10-Q 1 0001.txt FORM 10-Q 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. ------------------------------------------------------- (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 --------------------------------------- ------------------------------ (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 ----- ----- 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 ------------------------------ ------------------------------------- Common stock, $.04 par value 66,047,810 HOOPER HOLMES, INC. AND SUBSIDIARIES INDEX Page No. -------- 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 - Hooper Holmes, Inc. Consolidated Balance Sheets
09/30/00 12/31/99 --------------------- -------------------- (unaudited) (audited) 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 --------------------- -------------------- 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 --------------------- -------------------- Total property, plant and equipment 27,294,293 26,465,947 Less: Accumulated depreciation 17,545,184 16,075,132 --------------------- -------------------- 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 --------------------- -------------------- 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 --------------------- -------------------- 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 --------------------- -------------------- 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 --------------------- -------------------- Total stockholders' equity 192,940,374 89,691,696 --------------------- -------------------- Total liabilities and stockholders' equity $ 209,728,071 $ 184,471,328 ===================== ====================
See accompanying notes to unaudited consolidated financial statements. -1- Hooper Holmes, Inc. Consolidated Statements Of Income (unaudited)
Three months ended Nine months ended September 30, September 30, ----------------------------------------------------------------------------------- 2000 1999 2000 1999 ----------------- ----------------- ------------------- ------------------- 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 ================= ================= =================== ===================
(1) Adjusted to reflect a two for one stock split effective April 26, 2000. See accompanying notes to unaudited consolidated financial statements. -2- Hooper Holmes, Inc. Consolidated Statements of Cash Flows (unaudited)
Nine months ended September 30, -------------------------------------------------- 2000 1999 ---------------------- ----------------------- 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 ---------------------- ----------------------- Net cash provided by operating activities 20,698,972 10,684,047 ---------------------- ----------------------- Cash flows from investing activities: Business acquisition, net of cash acquired 0 (384,197) Capital expenditures (1,289,953) (1,197,652) ---------------------- ----------------------- 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) ---------------------- ----------------------- Net cash provided by financing activities 17,553,075 1,692,842 ---------------------- ----------------------- 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 ---------------------- ----------------------- Cash and cash equivalents at end of period $ 78,325,113 $ 40,547,401 ====================== =======================
See accompanying notes to unaudited consolidated financial statements. -3- 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. - 4 - 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. - 5 - 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. - 6 - 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. - 7 - 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 ----------------------------------- James M. McNamee Chairman, President and Chief Executive Officer BY: /s/ Fred Lash ----------------------------------- Fred Lash Senior Vice President Chief Financial Officer & Treasurer