[LOGO]
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Hooper Holmes, Inc.
Annual Report 2001
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Hooper Holmes, a 100+ year-old company is the nation's #1 provider of health
information utilized in underwriting life and health insurance policies. Through
more than 225 Portamedic(R) locations in all fifty states, Guam and Puerto Rico,
our network of approximately 8,000 experienced medical professionals conducts
paramedical examinations. Our customers - primarily life, health and disability
insurers - use the results of these Portamedic(R) exams for the purpose of
properly assessing risk to make well-informed underwriting decisions. Hooper
Holmes also provides ancillary products through its Healthdex, Infolink,
Portamedic Select(TM) and Teledex services and its Heritage Labs division.
Hooper Holmes is relied upon by most of the top 100 life and health insurers in
the U.S. - some exclusively - for their health information needs, making us the
undisputed leader in the industry. Our experience evolves from generations of
knowledge of how to service our customers and maintain our proven track record
of delivering results. Our innovative thinking has spurred on technological
advancement, and our resilient spirit has enabled us to weather challenging
times and emerge stronger and more successful. Success is a journey, we know the
way.
contents
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financial highlights ..................................................... 1
letter to shareholders ................................................... 2
operations review ........................................................ 4
hooper holmes at a glance ................................................ 12
management's discussion and analysis ..................................... 13
consolidated financial statements ........................................ 22
notes to consolidated financial statements ............................... 26
independent auditors' report ............................................. 41
10 year selected financial data .......................................... 42
directors and officers ................................................... 44
investor information ..................................................... 45
quarterly information .................................................... 46
glossary ................................................. inside back cover
Financial Highlights
Years ended December 31,
------------------------------------------
(dollars in thousands, except per share data) 2001 2000 1999
- ---------------------------------------------------------------------------------------------
Revenues $ 245,185 $ 274,974 $ 237,068
Operating income 24,111 32,633 36,535
Net income 15,247 20,964 20,793
Earnings per share -- basic .24 .32 .36
Earnings per share -- diluted $ .23 $ .31 $ .34
Weighted average number of shares -- basic 64,895,764 64,830,697 57,560,564
Weighted average number of shares -- diluted 67,618,151 68,377,742 61,533,558
Return on stockholders' equity 7.9% 14.9% 27.4%
Dividend payout rate 12.8% 9.2% 6.9%
Net cash provided by operating activities $ 33,559 $ 33,442 $ 30,904
Working capital 94,059 93,305 56,076
EBITDA 32,126 42,169 42,102
Cash dividends paid 1,948 1,925 1,438
Cash dividend per share .03 .03 .02
Cash flow earnings per diluted share .36 .45 .43
Book value per average share 2.90 2.79 1.46
Closing stock price per common share $ 8.95 $ 11.06 $ 12.88
Current ratio 5.6:1 7.2:1 3.1:1
Quick ratio 5.3:1 6.9:1 2.9:1
- ---------------------------------------------------------------------------------------------
Per share and share amounts have been adjusted to reflect two for one stock
splits effective January 8, 1999 and April 12, 2000.
[GRAPHS]
97 165.4 97 16.3 97 .15
98 185.2 98 25.6 98 24
99 237.1 99 36.5 99 .14
00 275.0 00 ??.? 00 .31
01 215.2 01 24.1 01 .23
Revenue Operating Income Earnings Per Share - Diluted
Dollars in millions Dollars in millions Dollars
All graphs presented herein are continuing operations.
1
-
To Our Shareholders James M. McNamee
[PICTURE] Chairman, President and
Chief Executive Officer
Over the course of the past 104 years, Hooper Holmes has experienced the trials
of challenging economic environments and the rewards of prosperous periods.
Through it all, our Company has not merely survived, but thrived to become an
unrivaled industry leader. This provides us with a perspective enjoyed by few
companies - an understanding that success is a journey. Hooper Holmes
consistently proves, by our Company's disciplined strategy, our innovative use
of new technology, and our heritage of providing unequaled products and services
to our customers, that we know the way on the journey of success.
97 16.0
98 21.6
99 30.9
00 23.4
01 31.6
Net Cash Provided by Operating Activities
Dollars in millions
During 2001, Hooper Holmes continued to make progress in a number of vital
areas, despite challenges that were felt not just industry wide, but throughout
most sectors of the economy. The life insurance industry, however, has been
regaining strength, which could bring Hooper Holmes back to its traditional
business growth levels. Because we have been so successful at significantly
improving the speed and efficiency of the underwriting process, we believe that
Hooper Holmes is well positioned to increase its share of a growing market.
For 2001, revenue was $245.2 million, compared with $275.0 million for 2000. Net
income for 2001 - excluding a one-time non-operating provision for legal matters
of $0.7 million on an after-tax basis - was $16.0 million, or $0.24 per diluted
share, versus $21.0 million, or $0.31 per diluted share, for 2000. We expanded
our gross margin for 2001 and achieved cost savings by integrating acquisitions,
which resulted in additional operating efficiencies and better cost containment.
Growth through selective acquisitions remains an important component of our
long-term strategy of expanding our core paramedical business and consolidating
the fragmented paramedical industry to the benefit of our clients and our
Company. Last year, we acquired a dozen regional paramedical providers
throughout the U.S., including Medical Examination Data, which further
strengthened our presence in the Southeast - a significant market for the life
and health insurance industries. The acquisition of Medical Examination Data in
May 2001, incorporated North Carolina's leading full-service provider of health
information services to the life and health insurance industries into the Hooper
Holmes fold and resulted in immediate earnings accretion and operating
efficiencies for our Company.
By leveraging our expertise in technology, we were able to develop exciting new
initiatives during 2001. The Portamedic F.A.S.T.(TM) system allows clients to
use our secure Internet server to retrieve, view and print images of attending
physician statements, examinations and personal health interviews within 24
hours of completion. In addition to this advancement, Hooper Holmes established
an Online Forms Library that catalogs insurance exam forms online, organizing
them by participating client and state. The Online Forms Library allows Hooper
Holmes' branch office employees to select and print the correct form, which
reduces form selection errors while increasing efficiency. Because the Company
is electronically connected to all of its branches, we have the unique ability
to offer this convenience. The full rollout of these initiatives is currently
underway.
2
- -
Portamedic Select(TM) fulfills all of the requirements for gathering the
information needed to initiate the underwriting process for life and disability
insurance. This allows us to help our customers place more policies faster and
meet the increasing demands of changing distribution channels. It accomplishes
this so efficiently that it can cut days off the application-to-policy issuance
time, providing our clients with a valuable competitive advantage to which they
are responding with approval.
During 2001, we expanded our marketing relationship with e-Nable Corporation, a
leader in e-commerce solutions for life and health insurance underwriters. This
relationship, which includes a minority equity interest in e-Nable, positions
our Company to benefit from business generated by "non-medically" underwritten
policies - a huge segment of the life insurance industry that accounts for about
50 percent of all life insurance sales. In addition, it increases the already
significant appeal of Portamedic Select(TM) with complementary front-end
efficiencies, "e-nabling" both companies to provide insurance carriers and
producers with single-source convenience for all of their insurance-underwriting
service needs. We believe the potential of this relationship will be realized
over time as the insurance industry becomes more robust.
We believe that Hooper
Holmes is well
positioned to increase
its market share of a
growing year
Hooper Holmes' Heritage Labs division - the industry's fastest growing
full-service reference lab - continues to prove that an efficient operation
based on new technologies and best practices can deliver exceptional value at
lower cost. This division also adds considerable strength to our
service-efficiency model by enabling us to consolidate the billing, status and
service functions of exam and lab services. Thirty-four new customers, including
five of the top 25 life insurance companies, added Heritage to their list of
approved labs during 2001.
97 21.4
98 30.7
99 40.1
00 42.2
01 32.1
EBITDA
Dollars in millions
For 2002, Hooper Holmes is continuing its focus on using Portamedic(R) - the
only exam provider approved by nearly every life insurance carrier involved in
broker distribution - as a catalyst for growth. Organic growth and strategic
acquisitions have given our Company the unique ability to offer a compelling
proposition: Our clients can either utilize multiple vendors or realize the
comprehensive benefits and convenience of dealing with one company.
There are a number of industry factors that we believe will positively affect
Hooper Holmes' future performance as well. The dynamic growth of alternative
distribution channels, the aging of the population and favorable long-term life
insurance trends should bode well for us as we continue our journey on the road
of success.
We extend our gratitude to our employees for another year of outstanding
service. We also thank our clients and shareholders, whose confidence we will
always endeavor to reward and whose best interests remain our utmost priority.
/s/ James M. McNamee
James M. McNamee
Chairman, President and Chief Executive Officer
3
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Operations Review
Hooper Holmes' most valuable acquisition over its long history has been
experience. No company has done more paramedical exams for more insurance
companies over such a long period of time than Hooper Holmes. This experience
has been acquired over more than a century, giving our Company a unique edge in
the industry.
Hooper Holmes' experience benefits all of its key stakeholders - shareholders,
clients and employees. Our Company has demonstrated to shareholders its ability
to achieve outstanding long-term results. Clients benefit from our experience by
receiving the best quality and the greatest efficiency from our products and
services. These have been developed over time or strategically acquired due to
an unmatched understanding of the needs of the life insurance industry. Our
employees enjoy the advantages of working for a company that values them,
rewards their contributions and has achieved unrivaled strength and longevity in
the industry.
[PICTURE]
[GRAPH]
97 66.9
98 85.0
99 184.5
00 211.0
01 222.0
Net Income
Dollars in millions
First introduced in 1972, Portamedic(R) is the nation's leading provider of
underwriting health information services.
4
- -
EXPERIENCED
Experience gives Hooper Holmes the tools it needs to go well beyond merely
maintaining a static level of accomplishment. Rather, we are able to
consistently build upon our strength to secure an even larger position for our
Company in the promising future of this industry. Using organic growth and
strategic acquisitions to deliver the quality of products and services on which
Hooper Holmes has build its reputation, we are maximizing the value of our
experience to give our Company wider and more exclusive appeal to clients.
Although we already provide primary services to nearly all of the top insurance
companies, we have positioned ourselves to deepen these relationships with a
strong group of complementary ancillary services so that, over time, we may
become the one-stop supplier of all insurance underwriting requirements.
No company has done more
paramedical exams
for more insurance
companies over
such a long period
of time than Hooper Holmes.
5
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PROVEN
In addition to our vast experience, Hooper Holmes has a proven track record of
delivering outstanding service to clients, while preserving its financial
strength in order to realize real, meaningful results for shareholders.
Maintaining a keen focus on providing the best that we can to our clients and
our shareholders has kept us on the right long-term track in every area of our
operations.
The evolution of our client offerings has followed both the changing needs of
the insurance industry and Hooper Holmes' recognition of untapped growth
opportunities. As the industry's needs have increased, so have the quantity,
quality and features of our products and services. From the 1972 introduction of
Portamedic(R), now the nation's leading provider of health information
services, to our e-mobile exam(TM), a hand-held wireless health information
transmitter currently in development, Hooper Holmes has consistently developed
and introduced new and better ways to expand its market share, increase its
market penetration and boast the value of our Company.
New and emerging market segments have created many new opportunities for us to
prove our strength, and we have consistently risen to the occasion with a host
of innovative offerings and expanded capabilities. Responding to the presence of
the Internet and the related growth of alternative distribution channels (ADCs),
Hooper Holmes created and subsequently expanded the Portamedic.com Web site to
provide new levels of service, efficiency and order-status visibility that were
formerly
Hooper Holmes has consistently developed and introduced new and better ways to
expand its market share, increase its market penetration and boost the value of
our Company.
6
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The industry's fastest growing
full-service reference lab,
Hooper Holmes' Heritage Labs
division is living proof that an [PICTURE]
efficient operation based on
new technologies and best
practices can deliver
exceptional value.
unimaginable. Other examples of our willingness to prove ourselves in new areas
include our 1998 acquisition of Heritage Labs and our 2000 minority equity
investment and marketing agreement with e-Nable Corporation, both of which
significantly enhance our ability to meet all of our clients'
underwriting-requirement needs.
To underscore the value of our long-term approach, we offer up the ultimate
proof of its success: Over the past 10 years our Company's earnings per share
has increased by 360 percent and our revenue has increased by 255 percent.
During this same period, the percentage of our employees engaged in
revenue-producing activities grew from 40 percent to 51 percent of our total
headcount. We have increased our national paramedical cover by adding 111 local
and regional locations, bringing the current count to more than 225. This growth
has yielded impressive results not only for our Company, but also for our
shareholders. An investment of $10,000 in the Hooper Holmes initial public
offering in July, 1984, would today have a market value of approximately
$337,600*, reflecting a 3,276% appreciation in common share value.
* as of 12/31/01, assuming reinvestment of all dividends
[BAR CHART]
97 98 99 00 01
---- ---- ----- ----- -----
65.9 85.0 189.5 211.0 222.0
Total Assets
Dollars in Millions
7
Portamedic Select(TM) can
cut days off the application-
to-policy issuance time, providing
our clients with a valuable
[PICTURE] competitive advantage.
Our approach to growth combines innovative thinking with conservatism to
maximize Hooper Holmes' long-term growth prospects without exposing our Company
to an unnecessary amount of risk.
At the heart of our growth strategy is our innovative use of technology, which
enables us to develop and quickly bring to market the industry's most advanced
products and services. This results in our being able to significantly reduce
the application-to-policy issuance time and increase efficiency. Hooper Holmes
has long been the technology leader in the industry, and our Company structure
allows us to successfully leverage that leadership, which gives us an enormous
competitive advantage. Indeed, in some cases our advanced capabilities are able
to close a number of technology gaps for clients who may be having trouble
keeping up with the frantic pace of technology. It is one more way in which
Hooper Holmes extends its relationships far beyond the role of "vendor" to the
much more indispensable role of "growth partner."
During 2001, we further enhanced our "growth partner" appeal by developing two
new technology-based methods of increasing efficiency and accuracy in the
fulfillment of insurance underwriting requirements. Portamedic F.A.S.T.(TM)
enables insurance underwriters to instantaneously view the results of attending
physician statements (APSs) and other essential documents in a secure online
environment without waiting for a fax or mail to arrive. This allows insurers to
issue policies faster, giving them a key competitive edge. Our Company's new
Online Forms Library addresses the problem of multiple exam forms in the
insurance industry. At our clients' discretion, Hooper Holmes lists exam forms
online, organizing them by client and state to ensure speed and accuracy in form
[BAR CHART]
97 98 99 00 01
- ---- ---- ---- ---- ----
20.4 33.5 56.1 93.3 94.1
Working Capital
Dollars in Millions
8
selection at all of our electronically linked branch offices. These latest
additions to our technology arsenal provide clients with useful, valuable tools
designed to significantly boost their ability to operate more competitively.
Another important factor contributing to our growth is our pursuit of strategic
acquisitions. By acquiring "perfect fit" companies that enhance the strength of
our established organization with complementary products, services, technologies
or geographic positioning, we are able to deepen our market penetration, improve
our
Our innovative use
of technology enables
us to develop and
quickly bring to
market the industry's
most advanced
products and services.
innovative
thinking
[PICTURE]
coverage, maximize our operating efficiency and
increase our long-term revenues. One such example of
this is our 2001 acquisition of Medical Examination
Data, which expanded our coverage of the strategically
important Southeast region of the United States.
9
-
resilient
Although out strategy has evolved over the years as the industry changed and our
Company expanded, we have consistently maintained our long-term focus of
achieving clear-cut goals that are in line with the needs of established and
prospective clients and shareholders. Our thorough understanding of the
insurance industry coupled with lessons learned over the course of many years
enables us to be quickly and appropriately responsive to changing tides
strengthening our Company even during challenging times so that we can maximize
our growth during upswings.
Until recently, "recession" was merely a word to many companies. Having only
been around long enough to experience an extended period of economic expansion,
these companies have never had to prove themselves as survivors in any but a
hospitable economic environment. The true test of a company, its management and
its business model, is to achieve solid growth in difficult economic
environments, which is a test that Hooper Holmes has passed with flying colors
many times in its 100+ year history.
It is not discipline
alone, but spirit
that gives Hooper
Holmes the resilience
to gain strength
while passing
through adversity.
10
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Hooper Holmes' employees are dedicated
to providing our customers with
outstanding service.
while passing through adversity. The hands-down leader in our industry, Hooper
Holmes is beyond vying for position with competitors. However, because we never
take our leadership position for granted, our journey is no less demanding. In
the true spirit of a leader, we are constantly raising the bar -- regardless of
what our competitors are doing -- to improve our performance across the board.
Resilience is a proud tradition in America and one that this country has
exemplified since the horrific terrorist attacks of 9/11. Our country has shown
the world that its spirit is indomitable even in times of great trial. Having
embraced this attitude for more than a century, Hooper Holmes remains determined
to consistently reach new heights of service, efficiency and profitability.
[BAR CHART]
97 98 99 00 01
- ---- ---- ---- ----- -----
48.5 62.3 89.7 191.1 196.4
Stockholder's Equity
Dollars in Millions
11
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Hooper Holmes at a Glance
Our Company
Hooper Holmes, Inc. is the nation's leading provider of underwriting health
information services. Through Company-owned branch locations in all fifty
states, Guam and Puerto Rico, the Company's network of experienced medical
professionals conducts physical examinations, testing and personal health
interviews, primarily for the life and health insurance industry.
Services
Hooper Holmes offers a wide range of health information services for gathering
and managing insurance underwriting requirements.
Customers
Hooper Holmes is the primary provider of health information and underwriting
services for nearly all of the top 100 life and health insurers in the United
States.
2001 Highlights
Financial:
. Revenues of $245.2 million
. Operating income as a percentage of revenues - 9.8%
. Net income of $15.2 million
. Cash from operations of $33.6 million
Operational:
. Introduction of Portamedic F.A.S.T.(TM)
. E-mobile exam(TM) product development
. Acquisition of Medical Examination Data
. Expanded agreement with e-Nable Corporation
. Portamedic Select(TM) in full production
. Development of Online Forms Library
Outlook
With the introductions of Portamedic F.A.S.T.(TM) and e-mobile exam(TM), the
continued growth of Heritage Labs and our expanded involvement with e-Nable
Corporation, Hooper Holmes continues to solidify its position as the industry
leader in satisfying the needs of the life and health insurance industries.
12
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- ---------------------------------------------------
Management's Discussion and Analysis
Results of Operations
2001 Compared to 2000
Total revenues for 2001 decreased 11% to $245.2 million from $275.0 million for
2000. The number of paramedical examinations performed decreased from 3,414,000
in 2000 to 2,981,000 in 2001, a decrease of 13%. The decrease in the number of
paramedical examinations is the result of a slower than expected recovery in the
life insurance industry, an increasingly difficult economic environment and
certain competitive issues, including the loss of a major customer. The volume
decrease in the number of paramedical examinations was partially offset by a
slight increase in the average revenue per examination, which is the result of
an increase in services performed per examination. The number of Infolink
reports decreased 2% to 410,000 for the year 2001, compared to 420,000 for the
year 2000. The decrease is the result of decreased volume resulting from a
slower than expected recovery in the life insurance industry and an increasingly
difficult economic environment. Also, the average price per report decreased
approximately 16%, as lower priced reports provided to several major clients
represented a greater percentage of the total Infolink reports provided.
The Company's cost of operations in 2001 totaled $175.3 million compared to
$197.3 million for 2000. This reduction is attributable to lower branch
operating costs, which were reduced by approximately $3.2 million in 2001
compared to 2000 and is the result of the Company's efforts to lower its field
expenses as revenues declined. As a percentage of revenue, cost of operations
improved slightly to 71.5% for 2001, compared to 71.8% for 2000.
Selling, general and administrative (SG&A) expenses totaled $45.8 million for
2001, compared to $45.0 million for 2000, and as a percentage of revenues
totaled 18.7% compared to 16.4%, respectively. The increase, as a percentage of
revenues, is due to lower revenue levels in 2001.
Accordingly, the Company's operating income decreased 26.1% to $24.1 million for
2001 from $32.6 million for 2000, and as a percentage of revenues, decreased to
9.8% compared to 11.9%, respectively.
Interest expense decreased to $0.2 million for 2001, compared to $1.3 million
for 2000 as a result of lower borrowings against the Company's term loan, and
lower interest rates. Interest income in 2001 consisted of interest earned on
invested funds, the average balance of which was $72.7 million in 2001, compared
to $81.7 million in 2000. Interest income decreased to $3.3 million in 2001,
compared to $4.3 million in 2000 and is due to lower average invested funds and
lower interest rates. Other income (expense) includes a one-time, non-operating
provision for legal matters of $1.2 million on a pre-tax basis, or $0.7 million
after tax.
The effective tax rate was 41% and 42% in 2001 and 2000, respectively. The
decrease is primarily the result of lower state tax rates, and interest earned
on tax exempt investments in fiscal 2001.
Net income for 2001 was $15.2 million or $.23 per diluted share versus $21.0
million or $.31 per diluted share for 2000.
13
--
Inflation did not have a significant effect on the Company's operations in 2001.
2000 Compared to 1999
Total revenues for 2000 increased 16% to $275.0 million from $237.1 million for
1999. This growth resulted from a 17% increase in the number of paramedical
examinations performed to 3,414,000 from 2,917,000, principally from the
acquisition of Paramedical Services of America, Inc. (PSA) on November 1, 1999
(see Note 2 of the consolidated financial statements), an increase in services
performed per examination and an increase in the average revenue per examination
of approximately 2%. The number of Infolink reports increased to 420,000 from
350,000. This increase was the result of the acquisition of PSA on November 1,
1999, and an increase in the average revenue per report of approximately 3%.
"Triple X," a life insurance regulatory event in certain states, created a rush
by consumers to buy life insurance policies in late 1999 and early 2000. This
event significantly increased volume in the first quarter of 2000. The increase
in Infolink reports resulted from management reemphasizing branch generation of
Infolink reports, and a major client changing ordering requirements.
The Company's cost of operations in 2000 totaled $197.3 million compared to
$164.0 million for 1999. Cost of operations as a percentage of revenues totaled
71.8% for 2000 versus 69.2% for 1999. As a percentage of revenues, this increase
is primarily due to higher costs as a result of the PSA acquisition, and higher
branch operating expenses incurred in early 2000 to meet the increased volume
associated with the "Triple X" phenomenon.
Selling, general and administrative (SG&A) expenses were $45.0 million for 2000
compared to $36.6 million for 1999. As a percentage of revenues, SG&A expenses
increased to 16.4% for 2000 from 15.4% for 1999. This increase is attributable
to certain expenses associated with the acquisition of PSA, largely amortization
of goodwill and intangibles, and the additional corporate resources needed to
handle the increased business associated with the PSA acquisition.
Accordingly, the Company's operating income for 2000 decreased to $32.6 million
versus $36.5 million for 1999, and as a percentage of revenues, decreased to
11.9% for 2000 compared to 15.4% for 1999.
Interest income in 2000 consisted primarily of interest earned on invested
funds, the average balance of which was $81.7 million in 2000 compared to $35.1
million for 1999. Interest expense increased in 2000 to $1.3 million, as a
result of borrowings against the Company's term loan, used to finance the
acquisition of PSA. Other income, net in 2000, includes a one time pre-tax gain
realized from the sale of securities owned by the Company of $0.4 million.
The effective tax rate was 42% and 44% for 2000 and 1999, respectively. The
decrease is the result of increased profitability which lessened the impact of
non-tax deductible amortization of goodwill from a 1995 acquisition, and
interest earned on tax exempt investments.
As a result of the foregoing, net income from continuing operations in 2000
totaled $21.0 million or $0.31 per diluted share compared to $20.8 million or
$0.34 for 1999.
Inflation did not have a significant effect on the Company's operations in 2000.
14
- --
Liquidity and Financial Resources
The Company's primary sources of cash are internally generated funds and the
Company's credit facility.
On January 31, 2001, the Company entered into a marketing and equity investment
agreement with e-Nable Corporation, at a total original investment of $5.0
million. e-Nable Corporation provides Internet-based business processing
solutions that allow integration of data sources, underwriting intelligence,
distribution channels and insurance products. In August 2001, the Company
executed a convertible promissory note agreement with e-Nable Corporation to
provide additional financing needed for its development activities for up to
$1.75 million, of which $0.2 million was outstanding as of December 31, 2001.
The Company has no future commitment to contribute additional funds to e-Nable
Corporation other than the additional financing referred to above.
On May 30, 2000, the Board of Directors authorized the repurchase in any
calendar year of up to 2.5 million shares of the Company's common stock for an
aggregate purchase price not to exceed $25 million per year. For the years ended
December 31, 2001 and 2000, the Company purchased 1,347,000 and 1,785,000 shares
at a total cost of $10.8 million and $17.1 million, respectively.
On October 29, 1999, the Company replaced its previous revolving loan facility
and entered into a senior credit facility with three banks that included a $65
million, six-year term loan, and a $35 million, three-year revolving loan.
During 2001, the three year revolving loan expiration date was extended for one
year to October 31, 2003. The loans bear interest at either the prime rate minus
1/2% to plus 1/4% or LIBOR plus 3/4% to 13/4%, depending on our consolidated
funded debt, as defined, to our earnings before interest, taxes, depreciation
and amortization or "EBITDA" ratio. As of December 31, 2001, interest was
payable at an effective interest rate of 2.86% per annum, and the Company had
outstanding borrowings against the term loan in the amount of $3 million. There
are no additional borrowings available under the original $65 million term loan
due to previous borrowings which have been repaid. There are no borrowings
against the revolving loan. As of December 31, 2001 and 2000, the majority owned
subsidiary of the Company had outstanding obligations under its bank note in the
amount of $0.4 million.
For the year ended December 31, 2001, the net cash provided by operating
activities was $33.6 million as compared to $33.4 million in 2000. The
significant sources were net income of $15.2 million, $9.3 million of
depreciation and amortization, a $3.7 million decrease in accounts receivable
and an increase in accounts payable and accrued expenses of $7.3 million. The
decrease in accounts receivable was due to strong accounts receivable
collections in December 2001. Days sales outstanding was 36.5 days at December
31, 2001, compared to 38.5 days at December 31, 2000.
Our current ratio as of December 2001 was 5.6 to 1, compared to 7.2 to 1 at
December 31, 2000. Also, inflation has not had, nor is it expected to have, a
material impact on our consolidated financial results. We currently have no
material commitments for capital expenditures. Quarterly dividends paid in 2001
were $.0075 per share.
15
--
Future payments due under debt and lease obligations as of December 31, 2001 are
as follows:
Credit Facilities Operating Leases Total
- --------------------------------------------------------------------------------
2002 $ 116,648 $10,184,753 $10,301,401
2003 3,168,132 7,627,594 10,795,726
2004 235,385 4,396,471 4,631,856
2005 -- 552,855 552,855
2006 -- 83,850 83,850
- --------------------------------------------------------------------------------
$ 3,520,165 $22,845,523 $26,365,688
================================================================================
Management believes that the combination of current cash and cash equivalents
and available borrowings under our senior credit facility, along with
anticipated cash flows from continuing operations, will provide sufficient
capital resources to satisfy both our short-term and foreseeable long-term
needs.
Critical Accounting Policies
Our critical accounting policies are as follows:
. Accounting for income taxes
. Valuation of long-lived and intangible assets and goodwill
Accounting for income taxes -- As part of the process of preparing our
consolidated financial statements we are required to estimate our income taxes
in each of the jurisdictions in which we operate. This process involves us
estimating our actual current tax expense together with assessing temporary
differences resulting from differing treatment of items for tax and accounting
purposes. These differences result in deferred tax assets and liabilities, which
are included within our consolidated balance sheet. We must then assess the
likelihood that our deferred tax assets will be recovered from future taxable
income and to the extent we believe that recovery is not likely, we must
establish a valuation allowance. If the Company were to establish a valuation
allowance or increase this allowance in a period, we must include an expense
within the tax provision in the consolidated statement of operations.
Significant management judgement is required in determining our provision for
income taxes and our deferred tax assets and liabilities.
Valuation of long-lived and intangible assets, goodwill and investments -- We
assess the impairment of identifiable intangibles, long-lived assets and related
goodwill and investments whenever events or changes in circumstances indicate
that the carrying value may not be recoverable. Factors we consider important
which could trigger an impairment review include the following:
. significant underperformance relative to expected historical or
projected future operating results;
. significant changes in the manner of our use of the acquired assets or
the strategy for our overall business;
. significant negative industry or economic trends;
. significant decline in our stock price for a sustained period; and
. our market capitalization relative to net book value.
When we determine that the carrying value of intangibles, long-lived assets and
related goodwill may not be recoverable based upon the existence of one or more
of the above indicators of impairment, we measure any impairment based on a
projected discounted cash flow method using a discount rate determined by our
management to be commensurate with the risk inherent in our current business
16
- --
model. Net intangible assets, long-lived assets and goodwill amounted to $101.3
million as of December 31, 2001.
On January 1, 2002, Statement of Financial Accounting Standards ("SFAS") No.
142, "Goodwill and Other Intangible Assets" became effective and as a result, we
will cease to amortize approximately $82.7 million of goodwill. We had recorded
approximately $3.8 million of amortization on these amounts during 2001 and
would have recorded approximately $4.3 million in amortization during 2002. In
lieu of amortization, we are required to perform an initial impairment review of
our goodwill in 2002 and an annual impairment review thereafter. We expect to
complete our initial review during the first quarter of 2002. We currently do
not expect to record an impairment charge upon completion of the initial
impairment review. However, there can be no assurance that at the time the
review is completed a material impairment charge will not be recorded. Our
assessment of impairment of our investment in e-Nable Corporation was focused on
the future business development prospects of this early stage venture in the
life insurance industry, specifically the projected future cash flows of the
business. Management concluded that at December 31, 2001, the investment was not
permanently diminished in value, and therefore no impairment charge was
required. Consistent with any new venture, there are risks that its products
will not be accepted by the marketplace, that technology from other sources in
the future could reduce projected demand or that additional funding sources to
continue its product development will not be available. As such, management will
monitor the operations of e-Nable periodically for indications of impairment or
diminished value of the investment.
Recently Issued Accounting Standards
In July 2001, the Financial Accounting Standards Board (FASB) issued Statement
No. 141, "Business Combinations," and Statement No. 142, "Goodwill and Other
Intangible Assets." Statement 141 requires that the purchase method of
accounting be used for all business combinations initiated or completed after
June 30, 2001. Statement 141 also specifies criteria that intangible assets
acquired in a purchase method business combination must meet to be recognized
and reported apart from goodwill, noting that any purchase price allocable to an
assembled workforce may not be accounted for separately.
Statement 142 requires that goodwill and intangible assets with indefinite
useful lives no longer be amortized, but instead be tested for impairment at
least annually in accordance with the provisions of Statement 142. Statement 142
also requires that intangible assets with definite useful lives be amortized
over their respective estimated useful lives to their estimated residual values,
and be reviewed for impairment in accordance with SFAS No. 144, "Accounting for
the Impairment or Disposal of Long-Lived Assets to be Disposed of," which is
discussed below.
The Company adopted the provisions of Statement 141 effective June 30, 2001, and
will adopt Statement 142 effective January 1, 2002. Furthermore, any goodwill
and any intangible asset determined to have an indefinite useful life that were
acquired in a purchase business combination completed after June 30, 2001 were
not amortized, but will be evaluated for impairment in accordance with the
appropriate Statement 142 accounting literature. Goodwill and intangible assets
acquired in business combinations completed before July 1, 2001 were amortized
prior to the Company's adoption of Statement 142.
Statement 141 requires upon adoption of Statement 142, that the Company evaluate
its existing intangible assets and goodwill that were acquired in a prior
purchase business combination, and to
17
--
make any necessary reclassifications in order to conform with the new criteria
in Statement 141 for recognition apart from goodwill. Upon adoption of Statement
142, the Company will reassess the useful lives and residual values of all
intangible assets acquired in purchase business combinations, and make any
necessary amortization period adjustments by the end of the first interim period
after adoption. In addition, to the extent an intangible asset is identified as
having an indefinite useful life, the Company will test the intangible asset for
impairment in accordance with the provisions of Statement 142 within the first
interim period. Any impairment loss will be measured as of the date of adoption
and recognized as the cumulative effect of a change in accounting principle in
the first interim period.
In connection with the transitional goodwill impairment evaluation, Statement
142 requires the Company to perform an assessment of whether there is an
indication that goodwill is impaired as of the date of adoption. To accomplish
this the Company must identify its reporting units and determine the carrying
value of each reporting unit by assigning the assets and liabilities, including
the existing goodwill and intangible assets, to those reporting units as of the
date of adoption. The Company will then have up to six months from the date of
adoption to determine the fair value of each reporting unit and compare it to
the reporting unit's carrying amount. To the extent a reporting unit's carrying
amount exceeds its fair value, an indication exists that the reporting unit's
goodwill may be impaired and the Company must perform the second step of the
transitional impairment test.
In the second step, the Company must compare the implied fair value of the
reporting unit's goodwill, determined by allocating the reporting unit's fair
value to all of its assets (recognized and unrecognized) and liabilities in a
manner similar to a purchase price allocation in accordance with Statement 141,
to its carrying amount, both of which would be measured as of the date of
adoption. This second step is required to be completed as soon as possible, but
no later than the end of the year of adoption. Any transitional impairment loss
will be recognized as the cumulative effect of a change in accounting principle
in the Company's consolidated statement of earnings.
We expect to complete this review during the first quarter of 2002. We do not
expect to record an impairment charge upon completion of the initial review.
However, there can be no assurance that at the time the review is completed a
material impairment charge may not be recorded.
As of December 31, 2001, the Company has unamortized goodwill in the amount of
$81.5 million and unamortized identifiable intangible assets in the amount of
$12.0 million, both of which will be subject to the transition provisions of
Statement 141 and 142. Amortization expense relating to goodwill was $3.8
million, $3.2 million and $1.2 million for the years ending December 31, 2001,
December 31, 2000 and December 31, 1999, respectively. Effective the first day
of fiscal 2002, the Company ceased the amortization of all unamortized goodwill
and reclassified $1.2 million of previously recorded value related to acquired
workforce into goodwill and ceased amortizing this amount as well. Amortization
expense related to the intangible assets with an indefinite useful life was $0.2
million, $0.6 million and $0.4 million for the years ended December 31, 2001,
December 31, 2000 and December 31, 1999, respectively.
As a result of the adoption of Statement 142, a substantial amount of goodwill
and intangible assets will no longer be amortized and accordingly, the Company's
effective tax rate is expected to decrease in fiscal 2002 as some of its
goodwill was not deductible for tax purposes. The impact on diluted earnings per
share of goodwill and intangible asset amortization that would not have been
amortized pursuant to Statement 142 during fiscal 2001 was approximately $.035
per share.
18
- --
Hooper Holmes, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
In August 2001, the FASB issued SFAS No. 144 "Accounting for Impairment or
Disposal of Long-Lived Assets" ("SFAS 144"), which supercedes SFAS No. 121. SFAS
144 further refines SFAS 121's requirement that companies recognize an
impairment loss if the carrying amount of a long-lived asset is not recoverable
based on its undiscounted future cash flows and measure an impairment loss as
the difference between the carrying amount and fair value of the asset. In
addition, SFAS 144 provides guidance on accounting and disclosure issues
surrounding long-lived assets to be disposed of by sale. SFAS 144 also extends
the presentation of discontinued operations to include more disposal
transactions. SFAS 144 is effective for all fiscal quarters of all fiscal years
beginning after December 15, 2001 (2002 for the Company). We believe that the
adoption of SFAS 144 will not have a material effect on our consolidated results
of operations or financial position.
Quantitative and Qualitative Disclosures About Market Risk
The Company's exposure to market risk for changes in interest rates relates
primarily to the Company's investment portfolio. The Company places its
investments with high quality issuers and, by policy, limits the amount of
credit exposure to any one issuer. The Company does not invest in portfolio
equity securities or commodities or use financial derivatives for trading
purposes. The Company's debt security portfolio represents funds held
temporarily pending use in our business and operations. The Company mitigates
its risk by investing in only high credit quality securities that it believes to
be low risk and by positioning its portfolio to respond to a significant
reduction in a credit rating of any investment issuer or guarantor. The
portfolio includes only marketable securities with active secondary or resale
markets to insure portfolio liquidity.
The table below presents the principal amounts and related weighted average
interest rates by year of maturity for our investment portfolio as of December
31, 2001.
2007 Estimated
and Fair
(in thousands) 2002 2003 2004 2005 2006 Thereafter Total Value
- -----------------------------------------------------------------------------------------------------------------------------
Fixed rate investments $5,055 $8,000 $5,323 $8,159 $1,555 $2,283 $30,375 $31,226
Weighted average interest rates 5.93% 5.48% 6.26% 6.22% 5.97% 6.29% 5.98%
=============================================================================================================================
The Company is exposed to market risk from changes in interest rates which may
adversely affect its financial position, results of operations and cash flows.
The Company is exposed to interest rate risk primarily through its borrowing
activities, which are described in Note 7 to the Consolidated Financial
Statements. The Company's borrowings are under variable rate instruments. Future
payments due under borrowings are $116,648 in 2002, $3,168,132 in 2003, and
$235,385 in 2004 at an average interest rate of 3.2%.
Based on the Company's market risk sensitive instruments (including investments
and variable rate debt) outstanding at December 31, 2001, the Company has
determined that there was no material market risk exposure to the Company's
consolidated financial position, results of operations or cash flows as of such
date.
19
Hooper Holmes, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
Forward Looking Statements
Certain written and oral statements made by our Company or with the approval of
an authorized executive officer of our Company may constitute "forward-looking
statements" as defined under the Private Securities Litigation Reform Act of
1995, including statements made in this report and other filings with the
Securities and Exchange Commission. These statements generally are not
historical in nature and can be identified by words such as "believe," "expect,"
"intend," "estimate," "anticipate," "project," "will," "may," "should," "could"
and similar expressions. These statements involve risks and uncertainties that
could cause actual results to differ materially from our Company's historical
experience and our present expectations or projections. These statements are not
guarantees of future performance or results.
The following are some of the factors that could cause our Company's actual
results to differ materially from those described in forward-looking statements:
Trends and other developments affecting the life insurance industry--We
currently derive nearly all of our revenues from life insurance companies. The
demand for our services is largely dependent on the demand for life insurance
policies, policy amounts, the type of health information services requested,
general economic conditions, and other factors beyond our control. Any decreases
in demand for health information services by life insurance companies could
substantially harm our business.
Loss of customers--Our relationships with most insurance company customers are
not covered by formal written agreements, and we have exclusive relationships
with only a small number of customers. Our ability to retain these customers
will depend on our continued ability to serve their needs and distinguish us
from our competitors. The loss of one or more customers could materially impact
our business.
Changes in the health information services business environment--These include
changes in the types of products demanded by insurance companies, competitive
product and pricing pressures, including technological advancements by
competitors, and our ability to gain or maintain market share notwithstanding
the actions of our competitors. Factors such as these could impact our earnings
and growth.
Continued growth of alternative distribution channels--Our continued growth will
depend in part on increased use of the Internet and other alternative
distribution channels by our customers to sell their life insurance products.
Rapid growth in the use of these distribution channels may not continue.
Reduction or replacement of these channels could limit any growth in the number
of applications for life insurance policies, which could substantially harm our
business.
Need to enhance and expand our technology and infrastructure--We need to
continually adapt to the technological needs of our insurance company customers
by enhancing and expanding our technology and network infrastructure to
accommodate our customers' changing needs. Our failure to do so could
substantially harm our business.
Loss of key management--Our continued success is materially dependent upon our
key management team, including James M. McNamee, our Chairman, President and
Chief Executive Officer, none of whom has an employment agreement. If we lose
one or more of our executive officers, an inability to successfully recruit and
retain additional highly skilled and experienced management, or to successfully
train and promote existing personnel to serve in a managerial capacity, could
substantially harm our business.
20
Hooper Holmes, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
Acquisitions and other strategic investments--Our growth strategy has included
acquiring other businesses and making strategic investments. There is no
guarantee that these activities will be profitable, or that we will continue
growing through these types of activities or otherwise.
Changes in laws and regulations, including changes in accounting standards,
taxation requirements and environmental laws.
The effectiveness of our sales, advertising and marketing programs.
Our ability to achieve earnings forecasts, which are primarily based on
projected numbers of examinations to be performed.
Economic and political conditions in the United States.
The uncertainties of litigation, as well as other risks and uncertainties
detailed from time to time in our Securities and Exchange Commission filings.
Other factors not identified could also cause actual results to materially
differ from those described in forward-looking statements. Caution should be
taken not to place undue reliance on any forward- looking statements made in
this report or otherwise since such statements speak only as of the date when
made. The Company undertakes no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise.
21
Hooper Holmes, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
Consolidated Balance Sheets
December 31,
------------------------------
2001 2000
- ---------------------------------------------------------------------------------------------------------------------------------
Assets
Current assets:
Cash and cash equivalents $ 52,571,616 $ 45,680,471
Marketable securities 31,225,891 29,188,309
Accounts receivable 24,939,364 28,870,624
Other current assets 5,676,399 4,539,330
- ---------------------------------------------------------------------------------------------------------------------------------
Total current assets 114,413,270 108,278,734
- ---------------------------------------------------------------------------------------------------------------------------------
Property, plant and equipment 28,188,908 27,382,480
Less: Accumulated depreciation and amortization 20,355,456 18,058,073
- ---------------------------------------------------------------------------------------------------------------------------------
7,833,452 9,324,407
- ---------------------------------------------------------------------------------------------------------------------------------
Goodwill (net of accumulated amortization of
$12,512,933 in 2001 and $8,726,370 in 2000) 81,515,202 78,815,845
- ---------------------------------------------------------------------------------------------------------------------------------
Intangible assets (net of accumulated amortization of
$14,032,964 in 2001 and $10,931,382 in 2000) 11,995,686 13,865,768
- ---------------------------------------------------------------------------------------------------------------------------------
Investment in e-Nable Corporation 5,218,750 --
Other assets 994,383 751,128
- ---------------------------------------------------------------------------------------------------------------------------------
$ 221,970,743 $ 211,035,882
- ---------------------------------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Current liabilities:
Current maturities of long-term debt $ 239,669 $ 196,836
Accounts payable 7,479,797 7,402,862
Accrued expenses:
Insurance benefits 386,093 291,408
Salaries, wages and fees 3,368,318 2,585,457
Payroll and other taxes 289,779 232,348
Income taxes payable 4,683,762 902,721
Other 3,906,662 3,362,025
- ---------------------------------------------------------------------------------------------------------------------------------
Total current liabilities 20,354,080 14,973,657
- --------------------------------------------------------------------------------------------------------------------------------
Long-term debt, less current maturities 3,280,496 3,195,295
Deferred income taxes 1,741,617 1,708,954
Minority interest 187,676 81,355
- ---------------------------------------------------------------------------------------------------------------------------------
Commitments and contingencies
- ---------------------------------------------------------------------------------------------------------------------------------
Stockholders' equity:
Common stock, par value $.04 per share; authorized 240,000,000 shares,
issued 67,499,074 in 2001 and 67,454,174 in 2000 2,699,963 2,698,167
Additional paid-in capital 134,482,010 135,419,195
Unrealized gains on marketable securities 201,589 --
Retained earnings 84,308,815 71,009,995
- ---------------------------------------------------------------------------------------------------------------------------------
221,692,377 209,127,357
Less: Treasury stock at cost (2,949,459 shares in 2001 and 1,993,564 shares in 2000) 25,285,503 18,050,736
- ---------------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 196,406,874 191,076,621
- ---------------------------------------------------------------------------------------------------------------------------------
$ 221,970,743 $ 211,035,882
=================================================================================================================================
See accompanying notes to consolidated financial statements
22
Hooper Holmes, Inc. and Subsidiaries
- ----------------------------------------------------------------------
Consolidated Statements of Income
Years ended December 31,
- --------------------------------------------------------------------------------------------------------------------------
2001 2000 1999
- --------------------------------------------------------------------------------------------------------------------------
Revenues $ 245,184,854 $ 274,973,666 $ 237,068,057
Cost of operations 175,281,461 197,347,143 163,958,380
- --------------------------------------------------------------------------------------------------------------------------
Gross profit 69,903,393 77,626,523 73,109,677
Selling, general and administrative expenses 45,792,053 44,993,468 36,574,333
- --------------------------------------------------------------------------------------------------------------------------
Operating income 24,111,340 32,633,055 36,535,344
- --------------------------------------------------------------------------------------------------------------------------
Other income (expense):
Interest expense (204,109) (1,290,973) (859,555)
Interest income 3,289,982 4,259,390 1,106,901
Other (expense) income, net (1,273,308) 532,379 249,567
- --------------------------------------------------------------------------------------------------------------------------
1,812,565 3,500,796 496,913
- --------------------------------------------------------------------------------------------------------------------------
Income before income taxes 25,923,905 36,133,851 37,032,257
- --------------------------------------------------------------------------------------------------------------------------
Income taxes 10,677,000 15,170,000 16,239,000
- --------------------------------------------------------------------------------------------------------------------------
Net income $ 15,246,905 $ 20,963,851 $ 20,793,257
- --------------------------------------------------------------------------------------------------------------------------
Earnings per share:
Basic $ .24 $ .32 $ .36
Diluted $ .23 $ .31 $ .34
- --------------------------------------------------------------------------------------------------------------------------
Weighted average shares-- basic 64,895,764 64,830,697 57,560,564
Weighted average shares-- diluted 67,618,151 68,377,742 61,533,558
==========================================================================================================================
Per share and share amounts are adjusted to reflect two for one stock splits
effective January 8, 1999 and April 12, 2000.
See accompanying notes to consolidated financial statements.
23
Hooper Holmes, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
Consolidated Statements of Stockholders' Equity
Unrealized
Common Stock Additional Gains on
-----------------------------
Number of Paid-in Marketable Retained Treasury
Shares Amount Capital Securities Earnings Stock Total
- ----------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1998 28,379,964 $ 1,135,198 $29,515,099 $ -- $32,616,294 $ (972,640) $ 62,293,951
- ----------------------------------------------------------------------------------------------------------------------------------
Net income 20,793,257 20,793,257
Cash dividends ($.050 per share) (1,437,949) (1,437,949)
Issuance of stock award 5,000 200 63,850 64,050
Exercise of stock options 742,500 29,700 2,226,969 2,256,669
Exercised stock option tax benefit 5,170,000 5,170,000
Issuance of shares for employee
stock purchase plan 68,062 2,723 548,995 551,718
Two for one stock split effective
April 12, 2000 29,195,526 1,167,821 (1,167,821) --
- ----------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1999 58,391,052 2,335,642 36,357,092 -- 51,971,602 (972,640) 89,691,696
- ----------------------------------------------------------------------------------------------------------------------------------
Net income 20,963,851 20,963,851
Cash dividends ($.030 per share) (1,925,458) (1,925,458)
Net proceeds from the sale of
common stock 7,350,000 294,000 86,534,69 86,828,696
Issuance of stock award 10,000 400 153,350 153,750
Exercise of stock options 1,589,000 63,560 3,637,884 3,701,444
Exercised stock option tax benefit 8,060,000 8,060,000
Issuance of shares for employee
stock purchase plan 114,122 4,565 676,173 680,738
Purchase of treasury stock (17,078,096) (17,078,096)
- ----------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 2000 67,454,174 2,698,167 135,419,195 -- 71,009,995 (18,050,736) 191,076,621
- ----------------------------------------------------------------------------------------------------------------------------------
Net income 15,246,905 15,246,905
Cash dividends ($.030 per share) (1,948,085) (1,948,085)
Unrealized gains on marketable
securities, net of tax 201,589 201,589
Issuance of stock award 5,689 46,311 52,000
Exercise of stock options 44,900 1,796 (2,118,974) 3,060,551 943,373
Exercised stock option tax benefit 1,131,249 1,131,249
Issuance of shares for acquisitions 44,851 455,150 500,001
Purchase of treasury stock (10,796,779) (10,796,779)
- ----------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 2001 67,499,074 $2,699,963 $134,482,010 $ 201,589 $ 84,308,815 $(25,285,503) $196,406,874
==================================================================================================================================
Per share amounts are adjusted to reflect two for one stock splits effective
January 8, 1999 and April 12, 2000. See accompanying notes to consolidated
financial statements.
24
Hooper Holmes, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
Consolidated Statements of Cash Flows
Years ended December 31,
--------------------------------------------
2001 2000 1999
- -----------------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net income $ 15,246,905 $ 20,963,851 $ 20,793,257
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 9,288,418 9,003,473 5,317,466
Provision for bad debt expense 233,499 -- --
Deferred tax expense (benefit) (720,000) 918,587 390,773
Net realized gain on sale of marketable securities (228,989) (168,049) --
Issuance of stock awards 52,000 153,750 64,050
Loss on sale of fixed assets 41,613 50,873 46,037
Change in assets and liabilities, net of effect
from acquisitions of businesses:
Accounts receivable 3,697,761 8,307,328 (5,964,107)
Other assets (1,380,324) (1,874,676) (815,693)
Income tax receivable -- -- 7,408
Accounts payable and accrued expenses 7,327,823 (3,912,756) 11,064,431
- -----------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 33,558,706 33,442,381 30,903,622
- -----------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Business acquisitions, net of cash acquired (7,282,389) (8,728,550) (82,949,063)
Purchases of marketable securities (30,049,331) (79,507,324) --
Redemptions of marketable securities 28,442,327 50,319,015 --
Investment in e-Nable Corporation (5,218,750) -- --
Capital expenditures, net of disposals (885,961) (1,357,525) (2,714,339)
- -----------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (14,994,104) (39,274,384) (85,663,402)
- -----------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Issuance of long-term debt 250,000 100,000 65,100,000
Principal payments on long-term debt (121,966) (62,157,869) (100,000)
Proceeds from issuance of common stock -- 86,828,696 --
Proceeds from employee stock purchase plan -- 680,738 551,718
Proceeds related to the exercise of stock options 943,373 3,701,444 2,256,669
Treasury stock acquired (10,796,779) (17,078,096) --
Dividends paid (1,948,085) (1,925,458) (1,437,949)
- -----------------------------------------------------------------------------------------------------------------------------
Net cash (used in) provided by financing activities (11,673,457) 10,149,455 66,370,438
- -----------------------------------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents 6,891,145 4,317,452 11,610,658
Cash and cash equivalents at beginning of year 45,680,471 41,363,019 29,752,361
- -----------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 52,571,616 $ 45,680,471 $ 41,363,019
- -----------------------------------------------------------------------------------------------------------------------------
Supplemental disclosure of non-cash investing activity
Change in net unrealized gain on marketable securities available for sale $ 201,589 $ -- $ --
Common stock issued for business acquisitions $ 500,001 $ -- $ --
Supplemental disclosure of cash flow information
Cash paid during the year for:
Interest $ 213,310 $ 2,065,297 $ 70,473
Income taxes $ 7,925,370 $ 9,883,975 $ 8,787,418
=============================================================================================================================
See accompanying notes to consolidated financial statements.
25
Hooper Holmes, Inc. and Subsidiaries
-----------------------------------------------------
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
Note 1 -- Principles of Consolidation
Summary of Significant
Accounting Policies The consolidated financial statements include the
accounts of Hooper Holmes, Inc. and its majority
owned subsidiary (the "Company"). The Company's
investment in e-Nable Corporation is accounted for by
the cost method based on the percentage of common
ownership and inability to exercise significant
influence (see Note 6). All significant intercompany
balances and transactions are eliminated in
consolidation.
Description of the Business
The Company provides health information services to
the life and health insurance industry. The Company's
network of experienced medical professionals conduct
physical examinations, testing, and personal health
interviews, primarily for the life and health
insurance industry. Information gathered in these
activities is used by insurance underwriters to
assess risks and make informed decisions. The Company
is subject to certain risks and uncertainties as a
result of changes that could occur in the life and
health insurance industry's underwriting requirements
and standards, and in the Company's customer base.
Use of Estimates
The preparation of the consolidated financial
statements requires management to make estimates and
assumptions that affect reported amounts and
disclosures in these consolidated financial
statements. Some of the significant estimates involve
the evaluation of the recoverability of long-lived
assets and the assessment of contingencies including
income taxes. Actual results could differ from those
estimates.
Marketable Securities
At December 31, 2001 and 2000, marketable securities
consist of U.S. Treasury, mortgage-backed,
asset-backed and corporate debt securities. The
Company classifies all of its marketable security
investments as available-for-sale. Available-for-sale
securities are recorded at fair value and dividend
and interest income are recognized when earned.
Unrealized holding gains and losses, net of the
related tax effect, on available-for-sale securities
are excluded from earnings and are reported as a
separate component of other comprehensive income
until realized. Realized gains and losses from the
sale of available-for-sale securities are determined
on a specific identification basis. A decline in the
market value of any available-for-sale security below
cost that is deemed to be other than temporary
results in a reduction in carrying amount to fair
value. The impairment is charged to earnings and a
new cost basis for the security is established.
Premiums and discounts are amortized or accreted over
the life of the related available-for-sale security
as an adjustment to yield using the effective
interest method. At December 31, 2000, the cost of
the marketable securities approximates fair value.
26
Hooper Holmes, Inc. and Subsidiaries
-----------------------------------------------------
Cash and Cash Equivalents
The Company considers highly liquid investments with
original maturities at the date of purchase of less
than 90 days to be cash equivalents.
Long-Lived Assets
Long-lived assets consist of property, plant and
equipment, goodwill, identifiable intangibles and
investments.
The Company reviews long-lived assets for
impairment whenever events or changes in business
circumstances occur that indicate that the carrying
amount of the assets may not be recoverable.
Impairments are recognized when the expected future
undiscounted cash flows derived from such assets are
less than their carrying value, except for
investments. A loss in the value of an investment
will be recognized when it is determined that the
decline in value is other than temporary. For such
cases, losses are recognized for the difference
between the fair value and the carrying amount. The
Company considers various valuation factors,
principally discounted cash flows, to assess the fair
values of long-lived assets.
Property, plant and equipment are carried at
cost. Depreciation is computed using the
straight-line method over the assets estimated useful
lives. The cost of maintenance and repairs is charged
to income as incurred. Significant renewals and
betterments are capitalized.
Goodwill and intangible assets are being
amortized using the straight-line method over lives
ranging from 10-25 years and 1-15 years,
respectively. See "Recently Issued Accounting
Standards" below for information on the future
treatment of goodwill and intangible assets.
Comprehensive Income
The Company follows Statement of Financial Accounting
Standards (SFAS) No. 130, "Reporting Comprehensive
Income," which establishes standards for reporting
and presentation of comprehensive income and its
components in a full set of financial statements.
Comprehensive income consists of net income and
unrealized gains (losses) on marketable securities.
The statement requires only additional disclosures in
the consolidated financial statements; it does not
affect the Company's financial position or results of
operations. Total comprehensive income for the year
ended December 31, 2001 totaled $15,448,494.
Earnings Per Common Share
"Basic" earnings per common share equals net income
divided by the weighted average common shares
outstanding during the period. "Diluted" earnings per
common share equals net income divided by the sum of
the weighted average common shares outstanding during
the period plus common stock equivalents. Common
stock equivalents (2,722,387, 3,547,045 and 3,972,994
for 2001, 2000 and 1999, respectively) are shares
assumed to be issued if outstanding stock options
were exercised. All appropriate share and per share
period amounts have also been restated for the April
12, 2000 and January 8, 1999 stock splits (see note
11, "Capital Stock").
27
Hooper Holmes, Inc. and Subsidiaries
-----------------------------------------------------
Revenues
The Company recognizes revenues for paramedical and
medical examinations when the examination of the
insurance policy applicant is completed. Revenue
generated from medical record collection, laboratory
testing and other services is recognized when the
related service is completed. The Company does not
record any deferred revenue. The Company does not
enter into any multi-element revenue arrangements.
Income Taxes
Deferred tax assets and liabilities are recognized
for the future tax consequences attributable to
differences between the financial statement carrying
amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in
which those temporary differences are expected to be
recovered or settled.
Concentration of Credit Risk
The Company's accounts receivable are due primarily
from insurance companies. No one customer accounts
for more than 10% of revenues.
Fair Value of Financial Instruments
The carrying value for all financial instruments,
except marketable securities and long-term debt, at
December 31, 2001 and 2000, approximates fair value
due to the short maturity of these instruments. The
fair value of marketable securities is determined
using quoted market prices for these securities. For
long-term debt, the carrying value approximates fair
value due to the interest rate being reset in
December 2001.
Employee Stock Options
Employee non-qualified stock options are granted with
an exercise price equal to the market price at the
date of grant, and therefore, compensation expense is
not recognized on the issuance of employee stock
options.
Advertising
Costs related to space in publications are expensed
the first time the advertising occurs. Advertising
expense was approximately $299,000, $289,000 and
$288,000 in 2001, 2000 and 1999, respectively.
Recently Issued Accounting Standards
In July 2001, the FASB issued Statement No. 141,
"Business Combinations," and Statement No. 142,
"Goodwill and Other Intangible Assets." Statement 141
requires that the purchase method of accounting be
used for all business combinations initiated or
completed after June 30, 2001. Statement 141 also
specifies criteria that intangible assets acquired in
a purchase method business combination must meet to
be recognized and reported apart from goodwill,
noting that any purchase price allocable to an
assembled workforce may not be accounted for
separately.
Statement 142 requires that goodwill and
intangible assets with indefinite useful lives no
longer be amortized, but instead be tested for
impairment at least annually in accordance
28
Hooper Holmes, Inc. and Subsidiaries
-----------------------------------------------------
with the provisions of Statement 142. Statement 142
also requires that intangible assets with definite
useful lives be amortized over their respective
estimated useful lives to their estimated residual
values, and reviewed for impairment in accordance
with SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets to be Disposed of,"
which is discussed below.
The Company adopted the provisions of Statement
141 effective June 30, 2001, and will adopt Statement
142 effective January 1, 2002. Furthermore, any
goodwill and any intangible asset determined to have
an indefinite useful life that were acquired in a
purchase business combination completed after June
30, 2001 were not amortized, but will be evaluated
for impairment in accordance with the appropriate
Statement 142 accounting literature. Goodwill and
intangible assets acquired in business combinations
completed before July 1, 2001 were amortized prior to
the Company's adoption of Statement 142.
Statement 141 requires upon adoption of
Statement 142, that the Company evaluate its existing
intangible assets and goodwill that were acquired in
a prior purchase business combination, and to make
any necessary reclassifications in order to conform
with the new criteria in Statement 141 for
recognition apart from goodwill. Upon adoption of
Statement 142, the Company will reassess the useful
lives and residual values of all intangible assets
acquired in purchase business combinations, and make
any necessary amortization period adjustments by the
end of the first interim period after adoption. In
addition, to the extent an intangible asset is
identified as having an indefinite useful life, the
Company will test the intangible asset for impairment
in accordance with the provisions of Statement 142
within the first interim period. Any impairment loss
will be measured as of the date of adoption and
recognized as the cumulative effect of a change in
accounting principle in the first interim period.
In connection with the transitional goodwill
impairment evaluation, Statement 142 requires the
Company to perform an assessment of whether there is
an indication that goodwill is impaired as of the
date of adoption. To accomplish this the Company must
identify its reporting units and determine the
carrying value of each reporting unit by assigning
the assets and liabilities, including the existing
goodwill and intangible assets, to those reporting
units as of the date of adoption. The Company will
then have up to six months from the date of adoption
to determine the fair value of each reporting unit
and compare it to the reporting unit's carrying
amount. To the extent a reporting unit's carrying
amount exceeds its fair value, an indication exists
that the reporting unit's goodwill may be impaired
and the Company must perform the second step of the
transitional impairment test.
In the second step, the Company must compare the
implied fair value of the reporting unit's goodwill,
determined by allocating the reporting unit's fair
value to all of its assets (recognized and
unrecognized) and liabilities in a manner similar to
a purchase price allocation in accordance with
Statement 141, to its carrying amount, both of which
would be measured as of the date of adoption. This
second step is required to be completed as soon as
possible, but no later than the end of the year of
adoption. Any transitional impairment loss will be
recognized as the cumulative effect of a change in
accounting principle in the Company's consolidated
statement of earnings.
29
Hooper Holmes, Inc. and Subsidiaries
-----------------------------------------------------
We expect to complete this review during the
first quarter of 2002. We do not expect to record an
impairment charge upon completion of the initial
review. However, there can be no assurance that at
the time the review is completed a material
impairment charge may not be recorded.
As of December 31, 2001, the Company has
unamortized goodwill in the amount of $81.5 million
and unamortized identifiable intangible assets in the
amount of $12.0 million, both of which will be
subject to the transition provisions of Statement 141
and 142. Amortization expense relating to goodwill
was $3.8 million, $3.2 million and $1.2 million for
the years ending December 31, 2001, December 31, 2000
and December 31, 1999, respectively. Effective the
first day of fiscal 2002, the Company ceased the
amortization of all unamortized goodwill and
reclassified $1.2 million of previously recorded
value related to acquired workforce into goodwill and
ceased amortizing this amount as well. Amortization
expense related to the intangible assets with an
indefinite useful life was $0.2 million, $0.6 million
and $0.4 million for the years ended December 31,
2001, December 31, 2000 and December 31, 1999,
respectively.
As a result of the adoption of Statement 142, a
substantial amount of goodwill and intangible assets
will no longer be amortized and accordingly, the
Company's effective tax rate is expected to decrease
in fiscal 2002 as some of its goodwill was not
deductible for tax purposes. The impact on diluted
earnings per share of goodwill and intangible asset
amortization that would not have been amortized
pursuant to Statement 142 during fiscal 2001 was
approximately $.035 per share.
In August 2001, the FASB issued SFAS No. 144
"Accounting for Impairment or Disposal of Long-Lived
Assets" ("SFAS 144"), which supercedes SFAS No. 121.
SFAS 144 further refines SFAS 121's requirement that
companies recognize an impairment loss if the
carrying amount of a long-lived asset is not
recoverable based on its undiscounted future cash
flows and measure an impairment loss as the
difference between the carrying amount and fair value
of the asset. In addition, SFAS 144 provides guidance
on accounting and disclosure issues surrounding
long-lived assets to be disposed of by sale. SFAS 144
also extends the presentation of discontinued
operations to include more disposal transactions.
SFAS 144 is effective for all fiscal quarters of all
fiscal years beginning after December 15, 2001 (2002
for the Company). We believe that the adoption of
SFAS 144 will not have a material effect on our
consolidated results of operations or financial
position.
- --------------------------------------------------------------------------------
Note 2 -- During 2001, the Company acquired specific assets and
Acquisitions and liabilities of twelve health information services
Dispositions companies. The aggregate purchase price of these
acquisitions was approximately $6.8 million and has
resulted in total costs in excess of net assets
acquired of approximately $6.0 million, Of the $6.0
million costs in excess of net assets acquired, $4.3
million related to acquisitions prior to June 30,
2001, which is the date the Company adopted FASB
Statement No. 141, "Business Combinations," and are
being amortized on a straight line basis over a
period of 10-25 years. The costs in excess of net
assets acquired for acquisitions subsequent to June
30, 2001, were not amortized. Additionally,
non-competition
30
Hooper Holmes, Inc. and Subsidiaries
-----------------------------------------------------
agreements were entered into in the aggregate amount
of approximately $0.8 million and are being amortized
on a straight line basis over 3-5 years.
During 2000, the Company acquired specific
assets and liabilities of eight health information
services companies. The aggregate purchase price of
these acquisitions was approximately $10.5 million
and has resulted in total costs in excess of net
assets acquired of approximately $9.5 million. This
amount is being amortized on a straight line basis
over a period of 10-25 years. Additionally,
non-competition agreements were entered into in the
aggregate amount of approximately $0.6 million and
are being amortized on a straight line basis over 5
years. In accordance with an acquisition agreement,
the Company paid an additional $0.4 million as a
result of the acquired entity achieving targeted
operational results.
As of November 1, 1999, the Company purchased
substantially all of the assets of Paramedical
Services of America, Inc. ("PSA"), an Atlanta based
subsidiary of Pediatric Services of America, Inc. The
purchase price was approximately $80 million, and was
financed with a $65 million term loan (see note 6)
and approximately $15 million in existing cash. As a
result of an independent appraisal, the Company has
recorded costs in excess of net assets acquired of
approximately $58 million, and intangible assets in
the amount of $11.6 million, comprised of customer
base $4.6 million, affiliate network $3.2 million,
assembled workforce $1.2 million, and a
non-competition agreement valued at $2.6 million. The
amounts are being amortized over their estimated
useful lives of 25 years for costs in excess of net
assets acquired, and between 5 to 9 years for the
remaining intangibles. During the fourth quarter of
2000, the Company adjusted the purchase price
allocation in the amount of $0.7 million, as a result
of the increase in the net realizable value of assets
acquired, partially offset by an increase in the
liabilities assumed.
The liabilities assumed in the PSA acquisition
included approximately $3.8 million for certain PSA
facility exit costs and certain legal, accounting and
other acquisition costs. At December 31, 2000, the
Company had closed 83 branches of PSA and had paid
the majority of the other acquisition costs. At
December 31, 2001 and 2000, the remaining liabilities
assumed total $0.3 million and $0.6 million,
respectively, and are included in other accrued
expenses on the accompanying consolidated balance
sheet. At December 31, 2001 and 2000, the remaining
costs represent office lease liabilities for certain
closed PSA branches.
The acquisitions discussed above have been
accounted for using the purchase method of accounting
and the purchase price of the acquisitions has been
assigned to the net assets based on the fair value of
such assets and liabilities at the date of
acquisition. The consolidated financial statements
include the results of operations from the respective
dates of purchase. If the acquisition of PSA had
occurred on January 1, 1999, it would have resulted
in the following unaudited pro forma information, and
does not include cost savings expected from the
transaction: revenues $299,340,000, net income
$15,842,000 and earnings per diluted share, $.26. The
unaudited pro forma financial information does not
purport to represent our consolidated results of
operations or financial position that would have been
achieved had the transactions to which pro forma
effect is given been consummated as of the dates or
for the periods indicated.
31
Hooper Holmes, Inc. and Subsidiaries
-----------------------------------------------------
The 2001 and 2000 acquisitions do not require
pro forma information, as the results of operations
of the businesses acquired were not material.
- --------------------------------------------------------------------------------
Note 3 -- The amortized cost, gross unrealized holding gains,
Marketable Securities gross unrealized holding losses and fair value of
available-for-sale securities by major security type
at December 31, 2001 and 2000, were as follows:
Gross Gross
Amortized Unrealized Unrealized
Cost Holding Gains Holding Losses Fair Value
-------------------------------------------------------------------------------------------------
At December 31, 2001
Government agencies $ 1,915,840 $ 6,001 $ -- $ 1,921,841
Government bonds and notes 2,149,010 8,390 (2,048) 2,155,352
Corporate debt securities 26,959,452 194,617 (5,371) 27,148,698
-------------------------------------------------------------------------------------------------
$ 31,024,302 $ 209,008 $ (7,419) $ 31,225,891
-------------------------------------------------------------------------------------------------
At December 31, 2000
Government agencies $ 2,031,397 $ -- $ -- $ 2,031,397
Government bonds and notes -- -- -- --
Corporate debt securities 27,156,912 -- -- 27,156,912
-------------------------------------------------------------------------------------------------
$ 29,188,309 $ -- $ -- $ 29,188,309
-------------------------------------------------------------------------------------------------
Maturities of debt securities classified as
available-for-sale were as follows at December 31,
2001 (maturities of mortgage-backed securities and
collateralized mortgage obligations have been
presented based upon estimated cash flows, assuming
no change in the current interest rate environment):
Amortized Cost Fair Value
---------------------------------------------------------------------------------
Due within one year $ 5,170,700 $ 5,209,840
Due after one year through five years 23,537,653 23,691,676
Due after five years through ten years 2,315,949 2,324,375
---------------------------------------------------------------------------------
$ 31,024,302 $ 31,225,891
---------------------------------------------------------------------------------
Proceeds from the sale of investment securities
available for sale were $28,442,327 and $50,319,015
in 2001 and 2000, respectively, gross realized gains
included in income in 2001 and 2000 were $230,735 and
$168,049, respectively, and gross realized losses
included in income in 2001 and 2000 were $1,746 and
$0, respectively.
- --------------------------------------------------------------------------------
Note 4 -- Accounts receivable are net of an allowance for
Accounts Receivable doubtful accounts in the amount of $933,961, and
$884,352 in 2001 and 2000, respectively.
32
Hooper Holmes, Inc and Subsidiaries
- --------------------------------------------------------------------------------
Note 5 -- Property, plant and equipment consists of the following:
Property, Plant
and Equipment
Estimated
December 31, December 31, Useful Life
2001 2000 In Year
-------------------------------------------------------------------------------
Land and improvements $ 618,972 $ 618,972 10 - 20
-------------------------------------------------------------------------------
Building and improvements 5,062,042 4,933,481 10 - 45
-------------------------------------------------------------------------------
Furniture, fixtures and equipment 22,507,894 21,830,027 3 - 10
-------------------------------------------------------------------------------
$28,188,908 $27,382,480
===============================================================================
- --------------------------------------------------------------------------------
Note 6 -- On January 31, 2001, the Company entered into a marketing
Investment and equity investment agreement with e-Nable Corporation
(e-Nable), at a total original cost of $5.0 million. e-Nable
Corporation provides Internet-based business processing
solutions that allow integration of data sources, underwriting
intelligence, distribution channels and insurance products. In
August 2001, the Company executed a convertible promissory note
agreement with e-Nable Corporation, to provide additional
financing for up to $1.75 million of which $0.2 million was
outstanding as of December 31, 2001. The Company has no future
commitment to contribute additional funds to e-Nable
Corporation other than the additional financing referred to
above. Under the cost method of accounting, investments are
carried at cost and are adjusted only for other-than-temporary
declines in fair value, distributions of earnings and
additional investments.
The Company believes that the value of the investment is
recoverable based on the initiatives completed to date by
e-Nable management and its projected future operating results,
including the technological developments and the backing of the
majority owner of e-Nable, MIB, which is a life insurance
industry trade organization. Demand for this service from
industry organizations is expected to increase dramatically in
2002 and beyond. e-Nable is in the process of attempting to
secure additional financing to allow it to complete its
development efforts. If actual demand does not materialize, or
if the financing efforts are not successful, the Company will
review the value of the investment of long-lived assets to
determine if the carrying value of the investment remains
recoverable.
- --------------------------------------------------------------------------------
Note 7 -- On October 29, 1999, the Company entered into a $100 million
Long Term Debt Amended and Restated Revolving Credit and Term Loan Agreement
with three banks. This senior credit facility consists of a $65
million, six-year term loan, and a $35 million,
three-yearrevolving loan. During 2001, the three year revolving
loan expiration date was extended for one year to October 31,
2003. The $65 million term loan was used in connection with the
purchase of the assets of PSA. There are no additional
borrowings available under the original $65 million term loan
due to previous borrowings which have been repaid. There are no
borrowings against the revolving loan. As of December 31, 2001,
$3.0 million is outstanding against the term loan. The Company
has not borrowed under the $35 million revolving loan.
Both the term loan and the revolving loan bear interest
at either the prime rate minus 1/2% to plus 1/4% or LIBOR plus
3/4% to 13/4%, depending on the ratio of our consolidated
33
--
2001 Annual Report
funded debt, as defined, to earnings before interest, taxes,
depreciation and amortization, or "EBITDA." As of December 31,
2001, interest was payable at an effective annual interest rate
of 2.86%. Either loan can be prepaid without penalty at any
time. Also, commitment fees of up to 1/4% of the unused
revolving loan are charged, and the agreement contains certain
financial covenants related to dividends, fixed charge coverage
and funded debt to "EBITDA" ratio.
As of December 31, 2001 and 2000, the majority owned
subsidiary of the Company had outstanding obligations under its
bank note in the amount of $0.4 million. The interest rate at
December 31, 2001 and 2000 was 5.75% and 10.0%, respectively.
The note matures on January 1, 2003 and monthly principal
payments are required.
- --------------------------------------------------------------------------------
Note 8 -- The Company leases branch field offices under a number of
Commitments and operating leases which expire in various years through 2006.
Contingencies These leases generally contain renewal options and require the
Company to pay all executory costs (such as property taxes,
maintenance and insurance). The Company also leases telephone,
computer and other miscellaneous equipment. These leases expire
in various years through 2006. The following is a schedule of
future minimum lease payments for operating leases (with
initial or remaining terms in excess of one year) as of
December 31, 2001:
Year Ending December 31,
2002 $ 10,184,753
2003 7,627,594
2004 4,396,471
2005 552,855
2006 83,850
---------------------------------------------------------------
Total minimum lease payments $ 22,845,523
---------------------------------------------------------------
Rental expenses under operating leases were $12,739,549,
$12,429,976 and $10,768,315 in 2001, 2000 and 1999,
respectively.
The Company has employment retention contracts with certain
executive officers of the Company for a two year period from
the date a change in control occurs as further defined in the
contracts.
- --------------------------------------------------------------------------------
Note 9 -- The Company is party to a number of legal actions arising in
Litigation the ordinary course of its business. The Company is a defendant
in an action arising out of the Company's resale of a drug
screening business it acquired and subsequently sold in 1995.
The plaintiff claims to have suffered damages from the
Company's alleged failure to comply with the terms of a
non-competition agreement and a right of first refusal, as well
as incomplete disclosure about the transaction. The Company has
proposed a settlement and has a provision of $1.2 million for
the matter in 2001. In the opinion of management, the Company
has substantial legal
34
- --
defenses and/or insurance coverage with respect to all of its
other pending legal actions; accordingly, none of these actions
is expected to have a material adverse effect on the Company,
its results of operations or its consolidated financial
position.
- --------------------------------------------------------------------------------
Note 10-- Income tax expense is comprised of the following:
Income Taxes
(in thousands) 2001 2000 1999
--------------------------------------------------------------------------------
Federal:
Current $ 9,303 $ 11,554 $ 13,603
Deferred (545) 724 285
--------------------------------------------------------------------------------
State and local:
Current 2,094 2,697 2,245
Deferred (175) 195 106
--------------------------------------------------------------------------------
$ 10,677 $ 15,170 $ 16,239
================================================================================
The following reconciles the "statutory" federal income tax
rates to the effective income tax rates:
2001 2000 1999
--------------------------------------------------------------------------------
Computed "expected" tax expense 35% 35% 35%
--------------------------------------------------------------------------------
Increase (reduction) in tax expense resulting from:
State tax, net of federal benefit 7 8 8
Non-tax deductible amortization of goodwill 2 1 1
Other (3) (2) --
--------------------------------------------------------------------------------
Effective income tax rate 41% 42% 44%
================================================================================
35
--
Hooper Holmes Inc. and Subsidiaries
-----------------------------------------------------------------
The tax effects of temporary differences that give rise to the
deferred tax assets and liabilities at December 31, 2001 and 2000
are as follows:
(in thousands) 2001 2000
---------------------------------------------------------------
Deferred tax assets:
Discontinued operation accruals $ 25 $ 117
Receivable allowance 396 361
Intangible assets 221 227
Insurance benefits 153 119
Litigation reserve 466 --
Other 204 202
---------------------------------------------------------------
1,465 1,026
---------------------------------------------------------------
Deferred tax liabilities:
Accumulated depreciation (453) (671)
Acquisition bases adjustment,
primarily intangibles (1,362) (1,432)
Other (209) (57)
---------------------------------------------------------------
(2,024) (2,160)
---------------------------------------------------------------
Net deferred tax liability $ (559) $(1,134)
===============================================================
Deferred tax assets (liabilities) ther current assets
$1,182,000 and deferred income taxes (noncurrent) $(1,742,000)
and at December 31, 2000, other current assets $575,000 and
deferred income
No valuation allowance has been provided on deferred tax
assets since management believes that it is more likely than not
that such assets will be realized through the reversal of
existing deferred tax liabilities and future taxable income.
The principal components of the deferred tax provision in
2001 and 2000 include differences between financial and tax
reporting for depreciation and amortization.
________________________________________________________________________________
Note 11-- Stock Split and Authorized Shares -- Effective January 8, 1999
Capital Stock and April 12, 2000, the Company declared two for one stock splits
in the form of 100% stock dividends to all stockholders, which
were distributed on January 29, 1999 and April 26, 2000,
respectively. The stock splits resulted in additional shares of
14,189,982 shares and 33,160,626 shares of common stock,
respectively, of which, 52,166 and 104,332 shares, respectively,
were shares of treasury stock. All share and per share amounts
have been retroactively restated for these events.
Stock Offering -- The Company completed a secondary common stock
offering of 7,350,000 shares on February 29, 2000. The offering
price was $12.563 and provided approximately $87 million in net
proceeds to the Company.
36
Hooper Holmes Inc. and Subsidiaries
-----------------------------------------------------------------
Stock Repurchase Program -- On May 30, 2000, the Board of
Directors authorized the repurchase in any calendar year of up to
2.5 million shares of the Company's common stock for an aggregate
purchase price not to exceed $25 million per year. For the years
ended December 31, 2001 and 2000, the Company purchased 1,347,000
and 1,785,000 shares at a total cost of $10.8 million and $17.1
million respectively.
Rights Agreement -- On May 23, 2000, the Board of Directors
adopted a Rights Agreement to replace the Rights Agreement which
expired on June 16, 2000. The Board declared a dividend of one
Common Share Purchase Right (a "Right") for each outstanding
share of Common Stock distributable on June 30, 2000.
The Rights Agreement was not adopted in response to any
known effort to acquire control of the Company. Rather, the
Rights Agreement was adopted in an effort to ensure that all of
the Company's shareholders are treated fairly in the event an
attempt is made to take over the Company without paying all
shareholders a full and fair price for all of their shares of
Common Stock.
Until a person or group acquires 20% or more of the
Company's Common Stock or announces a tender or exchange offer to
acquire 30% or more of the Company's Common Stock (other than a
Permitted Offer), the Rights will be evidenced by the Common
Stock certificates, will automatically trade with the Common
Stock and will not be exercisable. Thereafter, separate Rights
certificates will be distributed. If (i) and person or group
acquires 20% or more of the Company's Common Stock (other than by
a tender offer for all shares which the Company's Board of
Directors determines to be in the best interests of the Company
and its shareholders, or by an inadvertent acquisition after
which such person or group promptly divests a sufficient number
of shares so that such person's ownership is less than 20%) or
(ii) the Company is involved in a merger or other business
combination or sells more than 50% of its assets or earning
power, each Right (other than Rights beneficially owned by 20% or
more shareholders or certain transferees thereof, which Rights
become void) will entitle the holder, upon payment of the
exercise price of $110 (as adjusted), to buy a number of shares
of Common Stock of the Company or of the acquiring company having
a market value of twice the exercise price. If any person or
group acquires between 20% and 50% of the Company's Common Stock,
the Company's Board of Directors may, at its option, exchange
each Right for a share of Company Common Stock.
The Rights Agreement will expire on June 15, 2010. In
addition, the Rights may be redeemed for $0.01 per Right on or
prior to the tenth day after any person or group acquires 20% or
more of the Company's Common Stock, thus clearing the way for an
acquisition which the Board believes to be in the best interests
of the Company and its shareholders.
Stock Purchase Plan -- In 1993, the shareholders approved the
1993 Employee Stock Purchase Plan which provided for granting of
purchase rights to all full-time employees, as defined, of up to
2,000,000 shares of Company stock. The plan provided for the
purchase of shares on the date one year from the grant date.
During the year after the grant date, up to 10% of an employee's
compensation was withheld for their purchase. Employees can
cancel their purchases any time during the year, without penalty.
The purchase price was 95% of the closing common stock price on
the grant date. In April 1999 and April 2000, the
37
Hooper Holmes Inc. and Subsidiaries
-----------------------------------------------------------------
Company distributed 161,808 and 136,124 shares, respectively,
under the April 1998 and April 1999 grants, and the aggregate
purchase price was $324,248 and $551,718, respectively. In April
2000, the Company made a grant of approximately 127,488 shares,
and the aggregate purchase price was approximately $1,279,342;
however, the 2000 plan offering terminated, in accordance with
the plan's automatic termination provision. In April 2001, the
Company made a grant of approximately 90,333 shares, and the
aggregate purchase price was approximately $686,531.
Stock Awards -- The Company's Chairman and President is entitled
to receive stock awards based on the attainment of performance
goals established for any given year. In the years ended December
31, 2001, 2000 and 1999, awards of 5,000 shares, 10,000 shares
and 10,000 shares, respectively, have been granted.
Stock Option Plans -- The Company's stockholders approved stock
option plans totaling 2,000,000 shares in 1999, 2,400,000 shares
in 1998 and 1997, and 4,000,000 shares in 1994 and 1992, which
provide that options may be granted to management. Options are
granted at market value on the dates of the grants and are
exercisable as follows: 25% after two years and 25% on each of
three anniversary dates thereafter, and terminate after 10 years.
In May 1997, the Company's stockholders approved the 1997
Director Stock Option Plan for 1,200,000 shares, which provides
200,000 options to non-employee Directors. The options were
granted at market value on the date of the grant, and are
exercisable in five equal annual installments beginning on the
first anniversary of the date of the grant. The Company currently
has five non-employee directors.
Also in May 1997, the Company's stockholders approved the CEO
Stock Option Agreement, which provides options to the Chief
Executive Officer to acquire 800,000 shares, at an exercise price
equal to the fair value at the date of grant. The options vest
160,000 shares annually for five years. Any unvested options
became immediately exercisable in 1999, because the two
performance related conditions were met: (a) the Company's
earnings per share were at least $.18 for the year ended December
31, 1998, and (b) the Company's closing stock price was at least
$3.75 per share for any consecutive 30 day period during the six
months ended June 30, 1999.
38
Hooper Holmes Inc. and Subsidiaries
-----------------------------------------------------------------
The following table summarizes stock option activity:
Under Option
---------------------------------------------------------------------------
Shares Weighted
Available for Average Exercise
Grant Shares Price Per Share
---------------------------------------------------------------------------
Balance, December 31, 1998 1,630,508 10,209,900 $ 2.48
Authorized 2,000,000 -- --
Granted (1,085,000) 1,085,000 12.88
Exercised -- (1,485,000) 1.52
Cancelled 69,200 (69,200) 5.58
---------------------------------------------------------------------------
Balance, December 31, 1999 2,614,708 9,740,700 $ 3.77
Granted (501,500) 501,500 7.13
Exercised -- (1,589,000) 2.33
Cancelled 106,000 (106,000) 8.75
---------------------------------------------------------------------------
Balance, December 31, 2000 2,219,208 8,547,200 $ 4.17
Granted (1,712,500) 1,712,500 8.15
Exercised -- (381,600) 2.47
Cancelled 132,300 (132,300) 9.76
===========================================================================
Balance, December 31, 2001 639,008 9,745,800 $ 4.86
===========================================================================
The weighted average fair value per stock option granted was
$4.50 for the 2001 options, $4.36 for the 2000 options, and $7.77
in 1999. The Company estimated the fair values using the
Black-Scholes option pricing model, modified for dividends
2001 2000 1999
---------------------------------------------------------------
Expected dividend yield .37% .26% .26%
Risk-free interest rate 3.25% 5.75% 6.00%
Expected stock price volatility 44.78% 43.78% 40.98%
Expected term until exercise (years) 9.3 9.6 10.0
===============================================================
39
Hopper Holmes, Inc. and Subsidiries
------------------------------------------------------------
The Company does not record compensation expense for stock
option grants. The following table summarizes results as if
the Company had recorded compensation expense for option
grants:
(thousands of dollars, except per share data) 2001 2000 1999
---------------------------------------------------------------------------------------
Net income:
As reported $ 15,247 $ 20,964 $ 20,793
Pro forma 12,462 17,873 18,919
Basic earnings per share:
As reported $ .24 $ .32 $ .36
Pro forma .19 .28 .33
Diluted earnings per share:
As reported $ .23 $ .31 $ .34
Pro forma .18 .26 .31
=======================================================================================
The following table summarizes information concerning
options outstanding at December 31, 2001:
Options Outstanding Options Exercisable
---------------------------------------------------------------------------------------
Weighted
Average Weighted Weighted
Number Remaining Average Number Average
Range of Outstanding Contractual Exercise Exercisable Exercise
Exercise Prices at 12/31/01 Term (Years) Price at 12/31/01 Price
---------------------------------------------------------------------------------------
$ .98 - $1.87 2,221,000 1.7 $ 1.34 2,221,000 $ 1.34
2.03 - 2.14 2,597,200 5.1 2.09 1,799,200 2.09
3.22 - 3.69 813,500 6.0 3.60 845,700 3.36
6.69 - 7.13 2,607,800 8.4 6.83 419,250 6.69
10.76 - 12.88 1,506,300 8.2 12.08 208,600 12.88
=======================================================================================
________________________________________________________________________________
Note 12 -- This plan is available to all employees with at least one
401k Savings and year of service of greater than 1,000 hours of employment,
Retirement Plan and is administered by ING/ReliaStar Financial Corporation.
The Company matches 25% of the first 10% of employee salary
contributions. The Company's payments for 2001, 2000 and
1999, were $427,000, $426,000 and $345,000, respectively.
The Company's common stock is not an investment option to
employees participating in the 401k savings and retirement
plan.
40
Hooper Holmes, Inc. and Subsidiaries
------------------------------------------------------------
Independent Auditors' Report
The Board of Directors and Stockholders
Hooper Holmes, Inc.
We have audited the accompanying consolidated balance sheets
of Hooper Holmes, Inc. and subsidiaries as of December 31,
2001 and 2000, and the related consolidated statements of
income, stockholders' equity and cash flows for each of the
years in the three-year period ended December 31, 2001.
These consolidated financial statements are the
responsibility of the Company's management. Our
responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing
standards generally accepted in the United States of
America. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements
referred to above present fairly, in all material respects,
the financial position of Hooper Holmes, Inc. and
subsidiaries as of December 31, 2001 and 2000, and the
results of their operations and their cash flows for each of
the years in the three-year period ended December 31, 2001,
in conformity with accounting principles generally accepted
in the United States of America.
KPMG LLP
Short Hills, New Jersey
February 25, 2002
41
Hooper Holmes, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
Selected Financial Data
For the years ended December 31,
---------------------------------------
(dollars in thousands except per share data) 2001 2000 1999
- -----------------------------------------------------------------------------------------------
Statement of Income Data:
Revenues $ 245,185 $ 274,974 $ 237,068
Operating income 24,111 32,633 36,535
Interest expense 204 1,291 860
Income from continuing operations 15,247 20,964 20,793
Loss from discontinued operations -- -- --
Net income 15,247 20,964 20,793
Earnings per share -- basic:
Income from continuing operations .24 .32 .36
Discontinued operations -- -- --
Net income .24 .32 .36
Earnings per share -- diluted:
Income from continuing operations .23 .31 .34
Discontinued operations -- -- --
Net income $ .23 $ .31 $ .34
- -----------------------------------------------------------------------------------------------
Cash dividends per share $ .030 $ .030 $ .025
- -----------------------------------------------------------------------------------------------
Weighted average shares -- basic 64,895,764 64,830,697 57,560,564
Weighted average shares -- diluted 67,618,151 68,377,742 61,533,558
- -----------------------------------------------------------------------------------------------
Balance Sheet Data (as of December 31):
Working capital $ 94,059 $ 93,305 $ 56,076
Total assets 221,971 211,036 184,471
Current maturities of long-term debt 240 197 143
Long-term debt, less current maturities 3,280 3,195 65,307
Total long-term debt 3,520 3,392 65,450
Stockholders' equity $ 196,407 $ 191,077 $ 89,692
===============================================================================================
Per share and share amounts are adjusted to reflect a three for two stock split
effective February 28, 1992, and two for one stock splits effective August 22,
1997, January 8, 1999 and April 12, 2000.
42
For the years ended December 31,
- --------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994 1993 1992
- --------------------------------------------------------------------------------------------------------------------------
$ 185,210 $ 165,353 $ 156,254 $ 111,313 $ 92,534 $ 80,600 $ 68,931
25,592 16,344 8,576 4,059 3,803 5,020 4,548
3 168 1,394 1,674 994 237 144
14,185 8,770 4,086 1,667 1,480 2,739 2,779
(1,485) -- -- (14,716) 1,184 867 2,099
12,700 8,770 4,086 (13,049) 2,664 3,606 4,878
.25 .16 .08 .03 .03 .05 .05
(.03) -- -- (.27) .02 .02 .04
.22 .16 .08 (.24) .05 .07 .09
.24 .15 .08 .03 .03 .05 .05
(.03) -- -- (.27) .02 .02 .04
$ .21 $ .15 $ .08 $ (.24) $ .05 $ .07 $ .09
- --------------------------------------------------------------------------------------------------------------------------
$ .018 $ .013 $ .008 $ .008 $ .038 $ .038 $ .031
- --------------------------------------------------------------------------------------------------------------------------
56,241,370 55,073,336 53,821,752 53,657,024 53,653,704 53,712,488 53,741,336
59,719,420 57,128,264 54,487,604 53,809,428 53,831,164 54,083,472 54,057,263
- --------------------------------------------------------------------------------------------------------------------------
$ 33,476 $ 20,381 $ 11,807 $ 24,786 $ 6,407 $ 4,024 $ 9,861
85,016 65,941 61,296 93,997 103,172 88,355 52,754
450 -- 1,030 8,800 2,150 1,550 --
-- -- 5,250 26,250 46,327 29,950 3,000
450 -- 6,280 35,050 48,477 31,500 3,000
$ 62,294 $ 48,519 $ 37,719 $ 33,132 $ 46,502 $ 45,916 $ 44,384
==========================================================================================================================
43
Hooper Holmes, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
Directors and Officers
Directors
Benjamin A. Currier
Retired. Formerly Senior Vice President,
Security Life of Denver Ins. Co.-- ING/Barings
Mr. Currier, age 68, was Senior Vice President of Operations for Security
Life of Denver Insurance Company, a subsidiary of ING/Barings, in Denver,
Colorado prior to his retirement in 1997. Mr. Currier was Vice President,
Allstate Life Insurance Company from 1978 to 1995. He has been a director of the
Company since 1996, and is a member of the Audit Committee and the Executive
Compensation Committee. Mr. Currier is also a director of e-Nable Corporation.
(Term expires at the Annual Meeting in 2002.)
Quentin J. Kennedy
Retired. Formerly Executive Vice President, Secretary and Director
Federal Paper Board Company
Mr. Kennedy, age 68, was Executive Vice President, Secretary, Treasurer and
Director of Federal Paper Board Company in Montvale, New Jersey until his
retirement in 1996. He had served in various executive positions with Federal
Paper Board since 1960. Mr. Kennedy has been a director of the Company since
1991. He is a member of the Executive Committee and the Executive Compensation
Committee. (Term expires at the Annual Meeting in 2003.)
James M. McNamee
Chairman, President and Chief Executive Officer
Mr. McNamee, age 57, has served as Chairman of the Board of Directors of the
Company since 1996 and as President and Chief Executive Officer of the Company
since 1984. He has been an employee of the Company since 1968, an officer since
1979 and a director since 1984. Mr. McNamee is a member of the Executive
Committee and the Nominating Committee. (Term expires at the Annual Meeting in
2004.)
John E. Nolan
Partner, Steptoe & Johnson LLP
Mr. Nolan, age 74, is a partner in the law firm of Steptoe & Johnson, LLP,
Washington, D.C. and has been engaged in the practice of law since 1956. He has
been a director of the Company since 1971, and is a member of the Audit
Committee and the Executive Committee. Mr. Nolan is also a director of Iomega
Corporation. (Term expires at the Annual Meeting in 2003.) Elaine L. Rigolosi
Professor of Nursing Education Department of Organization and Leadership
Teachers College, Columbia University Dr. Rigolosi, Ed.D, J.D., age 57, is
Professor in the Department of Organization and Leadership at Teachers College,
Columbia University. She has been associated with Columbia University since
1976, and has maintained a private consulting practice in management for health
care organizations since 1974. Dr. Rigolosi has been a director of the Company
since 1989, and is a member of the Audit Committee and the Executive
Compensation Committee. (Term expires at the Annual Meeting in 2002.)
Elaine L. Rigolosi
Professor of Nursing Education
Department of Organization and Leadership
Teachers College, Columbia University
Dr. Rigolosi, Ed.D, J.D., age 57, is Professor in the Department of
Organization and Leadership at Teachers College, Columbia University. She has
been associated with Columbia University since 1976, and has maintained a
private consulting practice in management for health care organizations since
1974. Dr. Rigolosi has been a director of the Company since 1989, and is a
member of the Audit Committee and the Executive Compensation Committee. (Term
expires at the Annual Meeting in 2002.)
Kenneth R. Rossano
Private Investor.
Formerly Senior Vice President
Cassidy & Associates
Mr. Rossano, age 67, is a private investor. From 1992 to 1999, he was Senior
Vice President, Cassidy & Associates in Boston, Massachusetts. From 1991 to
1992, he was Vice President, Development, Massachusetts Higher Education
Assistance Corporation in Boston, Massachusetts. He has been a director of the
Company since 1967, and is a member of the Executive Committee and the
Nominating Committee. Mr. Rossano is also a director of Active International,
Inc. and A+ America, Inc. and Chairman of the Katherine Gibbs School of Boston.
(Term expires at the Annual Meeting in 2004.)
G. Earle Wight
Senior Vice President
Mr. Wight, age 68, has served as Senior Vice President of the Company since
1985 and has been a director of the Company since 1966. Mr. Wight is a member of
the Nominating Committee. (Term expires at the Annual Meeting in 2004.)
Officers
James M. McNamee
Chairman, President
and Chief Executive Officer
Mario L. Cavezza
Senior Vice President
David J. Goldberg
Senior Vice President
Robert William Jewett
Senior Vice President,
General Counsel and Secretary
Steven A. Kariotis
Senior Vice President
Fred Lash
Senior Vice President,
Chief Financial Officer
and Treasurer
Joseph A. Marone
Vice President
Raymond A. Sinclair
Senior Vice President
Alexander Warren
Senior Vice President
G. Earle Wight
Senior Vice President
44
Hooper Holmes, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
Investor Information
Common Stock Information
. Traded on the American Stock Exchange (AMEX) under the symbol "HH"
. Options on HH common stock are also traded on the American Stock Exchange
. Included in Standard & Poor's Small Cap 600 and Russell 2000 indices
. As of February 14, 2002 there were 936 shareholders of record.
Form 10-K
Holders of the Company's common stock may obtain, without charge, a copy of the
Hooper Holmes, Inc. Annual Report on Form 10-K as filed with the Securities and
Exchange Commission upon request.
Address inquires to:
Secretary
Hooper Holmes, Inc.
170 Mt. Airy Road
Basking Ridge, NJ 07920
Independent Certified
Public Accountants
KPMG LLP
Short Hills, NJ
Transfer Agents & Registrar
First City Transfer Company
Iselin, NJ
Annual Meeting
May 21, 2002,
at the Company's Headquarters
Corporate Headquarters
Hooper Holmes, Inc.
170 Mt. Airy Road
Basking Ridge, NJ 07920
908.766.5000
www.hooperholmes.com
Dividend Reinvestment Plan
The Hooper Holmes Dividend Reinvestment Plan is designed to enable record
shareholders of Hooper Holmes' Common Shares to acquire additional Common Shares
through the automatic investment of their cash dividends. With this Plan, there
are no transaction charges or brokerage commissions associated with the purchase
of Common Shares, thereby permitting the entire amount of your dividend to be
invested. The Plan is administered for Hooper Holmes by First City Transfer
Company. For more information or an enrollment form, please contact First City
Transfer Company at 732.906.9227, ext. 14.
45
Hooper Holmes, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
Quarterly Common Stock Price Range and Dividends
(dollars)
2001 2000
- --------------------------------------------------------------------------
Quarter High Low Dividend High Low Dividend
- --------------------------------------------------------------------------
First 11.73 8.00 .0075 18.25 9.69 .0075
Second 10.99 7.60 .0075 18.31 8.00 .0075
Third 9.61 5.49 .0075 13.81 7.13 .0075
Fourth 9.12 5.85 .0075 11.06 8.50 .0075
==========================================================================
Adjusted to reflect two for one stock splits effective January 8, 1999, and
April 12, 2000.
Quarterly Financial Data (Unaudited)
(dollars in thousands, except per share data)
Per Share of Common Stock
Net Income
-------------------------
Quarter Revenues Gross profit Net Income Basic Diluted
- --------------------------------------------------------------------------------
2001
Fourth $ 63,590 $ 18,394 $ 3,830 $ .06 $ .06
Third 57,238 15,756 3,246 .06 .05
Second 60,730 16,902 3,493 .05 .05
First 63,627 18,851 4,678 .07 .07
- --------------------------------------------------------------------------------
Total $ 245,185 $ 69,903 $ 15,247 $ .24 $ .23
================================================================================
2000
Fourth $ 60,350 $ 16,535 $ 4,515 $ .07 $ .07
Third 61,270 16,570 3,887 .06 .06
Second 67,581 18,722 4,665 .07 .07
First 85,773 25,800 7,897 .12 .11
- --------------------------------------------------------------------------------
Total $ 274,974 $ 77,627 $ 20,964 $ .32 $ .31
================================================================================
Per share calculations are adjusted to reflect two for one stock splits
effective January 8, 1999, and April 12, 2000.
46
Accretive
Adding to a company's earnings, as in the case of an acquisition.
Alternative Distribution Channels (ADCs)
"Non-traditional" methods for selling insurance, such as the Internet, banks and
quote services.
Attending Physician Statement (APS)
Medical records obtained with written patient authorization for the purpose of
underwriting life, health and disability insurance.
Cycle Time
The period of time needed to underwrite an insurance application.
Earnings per Share - Basic
Net income divided by the number of shares outstanding during the period.
Earnings per Share - Diluted
Net income divided by the sum of weighted average number of shares outstanding
during the period plus shares assumed to be issued if all outstanding stock
options were exercised.
EBITDA
Earnings before interest, taxes, depreciation and amortization.
e-mobile exam(TM)
Hooper Holmes' proprietary wireless exam-data capture program and transmitter.
e-Nable Corporation
Provider of Internet-based system that integrates and streamlines the process of
insurance product selection, policy application, underwriting and policy issue.
Health Information Services
The core service of Hooper Holmes collecting health information for the purpose
of underwriting life, health and disability insurance.
Healthdex Service Group
Hooper Holmes' data gathering service specifically dedicated to the biotech and
pharmaceutical industries in support of clinical trials and sales and marketing
activities.
Heritage Labs
A subsidiary of Hooper Holmes Heritage Labs is a full service progressive
laboratory serving the insurance industry. Heritage assembles collection kits
for use by paramedical companies, and analyzes blood, urine and oral-fluid
samples and transmits the results to the ordering insurance company.
Infolink Services Group
Developed to complement the paramedical services provided by Portamedic(R).
Products include Inspection Reports and Attending Physician Statements.
Liquid Assets
Assets categorized as cash or cash equivalents, and non-cash assets easily
convertible to cash.
Market Share
Percentage of a market's sales obtained by one brand or company.
Medical Examination Data
North Carolina's leading full-service provider of health information services to
the life and health insurance industry, acquired by Hooper Holmes in 2001.
Online Forms Library
An online catalog of insurance exam forms organized by participating insurer and
state, for use by Hooper Holmes' branch employees.
Operating Income
Earnings from the operation of our business services, not including interest
expense, interest income and other non-operations income (expense), net.
Paramedical Exam
A 20 to 30 minute medical exam performed to record an insurance applicant's
abbreviated medical history, height and weight measurements, blood pressure and
pulse. Depending on the requirements of the ordering insurance company, a urine,
blood and/or saliva sample may also be collected.
Portamedic(R)
Hooper Holmes' health information division which conducts physical examinations,
testing and personal health interviews primarily for the life and health
insurance industry.
Portamedic.com
Portamedic's Web site, designed to increase the service, efficiency and
order-status visibility for Hooper Holmes' clients.
Portamedic F.A.S.T.(TM)
An imaging solution whereby clients can retrieve, view and print images of
attending physician statements, examinations and personal health interviews
within 24 hours of completion.
Portamedic Select(TM)
A comprehensive process for gathering together the underwriting requirements
needed to initiate the underwriting process.
Return on Stockholders' Equity
Net income divided by average stockholders' equity, a measure of the rate of
return on a common stockholder's investment.
Teledex
Portamedic's telephone-interview call center.
Underwriting
The process by which life and health insurance companies gather information to
assess risks in order to make informed decisions as to the issuance of policies
to applicants.
Hooper Holmes, Inc.
Corporate Headquarters
170 Mt. Airy Road
Basking Ridge, NJ 07920
908.766.5000
www.hooperholmes.com