[PICTURE]
2000 Annual Report
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Hooper Holmes, Inc.
[LOGO OF HOOPER HOLMES]
Our Mission:
"To be recognized as the premier provider of health information services to
businesses within the industries we compete. In that regard we will continue to
provide unparalleled efficiencies to our customers, while creating superior
value for our shareholders and establishing an exceptional workplace for our
employees."
Contents
Financial Highlights 1
Letter to Shareholders 2
Operations Review 5
Hooper Holmes at a Glance 12
Management's Discussion and Analysis 13
Consolidated Financial Statements 16
Notes to Consolidated
Financial Statements 20
Independent Auditors' Report 29
10 Year Selected Financial Data 30
Directors and Officers 32
Investor Information 33
Quarterly Information 34
Glossary 35
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Financial Highlights
Years ended December 31,
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(dollars in thousands, except per share data) 2000 1999 1998
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Revenues $ 274,974 $ 237,068 $ 185,210
Operating income 32,633 36,535 25,592
Income from continuing operations 20,964 20,793 14,185
Loss from discontinued operations -- -- (1,485)
Net income 20,964 20,793 12,700
Earnings per share-- basic
Continuing operations .32 .36 .25
Discontinued operations -- -- (.03)
Net income .32 .36 .22
Earnings per share-- diluted
Continuing operations .31 .34 .24
Discontinued operations -- -- (.03)
Net income $ .31 $ .34 $ 21
Weighted average number of shares-- basic 64,830,697 57,560,564 56,241,370
Weighted average number of shares--diluted 68,377,742 61,533,558 59,719,420
Return on stockholders' equity 14.9% 27.4% 22.9%
Dividend payout rate 9.2% 6.9% 6.9%
Cash dividends paid $ 1,925 $ 1,438 $ 985
Cash dividend per share .03 .02 .02
Net cash provided by operating activities 33,442 30,904 21,609
Cash flow earnings per diluted share .43 .43 .30
Working capital 93,305 56,076 33,476
EBITDA 42,169 42,102 30,209
Book value per share 2.79 1.46 1.04
Closing stock price per common share $ 11.06 $ 12.88 $ 7.25
Current ratio 7.2:1 3.1:1 2.7:1
Quick ratio 6.9:1 2.9:1 2.4:1
======================================================================================
Per share and share amounts have been adjusted to reflect two for one stock
splits effective January 8, 1999 and April 12, 2000.
[GRAPH] [GRAPH] [GRAPH]
1996 156.3 1996 8.6 1996 .08
1997 165.4 1997 16.3 1997 .15
1998 185.2 1998 25.6 1998 .24
1999 237.1 1999 36.5 1999 .34
2000 275.0 2000 32.6 2000 .31
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Revenues Operating Income Earnings Per Share -
Dollars in millions Dollars in millions Diluted
Dollars
All graphs presented herein are continuing operations.
2000 Annual Report 1
1996 14.0
1997 21.8
1998 30.2
1999 42.1
2000 42.2
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EBITDA
Dollars in millions
To Our Shareholders
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[PHOTO]
Hooper Holmes is built on solid ground. In 2000, our strong foundation allowed
us to successfully introduce a revolutionary new service, complete a follow-on
stock offering, acquire related businesses, form valuable new relationships to
expand our longer-term growth prospects, and realize record top-line financial
results.
For 2000, revenues were a record $275.0 million, a 16 percent increase from
$237.1 million in 1999. Net income was a record $21.0 million, or $0.31 per
diluted share, compared with net income of $20.8 million, or $0.34 per diluted
share for 1999. We also generated record cash from operations of $33.4 million
for 2000, versus $30.9 million for the prior year.
While our top line grew in 2000, our bottom line was not as strong as we had
hoped - due to regulatory changes in the life insurance industry, which caused
some core business softness in the second half of the year. The impact of this
aberration was felt industrywide. For Hooper Holmes, it resulted in bottom-line
figures that do not reflect the overall financial strength and excellent growth
prospects for our Company.
"Triple X," a life insurance regulatory event in certain states that spurred
consumers to buy certain policies before rates increased or premium structures
changed, created a boom/bust business cycle for the life insurance industry in
2000. Because Triple X generated such heavy demand for our services during late
1999 and the first quarter of 2000, it slowed our efforts to eliminate the
operating redundancies resulting from the November 1999 acquisition of
Paramedical Services of America (PSA) and delayed our ability to fully realize
the ensuing operating efficiencies.
Importantly, the effects of Triple X are now largely behind us, and our Company
is back on track. Positive indications for long-term trends in the life
insurance industry and Hooper Holmes' access to a larger demographic portion of
an aging population fare well for our long-term growth prospects. In fact, we
repurchased 1.8 million shares of our stock over the course of last year because
of our belief in the value and financial strength of our Company.
While the challenges we experienced during 2000 did temporarily slow our pace,
they certainly didn't stop us from moving ahead. In fact, we managed to
accomplish quite a lot last year in a number of different areas.
In February of 2000, we successfully completed an equity offering of 7.4 million
shares of common stock. This enabled us to improve our balance sheet by paying
down the vast majority of debt we incurred acquiring PSA. In addition, we
bolstered our cash by $4.3 million last year, finishing the year with $45.7
million in cash and cash equivalents, and increased our total liquid assets from
$41 million to $75 million. We are very pleased that we were able to start 2001
with such an excellent balance sheet and the liquidity to expand our growth both
organically and through acquisitions.
Our introduction of Portamedic Select(TM), the insurance industry's most
comprehensive and efficient case-management process, was truly a milestone event
for our Company last year. This innovative new service fulfills all of the
requirements needed to properly underwrite Individual or Group life- and
disability-insurance applications and speeds the delivery of those requirements
by as much as 70 percent, compared with conventional methods. In addition,
Portamedic Select(TM) offers electronic case management to track insurance
applications from point-of-sale through the entire underwriting process.
Consistent with our mission of helping our customers increase their efficiency,
reduce cycle time and boost profitability, Portamedic Select(TM) is the latest
on a long list of examples of why Hooper Holmes is the indisputable leader in
its industry.
2 Hooper Holmes, Inc.
To complement the benefits of Portamedic Select(TM), we recently entered into an
equity-investment and marketing agreement with e-Nable.com Corporation, a
service that increases front-end efficiency. This partnership will allow
customers to order and receive all the information requirements for life
insurance underwriting from their existing vendors over a single, Internet-based
network. By providing a full-spectrum insurance underwriting solution, e-
Nable.com and Hooper Holmes can significantly cut the length of the underwriting
process, increase insurers' revenues and decrease consumers' acquisition costs.
It also strategically positions our Company as a gateway to the insurance
industry for all vendors who use the service and gives us access to the "non-
medically underwritten" segment of the life insurance business, which accounts
for some 50 percent of all life insurance sales.
Another way in which Hooper Holmes is leveraging its core competencies and
infrastructure to participate in emerging-growth industries is through a joint
agreement with DNA Sciences, Inc. During 2000, our Company agreed to provide
nationwide phlebotomy and informed-consent services for The DNA Sciences Gene
Trust Project(SM), one of the first, large-scale consumer-focused research
initiatives to invite volunteers via the Internet to participate in genetic
research. We believe that the work of the Gene Trust accelerates the
identification of genetic variations that cause disease and can speed the
development of new diagnostic programs and therapies. In addition, by providing
services to the Gene Trust, Hooper Holmes is able to increase its volume,
without diverting attention from its core business.
In line with our ongoing strategy, during 2000, we acquired California-based
Exam Services, Inc., greatly increasing our presence in California, where there
is a large market for insurance. This acquisition was accretive to our earnings.
Throughout 2001, Hooper Holmes will continue to pursue strategic acquisitions
that further extend the quality, depth and breadth of its services.
Hooper Holmes' long-term focus remains sharp and our outlook very optimistic.
[GRAPH]
1996 16.3
1997 16.6
1998 21.6
1999 30.9
2000 33.4
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Net Cash Provided by
Operating Activities
Dollars in millions
Hooper Holmes' long-term focus remains sharp and our outlook very optimistic.
With alternate distribution channels (ADCs) joining traditional sales methods, a
reduced number of approved health-information service providers and favorable
insurance-applicant trends, we see many opportunities for Hooper Holmes to
further expand its core business as well as offer ancillary services.
We would like to express our deeply felt gratitude to our employees for a job
well done during an especially demanding year. We also thank our customers and
shareholders, whose best interests remain our priority as we work to maximize
the value of our Company.
/s/ James M. McNamee
James M. McNamee
Chairman, President and Chief Executive Officer
2000 Annual Report 3
[PICTURE]
With Portamedic Select(TM), we believe we have demonstrated, once again, why
we are number one.
4 Hooper Holmes, Inc.
Operations Review
----------------------------------------
Introducing Portamedic Select(TM)
Super-charged Services That Rev Up the Insurance Process
The introduction of Portamedic Select(TM), an innovative process for gathering
and managing underwriting information, was one of the most exciting
accomplishments for Hooper Holmes during 2000. Because we are so committed to
maintaining our leadership position in the industry, we focus on offering
services that provide incomparable advantages and tangible results to our
customers. With Portamedic Select(TM), we believe that we have demonstrated,
once again, why we are number one.
Portamedic Select(TM) is a comprehensive case-management process for gathering
the information needed to initiate the underwriting process for life and
disability insurance. The many benefits of this new service bring us even closer
to our goal of making Portamedic the one-stop underwriting service source. We
believe that Portamedic Select(TM) can cut five to ten days from the
application-to-policy issuance time, which means that it's as much as 70 percent
faster than conventional methods. And because reduced cycle time may improve
placement ratios, we consider this new process not merely a convenience for life
and disability insurers, but a valuable competitive edge.
Portamedic Select(TM) offers any or all of the following services to insurers:
. Teledex telephone interview and examination-appointment scheduling
. Electronic data transmission of exam documents, required forms and
work orders (based on individual insurance company's underwriting
criteria) from Teledex to one of our 300 local Portamedic locations
and Heritage Labs
. Review of physical examination of applicant and document signatures
. Electronic transmission of lab-testing results to customers' home
office
. Automatic fulfillment of additional pre-specified underwriting
information requirements (Inspection Reports, Motor Vehicle Reports
(MVRs), Attending Physician Statements (APSs), MIB history and
additional reflex lab testing)
This product addresses virtually every efficiency issue for obtaining and
managing underwriting information.
The Portamedic Select(TM) staff can review and categorize cases using the
specified guidelines of each insurer before
[GRAPH]
1996 4.1
1997 9.8
1998 14.2
1999 20.8
2000 21.0
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Net Income
Dollars in millions
2000 Annual Report 5
[PICTURE]
Because Hooper Holmes has such a strong technological advantage in the
industry, we are able to create new standards for service, speed, efficiency and
price.
6 Hooper Holmes, Inc.
Operations Review
------------------------------------
delivering the information to that insurer's underwriting department. As a
result, as many as nine out of ten cases, in our opinion, can then be
immediately directed to junior underwriters or knowledge-based underwriting
systems - a far more efficient use of both human and systems resources than
traditional methods. In addition, all involved parties are able to track the
status of each phase of the process through Portamedic Select's secure Internet
server.
By enabling insurers to issue policies faster and more efficiently, Hooper
Holmes is helping its customers maximize profits and cut down on policy
rejection due to "buyer remorse." Moreover, it is another way in which we are
using our technological expertise to enhance the benefits of our services and
meet the growing needs of our customers in an increasingly competitive
environment.
Wired for Success
Mention the word "technology" today, and many people instantly think "Internet."
For Hooper Holmes, however, technology means so much more: It means over a
century of building this Company by adhering to the principle that technological
progress fosters growth. Of course, the advent of the Internet has created many
new technological opportunities for us, but it is only one aspect of our
technological leadership in the industry. Overall, technology is crucial to all
three core components of our business: Portamedic, Infolink and Heritage Labs.
For Portamedic, we have used technology to create innovative new services like
Portamedic Select(TM); to seamlessly link our network of 300 locations; and to
develop a Web site that allows insurers to conveniently place and monitor
orders, schedule medical exams and communicate client information quickly and
securely. Internet ordering on the Portamedic Web site accounted for 6.5 percent
of all orders in 2000, up from 2.7 percent in 1999. This reflects both the
overall success of our online presence and our leadership position in serving
the growing market of alternate distribution channels (ADCs).
Infolink electronically sends customers their applicants' employment
information, physical and medical histories and attending physician statements
(APSs). Teledex, our telephone interview call center, complements Infolink by
supplying the pertinent details of a phone interview with the applicant in
addition to the above
[GRAPH]
1996 61.3
1997 65.9
1998 85.0
1999 184.5
2000 211.0
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Total Assets
Dollars in millions
2000 Annual Report 7
[PICTURE]
Hooper Holmes will continue to seek strategic opportunities that will enable us
to remain in the forefront of the industry, both technology and operationally.
8 Hooper Holmes, Inc.
Operations Review
----------------------------------------
information. Heritage Labs electronically processes blood, urine and oral-fluid
specimen samples collected during the Portamedic exam and electronically
transmits the results to the insurance companies.
Because Hooper Holmes has such a strong technological advantage in the industry,
we are able to create new standards for service, speed, efficiency and price. We
are also able to leverage our technological expertise and infrastructure to
acquire or meaningfully participate in new technologies and successfully branch
out into related lines of business. This strategy keeps us competitively strong
and able to provide the best and most innovative services to our customers.
In line with this business incubation strategy, our Healthdex Services Group
reached a joint agreement with DNA Sciences, Inc. in 2000 to provide nationwide
phlebotomy and informed-consent services. Our Company sees substantial medical
potential for genetic research over the long term and believes that both
individuals and insurers could benefit from this developing field.
Most recently, we leveraged our technological strength to reach an exclusive
marketing agreement with e-Nable.com, a leader in e-commerce solutions for life
insurance underwriting. Together, Hooper Holmes and e-Nable.com are able to
offer full-spectrum services for supplying underwriting requirements to life
insurance carriers. This significantly reduces cycle time in the underwriting
process and provides us with a point of entry to the "non-medically
underwritten" segment of the life insurance business, which is estimated to be
nearly half of total life insurance sales. We believe so strongly in the
potential for this agreement to improve the underwriting process and decrease
costs that we recently became a minority shareholder in e-Nable.com.
Hooper Holmes will continue to seek strategic opportunities that will enable us
to remain in the forefront of the industry, both technologically and
operationally.
[GRAPH]
1996 11.8
1997 20.4
1998 33.5
1999 56.1
2000 93.3
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Working Capital
Dollars in millions
2000 Annual Report 9
[PICTURE]
Our multi-faceted approach includes initiatives for organic growth, expansion
by acquisition and the formation of strategic relationships to capitalize on
promising new technologies.
10 Hooper Holmes, Inc.
Operations Review
------------------------------------
A Clear Strategy for Growth
When it comes to growing our Company, Hooper Holmes meets the challenge from all
angles. Our multi-faceted approach includes initiatives for organic growth,
expansion by acquisition and the formation of strategic relationships to
capitalize on promising new technologies.
Our organic growth is facilitated by the fast, convenient, high-quality results
of our thoughtfully developed services as well as the competence and
professionalism of our people. Moreover, a linked network of 300 locations and
more than 8,500 examiners make it possible for us to schedule a medical
examination within 24 hours anywhere in the country. This extensive national
coverage, coupled with our dynamic technologies, enable us to provide the quick
turnaround and competitive pricing underwriters require to operate efficiently
and profitably. Because we are so responsive to the needs of insurance carriers
and sellers, we serve virtually all of the top 100 life and health insurers in
the US - and with some, we even have an exclusive relationship.
Our acquisition strategy is structured and disciplined to ensure that only the
most appropriate candidates are brought into the Hooper Holmes fold. These
companies must offer complementary field services, proprietary services or
technologies that can enhance our existing operations. In addition, the
acquisition must be accretive to our earnings in the immediate or short-term
future, and we must be able to quickly integrate it into our Company to realize
attractive cost benefits. Past acquisitions, such as Heritage Labs and
Paramedical Services of America (PSA), have expanded Hooper Holmes' ability to
serve its customers and, we believe, also increased the long-term growth
prospects of our Company.
Our most recent acquisition - Exam Services, Inc. - expanded our presence in
California, a key growth market in the life and health insurance industry. Exam
Services provided a broad range of health information services through a network
of eight branches and generated annualized sales of approximately $8 million.
And with the integration of this company on track, we believe we are realizing
substantial operating efficiencies.
Acquisitions will continue to be a component of Hooper Holmes' growth strategy.
We will remain focused on companies that offer us bottom-line benefits and
expand the quality, depth and breadth of our services.
[GRAPH]
1996 37.7
1997 48.5
1998 62.3
1999 89.7
2000 191.1
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Stockholders' Equity
Dollars in millions
2000 Annual Report 11
Hooper Holmes at a Glance
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Our Company
Hooper Holmes, Inc., is the nation's leading provider of health information
services. Through Company-owned branch locations in all fifty states, the
Company's network of experienced medical professionals conduct 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 serves virtually all of the top 100 life and health insurers
in the United States.
2000 Highlights
Financial:
. Record revenues of $275 million
. Record net income of $21.0 million
. Record cash from operations of $33.4 million
Operational:
. Introduction of Portamedic Select(TM)
. Follow-on stock offering
. Full completion of PSA acquisition
. Acquisition of Exam Services
. Marketing Agreement with e-Nable.com
. Joint Agreement with DNA Sciences, Inc.
Outlook
With alternate distribution channels (ADCs) joining traditional sales
methods, a reduced number of approved health-information service providers
and favorable insurance-applicant trends, we see many opportunities for
Hooper Holmes to further expand its core business as well as offer
ancillary services.
12 Hooper Holmes, Inc,
Hooper Holmes, Inc. and Subsidiaries
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Management's Discussion and Analysis
Results of Operations
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 3 of the consolidated financial statements), an increase in services
performed per examination, an increase in the number of Infolink reports to
420,000 from 350,000, and a modest price increase. "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, and 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 $.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.
1999 Compared to 1998
Total revenues for 1999 increased 28% to $237.1 million from $185.2 million for
1998. This growth resulted from a 16% increase in the number of paramedical
examinations performed to 2,917,000 from 2,515,000, the acquisition of
Paramedical Services of America, Inc. (PSA) on November 1, 1999 (see Note 3 of
the consolidated financial statements), an increase in services performed per
examination, an increase in the number of Infolink
13
Hooper Holmes, Inc. and Subsidiaries
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reports to 350,000 from 303,000, and a modest price increase. The increase in
Infolink reports resulted from management reemphasizing branch generation of
Infolink reports.
The Company's cost of operations in 1999 totaled $164.0 million compared to
$129.3 million for 1998. Cost of operations as a percentage of revenues totaled
69.2% for 1999 versus 69.8% for 1998. As a percentage of revenues, the decrease
is due to ongoing efforts to control branch operating expenses, despite
increased revenue growth and slightly lower direct production costs.
Selling, general and administrative (SG&A) expenses were $36.6 million for 1999
compared to $30.4 million for 1998. As a percentage of revenues, SG&A expenses
decreased to 15.4% for 1999 from 16.4% for 1998, which is due to management's
continued efforts to control corporate expenses.
Accordingly, the Company's operating income for 1999 increased to $36.5 million
versus $25.6 million for 1998, and as a percentage of revenues, increased to
15.4% for 1999 compared to 13.8% for 1998.
Other income items in 1999 were primarily interest earned on invested funds, the
average balance of which was $35.1 million in 1999 over $22.7 million for 1998,
and interest expense increased in 1999 to $.9 million, as a result of borrowings
against the Company's term loan, used to finance the acquisition of PSA.
The effective tax rate was 44% and 46% for 1999 and 1998, respectively. The
decrease is the result of increased profitability which lessened the impact of
non-tax deductible amortization of goodwill from a 1995 acquisition.
As a result of the foregoing, net income from continuing operations in 1999
totaled $20.8 million or $0.34 per diluted share compared to $14.2 million or
$0.24 for 1998.
Inflation did not have a significant effect on the Company's operations in 1999.
Liquidity and Financial Resources
The Company's primary sources of cash are internally generated funds and the
Company's senior credit facility.
On May 30, 2000, the Board of Directors authorized the repurchase of 2,500,000
million shares of the Company's common stock during 2000 for an aggregate
purchase price not to exceed $25 million. For the year ended December 31, 2000,
the Company purchased 1,785,000 shares at a total cost of $17.1 million.
On February 29, 2000, the Company successfully completed a 7,350,000 share
offering of common stock, at an offering price of $12.563 per share which
provided net proceeds of approximately $87 million to the Company.
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 dollar, three-year revolving
loan. The loans bear interest at either the prime rate minus 1/2% to plus 1/4%
or LIBOR plus 3/4% to 1 3/4%, depending on our consolidated funded debt, as
defined, to our earnings before interest, taxes, depreciation and amortization
or "EBITDA" ratio. As of December 31, 2000, interest was payable at an effective
interest rate of 7.37% per annum. No principal payments are due on the term loan
for the first eighteen months. In conjunction with the acquisition of PSA in
November 1999, the Company borrowed the entire amount of the term loan. Shortly
after the February 29, 2000 secondary stock offering, the Company repaid $50
million against the term loan, and in June 2000, repaid an additional $12
million. As of December 31, 2000, the Company has outstanding borrowings against
the term loan in the amount of $3 million. There are no borrowings against the
revolving loan.
For the year ended December 31, 2000, the net cash provided by operating
activities was $33.4 million as compared to $30.9 million in 1999. The
significant sources were net income of $21.0 million, $9.0
Hooper Holmes, Inc. and Subsidiaries
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million of depreciation and amortization, an $8.3 million decrease in accounts
receivable which was offset by a decrease in accounts payable and accrued
expenses of $4.1 million. The decrease in accounts receivable was due to
successful collections of the acquired PSA accounts receivable, strong accounts
receivable collections in December 2000, and lower revenues for the fourth
quarter 2000 compared to prior quarters of 2000. Days sales outstanding was 38.5
days at December 31, 2000, compared to 54.5 days at December 31, 1999.
Our current ratio as of December 2000 was 7.2 to 1, compared to 3.1 to 1 at
December 31, 1999. Also, inflation has not had, nor is it expected to have, a
material impact on our consolidated financial results, and we currently have no
material commitments for capital expenditures. Quarterly dividends paid in 2000
were $.0075 per share.
Management believes that the combination of current cash and cash equivalents,
other working capital sources, 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.
Safe Harbor Statement under the Private Securities Litigation Act
Except for the historical information contained herein, the matters discussed in
this annual report are forward-looking statements which involve risks and
uncertainties, including but not limited to economic, competitive, governmental
and technological factors affecting the Company's operations, markets, products,
services and prices, and other factors discussed in the Company's filings with
the Securities and Exchange Commission.
Recently Issued Accounting Standards
In June 1998, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Certain Hedging Activities." In June 2000, the FASB issued SFAS
No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging
Activity, an Amendment of SFAS 133." SFAS No. 133 and SFAS No. 138 require that
all derivative instruments be recorded on the balance sheet at their respective
fair values. SFAS No. 133 and SFAS No. 138 are effective for all fiscal quarters
beginning after June 30, 2000. The adoption by FASB of the SFAS's did not have
an impact on the Company's consolidated financial statements.
15
Hooper Holmes, Inc. and Subsidiaries
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Consolidated Balance Sheets
December 31,
---------------------------
2000 1999
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Assets
Current assets:
Cash and cash equivalents $ 45,680,471 $ 41,363,019
Marketable securities 29,188,309 0
Accounts receivable 28,870,624 36,836,412
Other current assets 4,539,330 5,233,884
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Total current assets 108,278,734 83,433,315
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Property, plant and equipment 27,382,480 26,465,947
Less: Accumulated depreciation and amortization 18,058,073 16,075,132
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9,324,407 10,390,815
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Goodwill (net of accumulated amortization of
$8,726,370 in 2000 and $5,483,514 in 1999) 78,815,845 73,276,965
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Intangible assets (net of accumulated amortization of
$10,931,382 in 2000 and $7,658,860 in 1999) 13,865,768 16,523,290
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Other assets 751,128 846,943
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$211,035,882 $184,471,328
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Liabilities and Stockholders' Equity
Current liabilities:
Current maturities of long-term debt $ 196,836 $ 142,953
Accounts payable 7,402,862 11,543,665
Accrued expenses:
Insurance benefits 291,408 1,559,552
Salaries, wages and fees 2,585,457 3,209,031
Payroll and other taxes 232,348 357,029
Income taxes payable 902,721 5,033,946
Discontinued operations 286,594 293,736
Other 3,075,431 5,217,684
- ------------------------------------------------------------------------------------------------------
Total current liabilities 14,973,657 27,357,596
- ------------------------------------------------------------------------------------------------------
Long-term debt, less current maturities 3,195,295 65,307,047
Deferred income taxes 1,708,954 1,911,027
Minority interest 81,355 203,962
- ------------------------------------------------------------------------------------------------------
Commitments and contingencies
- ------------------------------------------------------------------------------------------------------
Stockholders' equity:
Common stock, par value $.04 per share; authorized 240,000,000 shares,
issued 67,454,174 in 2000 and 58,391,052 in 1999 2,698,167 2,335,642
Additional paid-in capital 135,419,195 36,357,092
Retained earnings 71,009,995 51,971,602
- ------------------------------------------------------------------------------------------------------
209,127,357 90,664,336
Less: Treasury stock at cost (1,993,564 and 208,664 shares) 18,050,736 972,640
- ------------------------------------------------------------------------------------------------------
Total stockholders' equity 191,076,621 89,691,696
- ------------------------------------------------------------------------------------------------------
$211,035,882 $184,471,328
======================================================================================================
See accompanying notes to consolidated financial statements.
16
Hooper Holmes, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
Consolidated Statements of Income
Years ended December 31,
-----------------------------------------------
2000 1999 1998
- ----------------------------------------------------------------------------------------------
Revenues $ 274,973,666 $ 237,068,057 $ 185,209,776
Cost of operations 197,347,143 163,958,380 129,261,234
- ----------------------------------------------------------------------------------------------
Gross profit 77,626,523 73,109,677 55,948,542
Selling, general and administrative expenses 44,993,468 36,574,333 30,356,166
- ----------------------------------------------------------------------------------------------
Operating income 32,633,055 36,535,344 25,592,376
- ----------------------------------------------------------------------------------------------
Other income (expense):
Interest expense (1,290,973) (859,555) (3,391)
Interest income 4,259,390 1,106,901 768,476
Other income, net 532,379 249,567 (88,171)
- ----------------------------------------------------------------------------------------------
3,500,796 496,913 676,914
- ----------------------------------------------------------------------------------------------
Income before income taxes 36,133,851 37,032,257 26,269,290
- ----------------------------------------------------------------------------------------------
Income taxes 15,170,000 16,239,000 12,084,000
- ----------------------------------------------------------------------------------------------
Income from continuing operations 20,963,851 20,793,257 14,185,290
- ----------------------------------------------------------------------------------------------
Discontinued operations
Loss on disposal, net of taxes -- -- (1,485,000)
- ----------------------------------------------------------------------------------------------
Net income $ 20,963,851 $ 20,793,257 $ 12,700,290
- ----------------------------------------------------------------------------------------------
Earnings per share -- basic:
Income from continuing operations $ .32 $ .36 $ .25
Discontinued operations-- net of taxes -- -- (.03)
- ----------------------------------------------------------------------------------------------
Net income $ .32 $ .36 $ .22
- ----------------------------------------------------------------------------------------------
Earnings per share -- diluted:
Income from continuing operations $ .31 $ .34 $ .24
Discontinued operations-- net of taxes -- -- (.03)
- ----------------------------------------------------------------------------------------------
Net income $ .31 $ .34 $ .21
- ----------------------------------------------------------------------------------------------
Weighted average shares-- basic 64,830,697 57,560,564 56,241,370
Weighted average shares-- diluted 68,377,742 61,533,558 59,719,420
==============================================================================================
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.
17
Hooper Holmes, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
Consolidated Statements of Stockholders' Equity
Common Stock
------------------------
Additional
Number of Paid-in Retained Treasury
Shares Amount Capital Earnings Stock Total
- -------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1997 13,939,115 $ 557,565 $ 27,079,265 $ 20,901,043 $ (18,502) $ 48,519,371
- -------------------------------------------------------------------------------------------------------------------------------
Net income 12,700,290 12,700,290
Cash dividends ($.036 per share) (985,039) (985,039)
Issuance of stock award 2,000 80 38,170 38,250
Exercise of stock options 208,415 8,336 1,244,633 1,252,969
Exercised stock option tax benefit 1,398,000 1,398,000
Issuance of shares for employee
stock purchase plan 40,452 1,618 322,630 324,248
Purchase of treasury stock (954,138) (954,138)
Two for one stock split effective
January 8, 1999 14,189,982 567,599 (567,599) --
- -------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1998 28,379,964 1,135,198 29,515,099 32,616,294 (972,640) 62,293,951
- -------------------------------------------------------------------------------------------------------------------------------
Net income 20,793,257 20,793,257
Cash dividends ($.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 86,534,696 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
===============================================================================================================================
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.
18
Hooper Holmes, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
Years ended December 31,
--------------------------------------------------
2000 1999 1998
- ------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net income $ 20,963,851 $ 20,793,257 $ 12,700,290
Adjustments to reconcile net income
to net cash provided by operating activities:
Loss on disposal -- -- 1,485,000
Depreciation and amortization 9,003,473 5,317,466 4,704,540
Provision for bad debt expense -- -- 130,000
Deferred tax expense (benefit) 918,587 390,773 (2,804,000)
Issuance of stock awards 153,750 64,050 38,250
Loss on sale of fixed assets 50,873 46,037 67,237
Change in assets and liabilities, net of effect
from acquisitions of businesses:
Accounts receivable 8,307,328 (5,964,107) 715,604
Other assets (1,874,676) (815,693) (566,046)
Income tax receivable -- 7,408 --
Accounts payable and accrued expenses (4,080,805) 11,064,431 5,138,185
- ------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 33,442,381 30,903,622 21,609,060
- ------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Business acquisitions, net of cash acquired (8,728,550) (82,949,063) (2,820,352)
Purchases of marketable securities (79,507,324) -- --
Redemptions of marketable securities 50,319,015 -- --
Capital expenditures, net of disposals (1,357,525) (2,714,339) (1,833,818)
- ------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (39,274,384) (85,663,402) (4,654,170)
- ------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Issuance of long-term debt 100,000 65,100,000 --
Principal payments on long-term debt (62,157,869) (100,000) --
Proceeds from issuance of common stock 86,828,696 -- --
Proceeds from employee stock purchase plan 680,738 551,718 324,248
Proceeds related to the exercise of stock options 3,701,444 2,256,669 1,252,969
Treasury stock acquired (17,078,096) -- (954,138)
Dividends paid (1,925,458) (1,437,949) (985,039)
- ------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 10,149,455 66,370,438 (361,960)
- ------------------------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents 4,317,452 11,610,658 16,592,930
Cash and cash equivalents at beginning of year 41,363,019 29,752,361 13,159,431
- ------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 45,680,471 $ 41,363,019 $ 29,752,361
- ------------------------------------------------------------------------------------------------------------------
Supplemental disclosure of cash flow information
Cash paid during the year for:
Interest $ 2,065,297 $ 70,473 $ --
Income taxes $ 9,883,975 $ 8,787,418 $ 9,140,543
==================================================================================================================
See accompanying notes to consolidated financial statements.
19
Hooper Holmes, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
Note 1 -- Principles of Consolidation
Summary of The consolidated financial statements include the accounts
Significant of Hooper Holmes, Inc. and its majority owned subsidiaries
Accounting (the "Company"). All significant intercompany balances and
Policies 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. Actual results could differ from those
estimates.
Marketable Securities
At December 31, 2000, marketable securities consist of U.S.
Treasury, municipal bonds, mortgage-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. Dividend and interest
income are recognized when earned. At December 31, 2000, the
cost of the marketable securities approximates fair value.
Cash and Cash Equivalents
The Company considers highly liquid investments with original
maturities of less than 90 days to be cash equivalents.
Long-Lived Assets
Long-lived assets consist of property, plant and equipment,
goodwill, and identifiable intangibles.
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
20
Hooper Holmes, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
assets are less than their carrying value. 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.
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 (3,547,045, 3,972,994
and 3,478,050 for 2000, 1999 and 1998, 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 10, "Capital Stock").
Revenues
Revenues from services rendered are recognized when services
are performed.
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
long-term debt, at December 31, 2000 and 1999, approximates
fair value due to the short maturity of these instruments.
For long-term debt, the carrying value approximates fair
value due to the interest rate being reset in December 2000.
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 $289,000, $288,000 and $149,000 in 2000, 1999
and 1998, respectively.
- --------------------------------------------------------------------------------
Note 2 -- In 1995, the Company transferred substantially all of the
Discontinued assets and business of its Nurse's House Call health care
Operations division (the "NHC division") to Olsten Corporation, (the
"NHC Transaction"),
21
Hooper Holmes, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
pursuant to an Agreement of Acquisition between the Company
and Olsten, dated May 26, 1995. The transaction closed
September 29, 1995. Pursuant to the Acquisition Agreement,
Olsten transferred to the Company all of the issued and
outstanding capital stock of American Service Bureau, Inc.,
which was engaged in the business of providing paramedical
examinations and related services to the life and health
insurance industries under the name ASB Meditest ("ASB
Meditest"), approximately $27.3 million in cash, and assumed
certain specified liabilities of approximately $5.1 million
relating to the NHC Division.
In 1995, the Company recorded a loss in the amount of $10.3
million, net of tax benefits of $7.6 million, on the disposal
of the NHC Division. The Company recorded a provision for
certain costs related to the disposal including the
transaction loss, severance and other expenses, transaction
fees, and accounts receivable collection fees. During the
fourth quarter of 1998, the Company recorded an additional
after tax charge of $1.5 million, net of a tax benefit of $1.3
million. The charge resulted from residual worker's
compensation charges and certain reimbursement issues
associated with the NHC Division.
- --------------------------------------------------------------------------------
Note 3-- During 2000, the Company acquired specific assets and
Acquisitions and liabilities of eight health information services companies.
Dispositions 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 $.6 million and are being amortized on a
straight line basis over 5 years.
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 $.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, 2000 and 1999, the remaining liabilities assumed
total $.6 million and $1.4 million, respectively, and are
included in other accrued expenses on the accompanying
consolidated balance sheet. At December 31, 2000, the
remaining costs represent office and equipment lease
liabilities for closed PSA branches.
On August 12, 1998, the Company acquired specific assets of
a health information services company. The purchase price was
$750,000. Cost in excess of net assets acquired of
approximately $597,000 is being amortized over 15 years.
Additionally, a non-competition agreement was entered into in
the amount of $150,000, and is being amortized over 5 years.
On November 30, 1998, the Company acquired a 55% ownership
interest in Heritage Labs International LLC, a national
provider of laboratory testing services, primarily to life and
health insurance companies. The purchase price was
approximately $1.8 million. Cost in excess of net assets
22
Hooper Holmes, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
acquired of approximately $1.4 million is being
amortized over 15 years. Additionally, a non-
competition agreement was entered into in the amount
of $.2 million, and is being amortized over 3 years.
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.
The 2000 acquisitions do not require pro forma
information, as the results of operations of the
businesses acquired were not material.
- ----------------------------------------------------------------------------------------------------------------
Note 4 -- Accounts receivable are net of an allowance for
Account Receivable doubtful accounts in the amount of $884,352 and
$1,092,071 in 2000 and 1999, respectively.
- ----------------------------------------------------------------------------------------------------------------
Note 5 -- Property, plant and equipment consists of the following:
Property, Plant
and Equipment Estimated
December 31, December 31, Useful Life
2000 1999 In Years
- ----------------------------------------------------------------------------------------------------------------
Land and improvements $ 618,972 $ 618,972 10 - 20
------------------------------------------------------------------------------------
Building and improvements 4,933,481 4,826,966 10 - 45
------------------------------------------------------------------------------------
Furniture, fixtures and equipment 21,830,027 21,020,009 3 - 10
------------------------------------------------------------------------------------
$27,382,480 $ 26,465,947
====================================================================================
- ----------------------------------------------------------------------------------------------------------------
Note 6 -- On October 29, 1999, the Company entered into a $100
Long Term Debt million 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-year revolving
loan. The $65 million term loan was used in
connection with the purchase of the assets of PSA.
As of December 31, 2000, $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 1 3/4%, depending on the
ratio of our consolidated funded debt, as defined,
to earnings before interest, taxes, depreciation and
amortization, or "EBITDA." As of December 31, 2000,
interest was payable at an effective annual interest
rate of 7.37%. Either loan can be prepaid without
penalty at any time. Also, commitment fees 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, 2000, the majority owned
subsidiary of the Company had outstanding
obligations under its bank note in the amount of $.4
million. The interest rate at December 31, 2000 was
10.0%. The note matures on January 1, 2003 and
monthly principal payments are required.
23
Hooper Holmes, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Note 7 -- The Company leases branch field offices under a number of
Commitments and operating leases which expire in various years through 2005.
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 2005. 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, 2000:
Year Ending December 31,
2001 $ 9,435,619
2002 5,498,526
2003 5,281,343
2004 2,034,915
2005 309,764
------------------------------------------------------------
Total minimum lease payments $ 22,560,167
------------------------------------------------------------
Rental expenses under operating leases were $12,429,976,
$10,768,315 and $8,633,036 in 2000, 1999 and 1998,
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 8 -- The Company is a party to a number of legal actions arising
Litigation 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 right of first refusal,
as well as incomplete disclosure about the transaction. The
Company believes that the plaintiff suffered no damages and
will vigorously defend this action in court. In the opinion
of management, the Company has substantial legal defenses
and/or insurance coverage with respect to all of its 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 9 -- Income tax expense is comprised of the following:
Income Taxes
(in thousands) 2000 1999 1998
------------------------------------------------------------
Federal:
Current $ 11,554 $ 13,603 $ 11,693
Deferred 724 285 (1,277)
------------------------------------------------------------
State and local:
Current 2,697 2,245 1,930
Deferred 195 106 (262)
------------------------------------------------------------
$ 15,170 $ 16,239 $ 12,084
============================================================
24
Hooper Holmes, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
The following reconciles the "statutory" federal income tax
rates to the effective income tax rates:
2000 1999 1998
-------------------------------------------------------------------------------
Computed "expected" tax expense 35% 35% 35%
-------------------------------------------------------------------------------
Increase (reduction) in tax expense resulting from:
State tax, net of federal benefit 8 8 7
Non-tax deductible amortization of goodwill 1 1 2
Other (2) -- 2
-------------------------------------------------------------------------------
Effective income tax rates 42% 44% 46%
===============================================================================
The tax effects of temporary differences that give rise to the
deferred tax assets and liabilities at December 31, 2000 and
1999 are as follows:
(in thousands) 2000 1999
-------------------------------------------------------------------------------
Deferred tax assets:
Acquisition reserve $ -- $ 592
Discontinued operation accruals 117 123
Receivable allowance 361 459
Intangible assets 227 234
Insurance benefits 119 655
Other 202 263
-------------------------------------------------------------------------------
1,026 2,326
-------------------------------------------------------------------------------
Deferred tax liabilities:
Accumulated depreciation (671) (681)
Acquisition bases adjustment,
primarily intangibles (1,432) (1,860)
Other (57) --
-------------------------------------------------------------------------------
(2,160) (2,541)
-------------------------------------------------------------------------------
Net deferred tax liability $(1,134) $ (215)
===============================================================================
Deferred tax assets (liabilities) are presented in
the consolidated balance sheets at December 31, 2000 as
follows: other current assets $575,000 and deferred income
taxes (noncurrent) $(1,709,000) and at December 31, 1999,
other current assets $1,696,000 and deferred income taxes
(noncurrent) $(1,911,000).
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 2000 and 1999 include differences between
financial and tax reporting for depreciation and amortization.
- --------------------------------------------------------------------------------
Note 10-- 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. On February 24, 1998, the stockholders approved
a proposal to increase the authorized number of common shares
from 20
25
Hooper Holmes, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
million to 80 million. On May 25, 1999, the stockholders
approved a proposal to increase the authorized number of
common shares from 80 million to 240 million.
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.
Stock Repurchase Program -- On May 30, 2000, the Board of
Directors authorized the repurchase of 2.5 million shares of
the Company's common stock during this calendar year for an
aggregate purchase price not to exceed $25 million. For the
year ended December 31, 2000, the Company purchased
1,785,000 shares for a total cost of $17.1 million.
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) any 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 1998, April 1999, and April 2000, the Company
distributed 161,808, 136,124 and 114,122 shares,
respectively, under the April 1997, April 1998 and April
1999 grants,
26
Hooper Holmes, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
and the aggregate purchase price was $324,248, $551,718 and
$680,738, 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.
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. For the
years ended December 31, 2000, 1999 and 1998, awards of
10,000 shares, 10,000 shares and 8,000 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.
The following table summarizes stock option activity:
------------------------------------------------------------------------------------
Under Option
------------------------------------------------------------------------------------
Shares Weighted
Available for Average Exercise
Grant Shares Price Per Share
------------------------------------------------------------------------------------
Balance, December 31, 1997 3,994,408 8,679,660 $ 1.62
Granted (2,421,600) 2,421,600 5.23
Exercised -- (833,660) 1.50
Cancelled 57,700 (57,700) 2.52
------------------------------------------------------------------------------------
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
------------------------------------------------------------------------------------
27
Hooper Holmes, Inc. and Subsidiaries
-----------------------------------------------------------------
The weighted average fair value per stock option granted was
$4.36 for the 2000 options, $7.77 for the 1999 options, and $1.18
in 1998. The Company estimated the fair values using the Black-
Scholes option pricing model, modified for dividends and using
the following assumptions:
2000 1999 1998
-----------------------------------------------------------------
Expected dividend yield .26% .26% .34%
Risk-free interest rate 5.75% 6.00% 4.75%
Expected stock price volatility 43.78% 40.98% 41.90%
Expected term until exercise (years) 9.6 10 9
=================================================================
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) 2000 1999 1998
-----------------------------------------------------------------------------------
Net income:
As reported $ 20,964 $ 20,793 $ 12,700
Pro forma 17,873 18,919 11,552
Basic earnings per share:
As reported $ .32 $ .36 $ .22
Pro forma .28 .33 .21
Diluted earnings per share:
As reported $ .31 $ .34 $ .21
Pro forma .26 .31 .19
===================================================================================
The pro forma effects on net income and earnings per share for
2000, 1999 and 1998 may not be representative of the pro forma
effects in future years since compensation cost is allocated on a
straight-line basis over the vesting periods of the grants, which
extend beyond the reported years.
The following table summarizes information concerning
options outstanding at December 31, 2000:
Options Outstanding Options Exercisable
---------------------------------------------------------- -----------------------
Weighted
Average Weighted Weighted
Number Remaining Average Number Average
Range of Outstanding Contractual Exercise Exercisable Exercise
Exercise Prices at 12/31/00 Term (Years) Price at 12/31/00 Price
-----------------------------------------------------------------------------------
$ .98 - $1.87 2,450,700 2.7 $ 1.33 2,450,700 $ 1.33
2.03 - 2.14 2,638,600 6.0 2.09 1,042,600 2.10
3.22 - 3.69 873,900 7.0 3.59 362,475 3.30
6.69 - 7.13 1,578,400 8.4 6.82 208,000 6.69
12.88 1,005,600 8.8 12.88 11,200 12.88
===================================================================================
- --------------------------------------------------------------------------------
Note 11 -- This plan is available to all employees with at least one year of
401k Savings service of greater than 1,000 hours of employment, and is
and Retirement administered by ING/ReliaStar Financial Corporation. The Company
Plan matches 25% of the first 10% of employee salary contributions.
The Company's payments for 2000, 1999 and 1998, were $426,000,
$345,000 and $300,000, respectively.
28
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, 2000 and 1999, 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, 2000. 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, 2000 and 1999, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 2000, in conformity with accounting principles generally
accepted in the United States of America.
/s/ KPMG LLP
Short Hills, New Jersey
February 26, 2001
29
Hooper Holmes, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
Selected Financial Data
For the years ended December 31,
--------------------------------------------------------
(dollars in thousands except per share data) 2000 1999 1998
- ----------------------------------------------------------------------------------------------------------------
Statement of Income Data:
Revenues $ 274,974 $ 237,068 $ 185,210
Operating income 32,633 36,535 25,592
Interest expense 1,291 860 3
Income from continuing operations 20,964 20,793 14,185
Loss from discontinued operations /(1)/ -- -- (1,485)
Net income 20,964 20,793 12,700
Earnings per share -- basic:
Income from continuing operations .32 .36 .25
Discontinued operations /(1)/ -- -- (.03)
Net income .32 .36 .22
Earnings per share -- diluted:
Income from continuing operations .31 .34 .24
Discontinued operations /(1)/ -- -- (.03)
Net income $ .31 $ .34 $ .21
- ----------------------------------------------------------------------------------------------------------------
Cash dividends per share $ .030 $ .025 $ .018
- ----------------------------------------------------------------------------------------------------------------
Weighted average shares-- basic 64,830,697 57,560,564 56,241,370
Weighted average shares-- diluted 68,377,742 61,533,558 59,719,420
- ----------------------------------------------------------------------------------------------------------------
Balance Sheet Data (as of December 31):
Working capital $ 93,305 $ 56,076 $ 33,476
Total assets 211,036 184,471 85,016
Current maturities of long-term debt 197 143 450
Long-term debt, less current maturities 3,195 65,307 --
Total long-term debt 3,392 65,450 450
Stockholders' equity $ 191,077 $ 89,692 $ 62,294
================================================================================================================
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.
/(1)/ See note 2 to the consolidated financial statements.
30
For the Years ended December 31,
- -----------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991
- -----------------------------------------------------------------------------------------------------
$ 165,353 $ 156,254 $ 111,313 $ 92,534 $ 80,600 $ 68,931 $ 61,585
16,344 8,576 4,059 3,803 5,020 4,548 4,079
168 1,394 1,674 994 237 144 319
8,770 4,086 1,667 1,480 2,739 2,779 2,159
-- -- (14,716) 1,184 867 2,099 1,427
8,770 4,086 (13,049) 2,664 3,606 4,878 3,586
.16 .08 .03 .03 .05 .05 .05
-- -- (.27) .02 .02 .04 .04
.16 .08 (.24) .05 .07 .09 .09
.15 .08 .03 .03 .05 .05 .05
-- -- (.27) .02 .02 .04 .04
$ .15 $ .08 $ (.24) $ .05 $ .07 $ .09 $ .09
- -----------------------------------------------------------------------------------------------------
$ .013 $ .008 $ .008 $ .038 $ .038 $ .031 $ .03
- -----------------------------------------------------------------------------------------------------
55,073,336 53,821,752 53,657,024 53,653,704 53,712,488 53,741,336 41,129,608
57,128,264 54,487,604 53,809,428 53,831,164 54,083,472 54,057,263 41,400,722
- -----------------------------------------------------------------------------------------------------
$ 20,381 $ 11,807 $ 24,786 $ 6,407 $ 4,024 $ 9,861 $ 15,720
65,941 61,296 93,997 103,172 88,355 52,754 48,962
-- 1,030 8,800 2,150 1,550 -- 93
-- 5,250 26,250 46,327 29,950 3,000 3,078
-- 6,280 35,050 48,477 31,500 3,000 3,171
$ 48,519 $ 37,719 $ 33,132 $ 46,502 $ 45,916 $ 44,384 $ 41,160
=====================================================================================================
31
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 67, 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.com
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 67, 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 56, 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
2001.)
John E. Nolan
Partner
Steptoe & Johnson LLP
Mr. Nolan, age 73, 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 Education
Department of Organization and Leadership Teachers College
Columbia University
Dr. Rigolosi, Ed.D, J.D., age 56, is Professor, Department of Organization
and Leadership, 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 66, 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. (Term expires at the Annual Meeting in 2001.)
G. Earle Wight
Senior Vice President
Mr. Wight, age 67, 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 2001.)
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
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
Hooper Holmes, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
Investor Information
Stock Listing
The Company's common stock is traded on the American Stock Exchange (AMEX) under
the symbol "HH".
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 22, 2001, 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 the Investor
Relations department at (908) 766-5000.
33
Hooper Holmes, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
Quarterly Common Stock Price Ranges and Dividends
(dollars)
2000 1999
--------------------------- -----------------------------
Quarter High Low Dividend High Low Dividend
- ------------------------------------------------------------------------------
First 18.25 9.69 .0075 8.28 6.19 .0063
Second 18.31 8.00 .0075 10.81 7.50 .0063
Third 13.81 7.13 .0075 12.81 9.16 .0063
Fourth 11.06 8.50 .0075 13.69 11.13 .0063
- ------------------------------------------------------------------------------
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
Gross -------------------------
Quarter Revenues Profit Net Income Basic Diluted
- ------------------------------------------------------------------------------
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
- ------------------------------------------------------------------------------
1999
Fourth $ 75,827 $ 23,052 $ 6,232 $ .11 $ .10
Third 53,830 16,077 4,989 .09 .08
Second 54,472 16,932 4,821 .08 .08
First 52,939 17,049 4,751 .08 .08
- ------------------------------------------------------------------------------
Total $ 237,068 $ 73,110 $ 20,793 $ .36 $ .34
==============================================================================
Per share calculations are adjusted to reflect two for one stock splits
effective January 8, 1999, and April 12, 2000.
34
Glossary
----------------------------------------
Accretive
Adding to the Company's earnings, as in the case of an acquisition.
Alternate Distribution Channel (ADC)
Non-traditional channel for selling life insurance, such as the Internet, banks
and quote services.
Attending Physician Statement (APS)
Medical records used for underwriting life, health and disability insurance.
These records are obtained with the signed authorization of the proposed
insured.
Basic Earnings per Share
Net income divided by the weighted average number of shares outstanding during
the period.
Cycle Time
The period of time needed to underwrite an insurance application.
Diluted Earnings per Share
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.
DNA Sciences Gene Trust Project
A large-scale consumer-focused research initiative that invites volunteers via
the Internet to participate in genetic research.
e-Nable.com Corporation
Provides an Internet-based system that integrates and streamlines the process of
insurance product selection, policy application, underwriting and policy issue.
EBITDA
Earnings before interest, taxes, depreciation and amortization.
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 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.
Products include Inspection Reports and Attending Physician Statements.
Inspection Reports
Consumer investigative reports used for underwriting life, health and disability
insurance policies.
Liquid Assets
Assets categorized as cash or cash equivalents, and non-cash assets easily
convertible to cash.
Market Share
Percentage of the market's sales obtained by one brand or company.
Motor Vehicle Reports (MVRs)
Driving records compiled by law enforcement agencies within each state.
Operating Income
Earnings from the operation of our business services, not including interest
expense, interest income and other non-operations related income, net.
Portamedic
Hooper Holmes' health information division, conducting physical examinations,
testing and personal health interviews primarily for the life and health
insurance industry.
Portamedic Select(TM)
A comprehensive process for gathering together the requirements needed to
initiate the underwriting process for life, health and disability insurance.
Return on Stockholders' Equity
Net income divided by average shareholders' equity; a measure of the rate of
return on a common stockholder's investment.
Teledex
Portamedic's telephone interview call center, which gathers information needed
for an underwriter to make faster and better informed decisions.
Triple X
A life insurance industry regulatory event that occurred in certain states,
causing a consumer rush on certain policies late in 1999 and early in 2000 to
avoid increased rates or premium-structure changes.
Underwriting
The process by which a life and health insurance company gathers information to
assess risks in order to make informed decisions as to the issuance of a policy
to an applicant.
Hooper Holmes, Inc.
Corporate Headquarters
170 Mt. Airy Road
Basking Ridge, NJ 07920
908.766.5000
www.hooperholmes.com