving loan borrowings as of September 30, 1999. Interest
income increased to $.7 million due to higher levels of invested funds.
Net income and net income per share for the nine months ended September 30, 1999
were $14.6 million or $.48 per share, on a diluted basis, versus $10.1 million
or $.34 per share for the nine months ended September 30, 1998. Weighted average
diluted shares for the respective periods were 30,641,601 and 29,783,122.
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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 nine months ended September
30, 1999 was $10.7 million compared to $13.8 million for nine months ended
September 30, 1998. The significant sources were net income of $14.6 million
and $3.2 million of depreciation and amortization, and was offset by an increase
in accounts receivables of $6.3 million.
Accounts Receivable increased $6.3 million during the nine months ended
September 30, 1999, compared to year end 1998. This increase was due primarily
to revenue growth of $24.2 million during the nine months ended September 30,
1999. Days Sales Outstanding (DSO) was 43 days at September 30, 1999, compared
to 41 days at the end of the third quarter 1998.
The Company had no borrowings against its $20 million revolving loan facility at
September 30, 1999 and as of that date, a total amount of $18.6 million is
available under the revolver and $1.4 million is 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 September 1999 was 4.5:1, compared to
2.7:1 at December 31, 1998. Also, inflation has not had, 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 paid in February, May and August 1999 were $.0125 per share. At its
board meeting of October 26, 1999, the Company declared a quarterly dividend of
$.0125 per share, payable November 26, 1999, to shareholders of record on
November 12, 1999.
As of November 1, 1999, the Company purchased certain assets of Paramedical
Services of America, Inc., (PSA), a national health information services
subsidiary of Pediatric Services of America, Inc., headquartered in Atlanta,
Georgia.
The purchase price was $81 million (subject to certain post closing adjustments)
and was financed with existing cash of $16 million and bank borrowings of $65
million. The acquisition will be accounted for using the purchase method of
accounting. The purchase price will be assigned to the net assets based on the
fair value of such assets and liabilities at the date of acquisition.
On October 29, 1999, the Company replaced its three year $20 million revolving
loan facility and entered into a credit agreement with three banks that included
a $65 million, six year term loan, and a $35 million dollar, three year
revolving loan. The loans bear interest at rates up to prime plus 1/4% or
Libor plus 1 3/4%, depending on the Company's Consolidated Funded Debt to
EBITDA Ratio. Interest payments only are due against the term loan for the
first eighteen months. As of November 1, 1999, in conjunction with the PSA
acquisition, the Company borrowed the entire amount of the term loan. There are
no borrowings against the revolving loan.
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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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 was completed in
the fourth quarter of 1998.
Phase three consisted of remediating non-compliant systems, as well as
developing a worse case contingency plan. The Company completed its contingency
plan in the second quarter, 1999. The contingency plan 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 have not exceeded
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.
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Part II - Other Information
Item 6. Exhibits and reports on Form 8-K
Form 8-K was filed on September 17, 1999. Exhibits included were:
(99.1) Press release dated August 31, 1999
(99.2) Asset Purchase Agreement
Exhibit 10.1 Credit Agreement between Hooper Holmes, Inc. and
First Union National Bank
Exhibit 27 Financial Data Schedules
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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 15, 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
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