FORM 10Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended March 31, 2002
Commission File No. 1-9972
Hooper Holmes, Inc.
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(Exact name of registrant as specified in
its charter)
New York 22-1659359
- --------------------------------------- ---------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
170 Mt. Airy Rd., Basking Ridge, NJ 07920
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(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (908) 766-5000
None
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if
changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--------------- --------------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
Class Outstanding at March 31, 2002
- --------------------------------- -----------------------------------
Common stock, $.04 par value 65,174,615
HOOPER HOLMES, INC. AND SUBSIDIARIES
INDEX
Page No.
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PART I - Financial Information (unaudited)
ITEM 1 - Financial Statements
Consolidated Balance Sheets 1
as of March 31, 2002 and
December 31, 2001
Consolidated Statements of Income 2
for the Three Months Ended
March 31, 2002 and 2001
Consolidated Statements of Cash Flows 3
for the Three Months Ended
March 31, 2002 and 2001
Notes to Consolidated
Financial Statements 4-8
ITEM 2 - Management's Discussion and Analysis 9-12
of Financial Condition and Results
of Operations
ITEM 3 - Quantitative and Qualitative Disclosures 13
About Market Risk
Hooper Holmes, Inc.
Consolidated Balance Sheets
(unaudited)
03/31/02 12/31/01
--------------------- --------------------
ASSETS
Current Assets:
Cash and cash equivalents $ 49,139,705 $ 52,571,616
Marketable securities 34,806,680 31,225,891
Accounts receivable, net 31,935,491 24,939,364
Other current assets 6,889,322 5,676,399
--------------------- --------------------
Total current assets 122,771,198 114,413,270
Property, plant and equipment:
Land and land improvements 618,972 618,972
Building 4,635,735 4,634,145
Furniture, fixtures and equipment 22,938,509 22,507,894
Leasehold improvements 438,829 427,897
--------------------- --------------------
Total property, plant and equipment 28,632,045 28,188,908
Less: Accumulated depreciation and amortization 20,885,878 20,355,456
--------------------- --------------------
Property, plant and equipment, net 7,746,167 7,833,452
Goodwill 82,607,793 81,515,202
Intangible assets, net 10,587,303 11,995,686
Investment 5,875,000 5,218,750
Other assets 1,019,255 994,383
--------------------- --------------------
Total assets $ 230,606,716 $ 221,970,743
===================== ====================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 106,925 $ 239,669
Accounts payable 9,358,093 7,479,797
Accrued expenses:
Insurance benefits 157,404 386,093
Salaries, wages and fees 2,034,354 3,368,318
Payroll and other taxes 373,835 289,779
Income taxes payable 5,517,628 4,683,762
Other 3,598,448 3,906,662
--------------------- --------------------
Total current liabilities 21,146,687 20,354,080
Long term debt, less current maturities 3,393,794 3,280,496
Deferred income taxes 1,581,910 1,741,617
Minority interest 330,111 187,676
Stockholders' equity:
Common stock, par value $.04 per share; authorized 240,000,000 2,699,963 2,699,963
shares, issued 67,499,074 in 2002 and 2001.
Additional paid-in capital 131,838,243 134,482,010
Accumulated other comprehensive income 68,320 201,589
Retained earnings 89,475,110 84,308,815
--------------------- --------------------
224,081,636 221,692,377
Less: Treasury stock at cost (2,324,459 and 2,949,459 shares) 19,927,422 25,285,503
--------------------- --------------------
Total stockholders' equity 204,154,214 196,406,874
--------------------- --------------------
Total liabilities and stockholders' equity $ 230,606,716 $ 221,970,743
===================== ====================
See accompanying notes to unaudited consolidated financial statements.
-1-
Hooper Holmes, Inc.
Consolidated Statements Of Income
(unaudited)
Three months ended
March 31,
-----------------------------------------------------
2002 2001
----------------------- -------------------------
Revenues $ 66,489,833 $ 63,626,364
Cost of operations 45,900,589 44,775,058
----------------------- -------------------------
Gross profit 20,589,244 18,851,306
Selling, general and administrative expenses 11,236,403 11,680,190
----------------------- -------------------------
Operating income 9,352,841 7,171,116
Other income (expense):
Interest expense (28,839) (64,488)
Interest income 555,596 1,004,889
Other Income (expense), net (190,255) (54,344)
----------------------- -------------------------
336,502 886,057
----------------------- -------------------------
Income before income taxes 9,689,343 8,057,173
----------------------- -------------------------
Income taxes 3,876,000 3,379,000
----------------------- -------------------------
Net income $ 5,813,343 $ 4,678,173
======================= =========================
Earnings per share:
Basic $ 0.09 $ 0.07
Diluted $ 0.09 $ 0.07
======================= =========================
Weighted average number of shares:
Basic 64,871,744 65,205,040
Diluted 67,724,851 68,255,775
======================= =========================
See accompanying notes to unaudited consolidated financial statements.
-2-
Hooper Holmes, Inc.
Consolidated Statements of Cash Flows
(unaudited)
Three months ended March 31,
------------------------------------------------
2002 2001
---------------------- --------------------
Cash flows from operating activities:
Net income $ 5,813,343 $ 4,678,173
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,240,714 2,303,159
Provision for bad debt expense 75,000 75,000
Deferred tax benefit (159,707) (38,858)
Net realized loss (gain) on marketable securities available for sale 26,704 (63,993)
Issuance of stock awards 0 5,689
Loss on sale of fixed assets 7,042 5,209
Change in assets and liabilities:
Accounts receivable (7,071,128) (4,139,533)
Other current assets (1,237,795) (290,340)
Accounts payable and accrued expenses 2,638,788 3,378,172
---------------------- --------------------
Net cash provided by operating activities 1,332,961 5,912,678
---------------------- --------------------
Cash flows from investing activities:
Purchases of marketable securities (7,268,907) (8,475,005)
Redemptions of marketable securities 3,528,145 7,492,432
Business acquisition, net of cash acquired (369,219) (311,974)
Investment in e-nable.com (656,250) (5,000,000)
Capital expenditures (475,461) (177,032)
---------------------- --------------------
Net cash used in investing activities (5,241,692) (6,471,579)
---------------------- --------------------
Cash flows from financing activities:
Issuance of long term debt 0 250,000
Principal payments on long term debt (19,446) (34,459)
Proceeds related to the exercise of stock options 1,143,314 391,664
Treasury stock acquired 0 (6,578,891)
Dividends paid (647,048) (489,266)
---------------------- --------------------
Net cash provided by (used in) financing activities 476,820 (6,460,952)
---------------------- --------------------
Net decrease in cash and cash equivalents (3,431,911) (7,019,853)
Cash and cash equivalents at beginning of year 52,571,616 45,680,471
---------------------- --------------------
Cash and cash equivalents at end of period $ 49,139,705 $ 38,660,618
====================== ====================
Supplemental disclosure of non-cash investing activity
Change in net unrealized gain on marketable secutiries available for sale $ 68,320 $ 102,172
Supplemental disclosure of cash flow information Cash paid (received)
during the quarter for:
Interest $ 32,063 $ 66,150
Income taxes $ 1,419,891 $ (260,093)
See accompanying notes to unaudited consolidated financial statements.
-3-
HOOPER HOLMES, INC.
Notes to Unaudited Consolidated Financial Statements
March 31, 2002
Note 1: Basis of Presentation
The financial information included herein is unaudited however, such information
reflects all adjustments (consisting solely of normal recurring adjustments)
which are, in the opinion of management, necessary for a fair statement of
results for the interim periods.
The interim financial statements should be read in conjunction with the
financial statements and notes thereto included in the Company's annual report
on Form 10-K.
The results of operations for the three month period ended March 31, 2002 are
not necessarily indicative of the results to be expected for the full year. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" for additional information.
Note 2: Earnings Per Share
"Basic" earnings per share equals net income divided by weighted average common
shares outstanding during the period. "Diluted" earnings per share equals net
income divided by the sum of weighted average common shares outstanding during
the period plus dilutive common stock equivalents. Common stock equivalents
(2,853,107 and 3,050,735 for the three months ended March 31, 2002 and 2001,
respectively) are shares assumed to be issued if outstanding stock options were
exercised.
Options to purchase 1,501,750 and 1,554,900 shares of common stock were excluded
from the calculation of diluted earnings per share for the three months ended
March 31, 2002 and 2001, respectively, because their exercise prices exceeded
the average market price of outstanding common shares for the period.
Note 3: Comprehensive Income
Comprehensive income includes net income and other comprehensive income (loss)
which refers to those revenues, expenses, gains and losses which are excluded
from net income. Other comprehensive income includes unrealized gains and losses
on marketable securities classified as available-for-sale.
- 4 -
Three Month Period Ended
March 31, 2002 March 31, 2001
-------------- --------------
Net income $ 5,813,343 $ 4,678,173
Other comprehensive income:
Unrealized holding gains (losses)
arising during period (159,973) 166,168
Less: reclassification adjustment for
(gains) losses included in net income 26,704 63,993
----------- -----------
Net unrealized gain (loss) on
securities (133,269) 102,175
----------- -----------
Total comprehensive income $ 5,680,074 $ 4,780,348
=========== ===========
Note 4: Marketable Securities
The amortized cost, gross unrealized holding gains, gross unrealized holding
losses and fair value of available-for sale securities by major security type
and class of security at March 31, 2002 and December 31, 2001, was as follows:
Gross Gross
Unrealized Unrealized Estimated
Amortized holding holding Fair
Cost Gain Loss Value
--------- ---------- ---------- ---------
At March 31, 2002
Government Agencies $ 2,544,758 $ 2,261 ($3,443) $ 2,543,576
Government Bonds & Notes 4,550,292 4,552 (11,061) 4,543,783
Corporate Debt Securities 27,643,310 110,093 (34,082) 27,719,321
---------- ------- ---------- ----------
Total $ 34,738,360 $ 116,906 ($48,586) $ 34,806,680
============= ========== ============ =============
At December 31, 2001
Government Agencies $ 1,915,840 $ 6,001 - $ 1,921,841
Government Bonds & Notes 2,149,010 8,390 (2,048) 2,155,352
Corporate Debt Securities 26,959,452 194,617 (5,371) 27,148,698
---------- ------- --------- ----------
Total $ 31,024,302 $ 209,008 ($7,419) $ 31,225,891
============= ========== =========== =============
Maturities of debt securities classified as available-for-sale were as follows
at March 31, 2002 (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 Estimated
Cost Fair Value
------------- ---------------
Due within one year $ 8,135,629 $ 8,169,442
Due after one year through five years 24,683,348 24,715,943
Due after five years through ten years 1,919,383 1,921,295
------------ ------------
$ 34,738,360 $ 34,806,680
============ ============
- 5 -
Proceeds from the sale of investment securities available for sale were $
3,528,145 and $7,428,439 in the quarters ended March 31, 2002 and 2001,
respectively, gross realized gains included in income in the quarters ended
March 31, 2002 and 2001 were $0 and $63,993 respectively, and gross realized
losses included in income in the quarters ended March 31, 2002 and 2001 were
$26,704 and $0, respectively.
Note 5: Capital Stock
The net tax benefit derived from the exercise of stock options was $ 1.6 million
and $.3 million for the three months ended March 31, 2002 and 2001,
respectively. Options exercised for the three months ended March 31, 2002
totaled 625,000 shares, all of which were issued from Treasury Stock.
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. For the three months ended
March 31, 2002, the Company did not purchase any shares of its common stock.
Note 6: Legal Matters
The Company is a party to a number of legal actions arising in 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
first right of 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 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 consolidated results of operations
or its consolidated financial position.
Note 7: Goodwill and Intangible Assets
In July 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 142, "Goodwill and Other
Intangible Assets" ("SFAS 142"). Under the new rules, goodwill and intangible
assets deemed to have indefinite lives will no longer be amortized but will be
subject to annual impairment tests in accordance with the new statement. Other
identifiable intangible assets will continue to be amortized over their useful
lives and reviewed for impairment in accordance with SFAS No. 144, "Accounting
for the Impairment or Disposal of Long-Lived Assets." Useful lives of
amortizable intangible assets are required to be re-evaluated each reporting
period with any changes in estimated useful lives being accounted for
prospectively over the revised remaining useful life.
- 6 -
The Company adopted SFAS 142 on January 1, 2002. Effective January 1, 2002,
the Company reclassified $ 1.2 million of previously recorded value related to
acquired workforce into goodwill and ceased amortizing this amount. Upon
adoption, the Company no longer amortizes goodwill. The following table presents
the effect the adoption of SFAS 142 would have had on the quarter ending March
31, 2001, and the year ending December 31, 2001 had SFAS 142 been applied
retroactively:
Three months ended Year ended
------------------------------------------------------------
March 31, 2002 March 31, 2001 December 31, 2001
------------------------------------------------------------
(dollars in thousands except for earnings per share)
Net income $ 5,813 $ 4,678 $ 15,247
Addback: Goodwill amortization, net of tax -- 526 2,338
--------- --------- -----------
Adjusted net income $ 5,813 $ 5,204 $ 17,585
========= ========= ===========
Basic earnings per share:
Net income $ .09 $ .07 $ .24
Goodwill amortization -- .01 .04
--------- --------- -----------
Adjusted net income $ .09 $ .08 $ .28
========= ========= ===========
Diluted earnings per share
Net income $ .09 $ .07 $ .23
Goodwill amortization -- .01 .03
--------- --------- -----------
Adjusted net income $ .09 $ .08 $ .26
========= ========= ===========
The Company has six months from the date of adoption to complete the initial
test for impairment of Goodwill. During the first quarter of 2002, the Company
completed its goodwill impairment evaluation and has concluded that goodwill is
not impaired. The annual impairment test will be performed in the fourth quarter
of each fiscal year.
Amortizable intangible assets are to be reviewed for impairment in accordance
with SFAS No. 144 which supercedes SFAS No. 121 and 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. The application of SFAS 144 in January 2002
did not have a material effect on our consolidated results of operations or
financial position. As of January 1, 2002, the Company re-evaluated the carrying
value and remaining useful lives of all previously recognized intangible assets
and did not adjust either. As of March 31, 2002, there has been no triggering
event that would cause the Company to re-evaluate the recoverability of its
intangible assets.
- 7 -
All intangible assets are being amortized over their estimated useful lives, as
indicated below. Intangible assets consist of:
March 31, 2002 December 31, 2001
------------------ -------------------
Non-Competition Agreements (3-5 years) $ 4,337,500 $ 4,267,500
Referral Base (9-11 years) 9,298,500 9,296,000
Contractor Network (7 years) 5,600,000 5,600,000
Assembled workforce ( 6 years) -- 1,238,000
Trademarks and tradenames (10-15 years) 409,000 409,000
------------ ------------
19,645,000 20,810,500
Less accumulated amortization (9,057,697) (8,814,814)
------------ ------------
$ 10,587,303 $ 11,995,686
============ ============
The aggregate acquired intangible amortization expense for the quarters ended
March 31, 2002 and March 31, 2001, were approximately $678,000 and $770,000,
respectively. The estimated acquired intangible amortization expense for the
fiscal year ending December 31, 2002 is $2,712,000.
Note 8: Investment
On January 31, 2001, the Company entered into a marketing and equity investment
agreement with e-Nable Corporation (e-Nable), at a total original cost of $ 5.0
million. e-Nable 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, to provide additional
financing for up to $1.75 million of which $ .9 million was outstanding as of
March 31, 2002. The Company has no future commitment to contribute additional
funds to e-Nable 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 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.
- 8 -
Item 2
HOOPER HOLMES, INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operation
Results of Operation - Three months ended March 31, 2002 compared to
Three months ended March 31, 2001
Revenues for the first quarter of 2002 increased 5% to $ 66.5 million from $
63.6 million for the first quarter of 2001. The number of paramedical
examinations performed increased slightly to 787,000 from 785,000. While units
are relatively flat, the 5% revenue increase is due to an increase in the
average revenue per examination of approximately 2.9%. Management believes this
percentage increase in average revenue is due to higher prices per examination
based on selling value added services such as Portamedic Select and Portamedic
F.A.S.T.
The number of Infolink reports remained flat at approximately 106,000 reports
for the first quarter, of both 2002 and 2001. The average price per unit of
service decreased approximately 4 % for the first quarter of 2002 compared to
the first quarter of 2001. This percentage decrease is the result of the
Company's efforts to control medical fees associated with Infolink reports and
certain competitive pressures.
The Company's cost of operations for the first quarter of 2002 totaled $45.9
million compared to $44.8 million for the first quarter of 2001. Cost of
operations as a percentage of revenues improved to 69.0% for the first quarter
of 2002, compared to 70.4% for the first quarter of 2001. The reduction, as a
percentage of revenues, is due to the Company's ability to leverage its field
expenses, despite the 5 % increase in revenues.
Selling, general and administrative expenses totaled $ 11.2 million for the
first quarter of 2002 compared to $ 11.7 million for the first quarter of 2001,
and as a percentage of revenue totaled 16.9% compared to 18.4%, respectively.
The decrease, as a percentage of revenues, is due to higher revenue levels in
the first quarter of 2002. Amortization of intangible assets was $ .7 million
for the first quarter of 2002 compared to amortization of goodwill and
intangible assets of $ 1.7 million for first quarter 2001. The decrease is
attributable to the adoption of FASB Statement No. 142 "Goodwill and other
Intangible Assets", which the Company adopted January 1, 2002. SFAS 142 requires
that goodwill and intangible assets with indefinite useful lives no longer be
amortized.
Accordingly, the Company's operating income increased to $9.4 million from $7.2
million and as a percentage of revenues, increased to 14.1% from 11.3% for the
first quarter of 2002 compared to the first quarter of 2001.
Interest income decreased to $ .6 million for the first quarter of 2002 from $
1.0 million for the first quarter 2001, due primarily to lower interest rates.
The effective tax rate was 40% and 42% for the quarters ended March 31, 2002 and
2001, respectively. The reduction in the effective tax rate is due to the
adoption of Statement 141 and 142 and the resultant elimination of certain
non-deductible goodwill amortization.
Net income and earnings per diluted share for the first quarter of 2002 were
$5.8 million or $.09 per diluted share versus $4.7 million or $.07 per diluted
share for the first quarter of 2001. Weighted average diluted shares for the
respective periods were 67,724,851 and 68,255,775.
- 9 -
Liquidity and Financial Resources
The Company's primary sources of cash are internally generated funds, cash
equivalents, and marketable securities, as well as the Company's bank credit
facility.
On January 31, 2001, the Company entered into a marketing and equity investment
agreement with e-Nable (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, to provide additional
financing for up to $1.75 million of which $ .9 million was funded and
outstanding as of March 31, 2002. The Company has no future commitment to
contribute additional funds to e-Nable 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 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.
Net cash provided by operating activities for the three months ended March 31,
2002 was $1.3 million compared to $6.0 million for the three months ended March
31, 2001. The significant sources were net income of $ 5.8 million, $1.2 million
of depreciation and amortization, a $2.6 million increase in accounts payable
and accrued expenses, and was offset by a $ 7.1 million increase in accounts
receivable.
Days Sales Outstanding (DSO) for the three months ended March 31,2002 was 46.0
days, compared to 47.5 days for the three months ended March 31, 2001, and 36.5
days at December 31, 2001.
As of March 31, 2002, the Company has outstanding borrowings against the term
loan in the amount of $ 3 million, and has no borrowings against the $ 35
million revolving loan.
The Company's current ratio at March 31, 2002 stood at 5.8:1 as compared to
5.6:1 at December 31, 2001. Inflation has not, nor is it expected to have a
material impact on the Company's financial results in 2002 and there have been
no material commitments for capital expenditures.
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. For the three months ended
March 31, 2002, the Company did not purchase any shares of its common stock.
- 10 -
Dividends paid in February 2002 were $.01 per share. At its board meeting on
April 3, 2002, the Company declared a quarterly dividend of $.01 per share.
Management believes that the combination of current cash and cash equivalents,
and borrowings under the Company's credit facility along with the anticipated
cash flows from operations, will provide sufficient capital resources to satisfy
our short term and foreseeable long term needs.
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.
- 11 -
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.
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.
- 12 -
Item 3. 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
their 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 ensure 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 March 31,
2002.
2007 & Estimated
2002 2003 2004 2005 2006 thereafter Total Fair Value
---- ---- ---- ---- ---- ---------- ----- ----------
(in thousands)
Fixed Rate Investments $5,397 $9,068 $7,351 $7,831 $1,555 $2,927 $34,129 $34,807
Average Interest Rates 6.01% 5.00% 5.46% 6.23% 5.97% 6.13% 5.68%
- 13 -
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Company
has caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
Hooper Holmes, Inc.
Dated: May 15, 2002
BY: /s/ James M. McNamee
------------------------------
James M. McNamee
Chairman, President and
Chief Executive Officer
BY: /s/ Fred Lash
------------------------------
Fred Lash
Senior Vice President
Chief Financial Officer &
Treasurer