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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934
For the fiscal year ended December 31, 1998.
Commission file number: 1-9972
HOOPER HOLMES, INC.
(Exact name of Registrant as specified in its charter)
New York 22-1659359
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
170 Mt. Airy Road
Basking Ridge, NJ 07920
(Address of principal executive offices) (Zip Code)
Area Code (908) 766-5000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
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Name of Each Exchange
Title of Each Class on Which Registered
Common Stock ($.04 par value) American Stock Exchange
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----------------------
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days. Yes [x] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (ss.229.405 of this chapter) is not contained herein, and
will not be contained, to the best of the Registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendments to this Form 10-K. [_]
As of February 12, 1999, there were 28,314,182 shares of Common Stock
outstanding. The aggregate market value of the shares of Common Stock held by
non-affiliates of the Registrant, based on the closing price of these shares on
the American Stock Exchange, was $339,232,391 based on 26,606,462 shares. For
the purposes of the foregoing calculation only, all directors and executive
officers of the Registrant have been deemed affiliates.
Certain information contained in the Company's 1998 Annual Report to
Shareholders and its Proxy Statement in connection with its 1999 Annual Meeting
of Shareholders is incorporated by reference into Parts I, II and III of this
Form 10-K.
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FORM 10K
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PART 1
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ITEM 1. Business
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General
The Company was founded in 1899 to provide business information reports
to the insurance industry. During its first 70 years, the Company established a
nationwide network of branch offices through which it successfully developed
relationships with most of the leading insurance companies in the United States.
In the early 1970's, to meet the increasingly sophisticated needs of its
insurance industry clients, the Company began using nurses and other skilled
professionals to provide physical examinations and health profiles for persons
applying for life and health insurance. By the early 1980's, the Company had
developed an extensive branch office network and had gained experience in
providing health-related services. These factors, coupled with favorable
demographic and health care cost containment trends, led the Company to expand
into the health care field by providing home health care services to
individuals, and nurses and other personnel for supplemental staffing to health
care facilities. To focus on its growing health information examination services
and health care operations, the Company sold most of its original business
information operation in 1988, sold its direct marketing services business in
1992, and sold the majority of its facilities for servicing medically fragile
children in 1994. In 1995, the Company sold its Nurse's House Call home
healthcare segment and, as part of that transaction, acquired a major competitor
in the health information segment, American Service Bureau, Inc., d/b/a ASB
Meditest ("ASB Meditest") of Framingham, Mass. In 1998, the Company acquired a
majority interest in Heritage Labs International, LLC.
Today, the Company is nationally recognized as the largest provider of
health information services through a network of over 200 branch offices in 50
states. Through its alternate site health information operations the Company
provides medical and paramedical examinations (which typically involve taking a
medical history, recording physical information and obtaining specimens) and
related services to life and health insurance companies.
Business Strategy
Management believes that the Company is well positioned to continue to
capitalize on several favorable trends currently affecting the alternate site
health information industry.
The alternate site health information services business which provides
specialty underwriting information services to the country's life and health
insurance industry, continues to show trends which indicate an increase in life
and health insurance underwriting volume, stricter underwriting standards for
life and health insurance and a basic consolidation of health information
companies serving the industry.
The Company's commitment to automation has placed it in the position of
being the leading nationwide automated provider of health information services.
Development of electronic exam technology via laptops has led to the
introduction of our "Teledex" automated exam and application services. These
services have been widely accepted as a solution to many clients' needs for
accurate and timely health information. The formation in 1996 and 1997 of
partnerships with new clients which utilize direct response to sell policies,
exemplify the result of our investment in technology in the past three years. As
more insurance is being sold to applicants through direct response, where there
is no agent to gather the pertinent underwriting information, the need for
"Teledex" becomes more critical. Consequently, the value of our direct contact
services to assess risk classification increases in this agentless environment,
thereby increasing the demand. It is management's objective to expand the
Company's capabilities to provide additional database services to the insurance
industry as it faces new challenges in its changing market.
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Over the past several years, the Company's health information services
have grown through internal development of branch offices and acquisitions of
strategically located similar businesses. The acquisition of ASB Meditest in
1995 and Heritage Labs in 1998, underscored management's intention to continue
to expand its health information services business through internal growth and
strategic acquisitions.
The Company's ongoing strategy is to combine these positive industry
trends, increased market presence, entrance into related markets and our
superior technology to become the leading health information services provider
in the life and health insurance industry.
Health Information Services
Industry Overview
Management believes that continued growth in the health information
business results from an increase in the number of medical and paramedical
examinations ordered and from additional testing procedures and new services
required by insurance companies. Additionally, several important trends in the
insurance industry point to increased demand for the Company's health
information services:
Stricter Underwriting Standards. Many life and health insurance
companies have been lowering the thresholds of insurance coverage requiring
pre-insurance examinations, due in part to growing concern over substance abuse,
AIDS and other illnesses and to the improved ability to identify AIDS and other
life-threatening diseases through laboratory testing. As technological advances
enable home detection of additional risks, the Company anticipates an increased
demand for such procedures as part of the examination process.
Consolidation. To improve quality control and reduce administrative
costs, life and health insurance companies are reducing the number of health
information providers approved for use by local agents. Management believes that
the Company has benefited and will continue to benefit from these consolidation
efforts because of its reputation for providing prompt, high quality service and
its well established relationships with most of the major insurance companies at
both national and local levels. The acquisition of ASB Meditest has further
enhanced both our ability and standing among our client base.
Restructuring. Costs and competitive pressures are forcing many of our
clients in the life and health industry to change their methods of doing
business. Procedures for completing applications, processing and even the
underwriting of risks are being outsourced from what were traditionally in-house
operations to more efficient, cost effective third parties. This is a rapidly
growing area of new services.
Nontraditional distribution outlets. Consolidation in the banking,
investment banking and securities industries have resulted in the defacto
formation of new life insurance distribution channels. Commercial banks, large
discount brokerage businesses and investment houses are all combining with a
primary focus of offering financial products for retirement and estate planning,
which frequently include life insurance policies, through these recently
developed channels.
The Company believes that it is well positioned to capitalize on these
trends for several reasons. The Company's network of highly automated branch
offices enables it to provide services nationwide in all urban and rural
locations. On-site branch office management is accountable for local operations
which enhances the Company's ability to establish and maintain relationships
with local insurance agents. The 1993 acquisition of Lifedata Medical Services,
Inc., a company with a large number of rural examiners, enhanced this long term
objective. The 1995 acquisition of ASB Meditest added additional locations
rounding our total nationwide to over 200. Also, the Company is committed to
providing superior quality service and has established and implemented a strict
set of quality assurance standards. Because the Company owns most of its branch
offices and does not rely on franchisees to provide medical and paramedical
examinations, it is able to maintain consistent enforcement of these
Company-wide standards. Finally, the Company provides accurate and complete
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examination results to insurance clients, in most cases within three to five
days of receiving the initial request for an examination. The Company's ability
to process examinations rapidly is due, in part, to the proximity of its branch
offices to the homes and workplaces of insurance applicants, ongoing
improvements in data processing and management information systems, and the use
of medically trained personnel who promptly evaluate insurance applicants and
efficiently process examination results. The Company has increased resources in
its quality assurance review system to make the quality of its health
information services among the best in the life and health insurance industry.
Services
Portamedic(R) -- Medical and Paramedical Examinations
Management believes that the Company is the leader of the five largest
national providers of medical and paramedical examinations for applicants
seeking insurance coverage from life and health insurers. Examinations are
provided nationwide under the Portamedic trade name through over 200 branch
locations in 50 states. During 1998, the Company performed over 2.5 million
paramedical examinations, covering all 50 states, Guam and Puerto Rico.
Each branch office is staffed with a branch manager, who is responsible
for local business development and general oversight of the local health
information operation, and a support staff responsible for coordinating
examination and reporting procedures. Each branch office typically uses
full-time and part-time employees, and contract personnel to perform
examinations, including registered nurses, licensed practical nurses,
physicians, and medical and paramedical technicians. The Company's examiners
provide examinations at the request of insurance agents at times and locations
convenient to applicants, including the applicants' home or place of business.
Each office is automated via a computer network using Novell networking
software. The application software is written and maintained by in-house
personnel. The Company has 14 "contract affiliates" from the acquisition of ASB
Meditest, which the Company feels complements its own branch network in many
geographical areas.
Since almost all of the Company's examiners are nurses and other
medically trained professionals, the Company is able to provide its clients with
a full range of medical and paramedical examination services. These services
primarily involve recording an applicant's medical history, height and weight,
measuring blood pressure, and collecting urine specimens. In addition, examiners
increasingly perform more sophisticated procedures requested by insurance
underwriters, including electro-cardiograms, lung capacity measurements and
blood sample collections which are sent to independent laboratories for testing
for AIDS and other life-threatening diseases. Both written and electronic
reports of examination results are provided to insurance clients typically
within three to five days of the initial request for an examination.
Infolink(TM) Services Group
Under the Infolink name, the Company offers comprehensive life and
health inspection reports and Attending Physician Statements to its insurance
clients. During 1998, the Company provided over 303,000 Infolink reports, a
decrease from 1997. This volume decrease was due to the Company selectively
eliminating marginally profitable business. The ASB Meditest acquisition
provided a substantial complementary operation in Chicago and we have focused
new product development in this Chicago office. These reports, available in
varying degrees of detail pursuant to a client's request, assist insurance
underwriters in developing a more comprehensive profile of an insurance
applicant. A life and health inspection report includes information relating to
an insurance applicant's lifestyle, employment history and financial status. A
member of the branch office staff prepares the Infolink report primarily based
upon telephone interviews with the applicant, his or her employer, his or her
business and personal associates, and electronically transmits the report to the
insurance underwriter. An Attending Physician Statement provides details of an
applicant's medical history and is
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obtained, with the insurance applicant's consent, from notes and records
maintained by the physician responsible for administering treatment. Our new
Teledex service offers sophisticated electronically produced exams to our
clients and was developed for what we see as a natural fit with the trends for
"smart underwriting" (electronic) now emerging within the life and health
insurance industry. Management expects that Infolink reports will become
increasingly important to insurance underwriters as insurance companies continue
to tighten underwriting standards.
The Company is a leader in applying technology to facilitate the
gathering and distribution of health information to the life and health
industry. In 1995, the Company developed an automated pen-based laptop computer
that permits the immediate input of data into the Company's computer network by
examiners at the examination site. This same technology was utilized in the
development of our Teledex services which we feel will both replace and enhance
the laptop technology initiated by the Company. Management intends to continue
to integrate computer technology into its health information services business
to provide additional data needed by insurance companies to make underwriting
decisions. In 1995, we added the ability to complete and transmit ECG's in the
same fashion.
From time to time, the Company performs other services such as wellness
health screening for corporations and other organizations outside of the
insurance industry. These other services presently do not constitute a
significant portion of the Company's health information business.
Total Company revenues follow:
-- 1998 -- --1997 --
% of % of
Amount Total Revenues Amount Total Revenue
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Portamedic $170.7 92.2% $150.9 91.2%
Infolink 14.5 7.8% 14.5 8.8%
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$185.2 100.0% $165.4 100.0%
Quality Assurance and Training
The quality and reputation of personnel and operations are critical to
the continued success of the Company's business. Management believes that its
insurance clients view the Company as a leader in terms of overall quality of
services. The Company's commitment to the highest quality standards is supported
by its quality assurance and training program.
In 1995 the Company developed the ability to monitor all health services
via an automated statistical quality control program. As a result of this
advanced capability, it has greater control over the quality of services
performed and as a result, 1996, 1997 and 1998 were years of unequaled quality
performance. At present, the Company is initiating an even more precise quality
assurance system geared towards an enhanced statistical system. At the branch
office level, local management is accountable for maintaining quality controls.
In each branch office, examiners are reviewed for proper examination procedures
and reporting requirements. Quality assurance specialists monitor examiners'
performances through detailed analyses of examinations, provide examiners with
periodic evaluations and conduct regular audits of branch office quality
controls to assist examiners and branch managers in continually improving the
quality of services performed.
At the corporate headquarters level, quality assurance personnel use a
comprehensive management information system to compile and review Company-wide
information regarding the accuracy and timeliness of examinations and reports.
These personnel regularly evaluate the Company's examination procedures and
communicate with insurance company clients to address any specific evaluation
results and, where appropriate, suggest revisions to improve the format of
clients' examination procedures and reports.
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Marketing and Sales
The Company markets Portamedic and Infolink health information services
on a national level through seven full-time sales representatives who call on
senior underwriting executives at the home offices of insurance companies. The
Company serves approximately 900 active life and health underwriting clients,
including their extensive network of agency, district, and brokerage offices.
National sales representatives promote the Company's consistently high quality
of service and rapid response time to examination requests and are responsible
for maintaining the Company's position on each insurance company's approved list
of examination providers. The Company regularly attends and occasionally
sponsors client conferences to provide national sales representatives with
opportunities to further develop key relationships. In 1996, the Company
launched its Healthdex services which provide a variety of services to the
wellness and pharmaceutical sectors outside our core markets. We began new
initiatives in this product line, which we felt would have a substantial impact
on our new service offerings. This initiative has been slow in realizing
meaningful revenues, but the company still expects a significant contribution in
future periods.
At the local level, branch managers, and in certain offices, additional
marketing personnel, market the Company's services directly to the local
insurance agents and local managers, who have the authority to select
examination providers from the list approved by the insurance companies' home
offices. These local marketing efforts highlight the quality of the Company's
examiners and the speed and accuracy of its services, including the ability of
each branch to quickly ascertain the status of each service request through the
Company's automated branch management information system.
The Company has developed a comprehensive automated branch management
information system which is now "on-line" in all branch offices. A key benefit
of the system is that it permits each branch office to instantly and regularly
monitor the status of a particular examination request, which results in more
responsive client service. The Company has been making its "status" information
available to its clients on a dial in electronic basis. Management believes that
the Company is the sole provider within the industry to offer this improved
service. The system also enables personnel at the Company's corporate
headquarters to compile company-wide information regarding quality assurance
standards as well as other administrative and accounting information.
Competition
The health information business is highly competitive, and certain of
the Company's competitors in this business have greater resources than the
Company, and offer services not offered by the Company or offer similar services
at prices lower than those charged by the Company.
The industry consists of five major competitors. One of the competitors
was part of a spin-off in 1997 and then sold by the new company to a home
healthcare company providing pediatric homecare services.
Management believes that the Company is the leader of five firms
operating nationally to provide health information services to insurance
companies. A large, though decreasing number of regional and local firms also
offer these services. In management's opinion, the principal competitive factors
in the health information services market are speed of response, delivery of
complete and accurate information, and price. Most recently, technological
capabilities have taken the forefront in our clients needs. The Company, through
its nationwide branch office network and highly qualified examiners, provides
accurate and reliable health information reports at competitive prices to its
insurance clients promptly, and generally within three to five days of receiving
a request for an examination.
Personnel
At December 31, 1998, the Company employed approximately 1091 full-time
and 647 part-time employees, none of whom is represented by a collective
bargaining agreement. The Company also contracts
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with over 8,700 medically trained examiners. The Company's ability to recruit
skilled personnel is essential to its continued growth and success. Management
attributes the Company's success in recruiting skilled personnel in its health
information business to the flexible work schedules and varied work assignments
it offers to its examiners. Management believes that these factors will enable
the Company to continue to attract and retain qualified personnel.
Regulation
Various aspects of the Company's business are regulated by the federal
government and the states in which the Company currently operates.
Although the Company has been able to comply with applicable regulations
to date, there can be no assurance that it will continue to be able to comply
with specific requirements of certain states. States periodically change the
regulations and licensing requirements that apply to the Company. If such
changes occur, or if the Company expands its operations into new jurisdictions
or services, there can be no assurance that the Company will be able to comply
with regulations and licensing requirements, although the Company will be
required to do so before providing service.
Management is not aware of any pending federal or state environmental
laws or regulations that would have a material adverse effect on the Company's
business or competitive position or that would require material capital
expenditures on the part of the Company to effect compliance.
Insurance and Litigation
The Company's health-information business involves a minimal risk of
liability. To date, claims made against the Company arising in the course of
providing health information services have not resulted in any material
liability to the Company. The Company carries liability insurance in coverage
amounts that management believes are customary in its business and sufficient to
cover most claims. There can be no assurance, however, that such coverage will
be sufficient to cover claims made against the Company, that adequate insurance
coverage will continue to be available to the Company in the future, or that
insurance coverage will be available on terms favorable to the Company. The
Company's insurance coverage includes occurrence-based medical professional
liability insurance and claims-made non-medical professional liability
insurance, a property insurance policy, a general liability policy, and an
umbrella insurance policy.
The Company is a party to a number of legal actions arising in the
ordinary course of business, none of which, in management's view, will have a
material adverse effect on the Company.
ITEM 2. Properties
The Company owns a five-building complex located at 170 Mt. Airy Road,
Basking Ridge, New Jersey. Of approximately 53,000 total square feet of office
space, the Company maintains its operations in approximately 42,000 square feet
and the balance is leased or available for lease to several tenants. Management
believes that this arrangement provides for the Company's foreseeable expansion
needs.
The Company leases its branch offices under a number of operating leases
with varying terms and expirations. See Note 7 to the Company's Consolidated
Financial Statements.
ITEM 3. Legal Proceedings
Information contained in Note 8 to the Company's consolidated financial
statements contained in the annual report to shareholders is incorporated herein
by reference.
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ITEM 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of securities holders during the
fourth quarter of the fiscal year covered by this report.
PART II
ITEM 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
The common equity and related shareholder information presented under
the caption "Quarterly Common Stock Price Ranges and Dividends" and "Shareholder
Information -- Stock Listing" is incorporated by reference from the Company's
1998 Annual Report to Shareholders which is Exhibit 13 to this report. As of
February 12, 1999, there were 850 shareholders of record.
ITEM 6. Selected Financial Data
The financial data included under the caption "Selected Financial Data"
is incorporated by reference from the Company's 1998 Annual Report to
Shareholders which is Exhibit 13 to this report.
ITEM 7. Management Discussion and Analysis of Financial Condition and Results of
Operations
The discussion included under the caption "Management's Discussion and
Analysis of Financial Conditions and Results of Operations", which is
incorporated by reference to the Company's 1998 Annual Report to Shareholders
which is Exhibit 13 to this report.
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk
None
ITEM 8. Financial Statements and Supplementary Data
Financial statements and supplementary data are included in the
Company's 1998 Annual Report to Shareholders which is Exhibit 13 to this report.
ITEM 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None
PART III
ITEM 10. Directors and Executive Officers of the Registrant
Information contained under the captions "Nominees for Directors",
"Directors Continuing in Office" and "Executive Officers" in the Company's Proxy
Statement for the Annual Meeting of Shareholders to be held on May 25, 1999 is
incorporated herein by reference.
ITEM 11. Executive Compensation
Information contained under the captions "Compensation of Executive
Officers," "Compensation of
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Directors", "Option Grants in Last Fiscal Year", "Aggregated Option Exercises in
Last Fiscal Year and Fiscal Year-End Option Values", "Report of the Executive
Compensation Committee" and "Employment Contracts and Change-in-Control
Arrangements" in the Company's Proxy Statement for the Annual Meeting of
Shareholders to be held on May 25, 1999 is incorporated herein by reference.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management
Information contained under the caption "Stock Ownership of Certain
Beneficial Owners and Management" in the Company's Proxy Statement for the
Annual Meeting of shareholders to be held on May 25, 1999 is incorporated herein
by reference.
ITEM 13. Certain Relationships and Related Transactions
Information contained under the caption "Certain Relationships and
Related Transactions" in the Company's Proxy Statement for the Annual Meeting of
Shareholders to be held on May 25, 1999 is incorporated herein by reference.
PART IV
ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) (1) The following financial statements and independent
auditors' report are included in the
Registrant's 1998 Annual Report to Shareholders.
Independent Auditors' Report
Consolidated Balance Sheets --
December 31, 1998 and 1997
Consolidated Statements of Income --
Years ended December 31, 1998, 1997 and 1996
Consolidated Statements of Stockholders' Equity --
Years ended December 31, 1998, 1997 and 1996
Consolidated Statements of Cash Flows --
Years ended December 31, 1998, 1997 and 1996
Notes to Consolidated Financial Statements
(2) Schedules are omitted because they are not required,
inapplicable, or the information is otherwise shown in
the financial statements or notes thereto.
(3) Exhibits included herein
<TABLE>
EXHIBIT PAGE
<S> <C> <C> <C>
3.1 Restated Certificate of Incorporation of --
Hooper Holmes, Inc., as amended (1)
3.2 Certificate of Amendment of the Certificate of
Incorporation of Hooper Holmes, Inc.
3.3 Bylaws of Hooper Holmes, Inc., as amended (2) --
4.1 Amended and Restated Rights Plan Agreement --
between Hooper Holmes, Inc. and Midlantic
National Bank (3)
</TABLE>
-----------------------
(1) Incorporated by reference to Exhibit 3.1 of the
Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1992.
(2) Incorporated by reference to Exhibit 3.2 of the
Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1996.
(3) Incorporated by reference to Exhibit 4(a) of the
Company's Quarterly Report on Form 10-Q for the fiscal
quarter ended March 31, 1991.
9
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<TABLE>
EXHIBIT PAGE
<S> <C> <C> <C>
10.1 Amended Employee Retention Agreement by and between --
Hooper Holmes, Inc., and James M. McNamee (4)
10.2 Form of Indemnification Agreement (5) --
10.3 Hooper Holmes, Inc. Nonqualified Stock --
Option Plan (6)
10.4 First Amendment to Hooper Holmes, Inc. --
Nonqualified Stock Option Plan (7)
10.5 Hooper Holmes, Inc. 1992 Stock Option Plan --
as amended (8)
10.6 Employee Stock Purchase Plan (1993) of Hooper --
Holmes, Inc. (9)
10.7 Hooper Holmes, Inc. 1994 Stock Option Plan (10) --
10.8 Credit Agreement between Hooper Holmes, Inc. --
and First Union National Bank. (11)
10.9 CEO Stock Option Agreement (12) --
10.10 1997 Stock Option Plan (13) --
10.11 1997 Director Option Plan (14) --
10.12 Employee Retention Agreement by and between Hooper --
Holmes, Inc. and Executive Officers of Hooper Holmes, Inc. (15)
13 Annual Report to security holders
21 Subsidiaries of Hooper Holmes, Inc. (none)
23 Consent of KPMG LLP
24 Power of attorney
27 Financial Data Schedule
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(4) Incorporated by reference to Exhibit 10.3 of the
Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1990.
(5) Incorporated by reference to Exhibit 10.4 of the
Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1990.
(6) Incorporated by reference to Exhibit 10.5 of the
Company's Annual Report on Form 10-K or the fiscal
quarter ended December 31, 1990.
(7) Incorporated by reference to Exhibit 10.9 of the
Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1992.
(8) Incorporated by reference to Exhibit 10.11 of the
Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1992.
(9) Incorporated by reference to Exhibit 10.12 of the
Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1993.
(10) Incorporated by reference to Exhibit 10.16 of the
Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1994.
(11) Incorporated by reference to Exhibit 10.10 of the
Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1996.
(12) Incorporated by reference to Attachment to the Company's
Proxy Statement for the Annual Meeting of Shareholders
held on May 27, 1997.
(13) Incorporated by reference to Exhibit 10.10 of the
Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1997.
(14) Incorporated by reference to Exhibit 10.11 of Company's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1997.
(15) Incorporated by reference to Exhibit 10.14 of the
Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1996.
</TABLE>
Reports on Form 8-K
No report on Form 8-K has been filed during the fourth
quarter of 1998.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
HOOPER HOLMES, INC.
(Registrant)
/s/ James M. McNamee
---------------------
By: James M. McNamee
President & CEO
Date: March 30,1999
-----------------
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
/s/ James M. McNamee Date: March 30, 1999
________________________________________________ ----------------------
James M. McNamee Director
President & CEO
Date: March 30, 1999
________________________________________________ ---------------------
*Benjamin A. Currier Director
Date: March 30, 1999
________________________________________________ ---------------------
*Quentin J. Kennedy Director
Date: March 30 ,1999
________________________________________________ ---------------------
*Kenneth R. Rossano Director
Date: March 30, 1999
________________________________________________ --------------------
Elaine Rigolosi Director
Date: March 30, 1999
________________________________________________ ---------------------
*John E. Nolan Director
Date: March 30, 1999
________________________________________________ ---------------------
*G. Earle Wight Director
/s/ Fred Lash Date: March 30, 1990
________________________________________________ ---------------------
Fred Lash Senior V.P., Treasurer
and Chief Financial
and Accounting Officer
*James M. McNamee, by signing his name hereto, does hereby sign this report for
the persons before whose printed name an asterisk appears, pursuant to the power
of attorney duly executed by such person and filed as Exhibit 24 hereto with the
Securities and Exchange Commission.
/s/ James M. McNamee
-----------------------------
James M. McNamee
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EXHIBIT 3.2
CERTIFICATE OF AMENDMENT
OF THE
CERTIFICATE OF INCORPORATION
OF
HOOPER HOLMES, INC.
-------------------
Under Section 805
of the
Business Corporation Law
------------------------
The undersigned, being the President and the Secretary of Hooper Holmes,
Inc., a New York corporation, do hereby certify and set forth the following
pursuant to Section 805 of the Business Corporation Law of the State of New
York:
FIRST: The name of the corporation is HOOPER HOLMES, INC. (the
"corporation"). The name under which the corporation was formed is THE HOOPER
HOLMES INFORMATION BUREAU.
SECOND: The certificate of incorporation of the corporation was filed by
the Department of State on March 7, 1906.
THIRD: The subject matter of the provision of the certificate of
incorporation which is to be amended is to increase the aggregate number of
common shares which the corporation shall have authority to issue from
20,000,000 shares, par value $0.04 per share, to 80,000,000 shares, par value
$0.04 per share.
Article Fourth of the certificate of incorporation of the corporation is
hereby amended to read as follows:
FOURTH: The aggregate number of shares which the corporation shall have the
authority to issue is 80,000,000 shares, all of which shall be designated
common shares with a par value of $0.04 each.
FOURTH: This amendment to the certificate of incorporation of the
corporation was authorized by vote of the Board of Directors followed by the
affirmative vote of the holders of a majority of all outstanding shares entitled
to vote thereon at a meeting of the shareholders of this corporation duly called
and held on February 24, 1998, a quorum being present.
IT WITNESS WHEREOF, the undersigned have subscribed this document on the
27th day of March, 1998 and do hereby affirm, under the penalties of perjury,
that the statements contained therein have been examined by us and are true and
correct.
/s/ James M. McNamee
James M. McNamee
Chairman, President and Chief
Executive Officer
/s/ Robert William Jewett
Robert William Jewett
Secretary
<PAGE>
STATE OF NEW JERSEY )
) ss:
COUNTY OF SOMERSET )
Robert William Jewett, being duly sworn, deposes and says that he is the
Secretary of Hooper Holmes, Inc., the corporation named in the foregoing
Certificate of Amendment of the Certificate of Incorporation; that he has read
and signed the same in such capacity; and that the statements contained therein
are true to his own knowledge.
/s/ Robert William Jewett
Robert William Jewett
Subscribed and sworn to before me this
27th day of March, 1998
/s/ Jacqueline M. Mandelbaum
Notary Public
Jacqueline M. Mandelbaum
Print Name
My Commission expires April 29, 2001
<PAGE>
[LOGO OF HOOPER HOOPER
HOLMES APPEARS HERE] HOLMES
1998 Annual Report
[PHOTO OF ANNUAL REPORT COVER APPEARS HERE]
1899 - 1999 100 Years and Growing
<PAGE>
[ARTWORK APPEARS HERE]
About the Company
Hooper Holmes, Inc. is the nation's leading provider of alternate-site health
information. Serving all 50 states, the Company's network of experienced medical
professionals conducts 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.
Hooper Holmes'customers include the nation's major life and health insurers, and
the Company performed approximately 2.5 million tests on insurance applicants in
1998 under its trade name Portamedic. The Company offers the industry's widest
geographic coverage and up-to-date technology to ensure timely, accurate
delivery of health information. Hooper Holmes today is recognized as a quality
service provider that meets the needs of its customers, employees, and
shareholders. We pride ourselves on anticipating new challenges that face our
clients and finding solutions to help them adapt to change.
Contents
Financial Highlights ...................................................... 1
Letter to Shareholders .................................................... 2
Review of Operations ...................................................... 4
Office Locations .......................................................... 12
Financial Contents ........................................................ 13
Corporate Information ........................................ inside back cover
<PAGE>
Hooper Holmes, Inc.
Common Stock Price History
[GRAPH APPEARS HERE]
<PAGE>
1998 Operating Highlights
. In 1998 Hooper Holmes generated record revenues and earnings.
. The Company's market capitalization grew 101 percent to $408 million at
year-end 1998.
. Hooper Holmes, the technology leader in insurance industry outsourcing,
enhanced its position by introducing a sophisticated website to improve and
accelerate customer service.
. The Company's Portamedic division performed approximately 2.5 million
examinations in 1998.
. The Company acquired a majority interest in Heritage Labs International, a
clinical reference laboratory in Olathe, Kansas. The transaction creates
significant new opportunities for Hooper Holmes.
[GRAPH APPEARS HERE]
<PAGE>
Financial Highlights
<TABLE>
<CAPTION>
Year ended December 31,
-------------------------------------------
(dollars in thousands except per share data) 1998 1997 1996
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues $ 185,210 $ 165,353 $ 156,254
Operating income 25,592 16,344 8,576
Income from continuing operations 14,185 8,770 4,086
Loss from discontinued operations (1,485) -- --
Net income 12,700 8,770 4,086
Earnings per share -- basic
Continuing operations .50 .32 .15
Discontinued operations (.05) -- --
Net income .45 .32 .15
Earnings per share -- diluted
Continuing operations .48 .31 .15
Discontinued operations (.05) -- --
Net income $ .43 $ .31 $ .15
Cash dividend per share $ .04 $ .03 $ .02
Weighted average number of shares--basic 28,120,685 27,536,668 26,910,876
Weighted average number of shares--diluted 29,859,710 28,564,132 27,243,802
- -----------------------------------------------------------------------------------------
</TABLE>
Per share and share amounts have been adjusted to effect a two for one stock
split effective January 8, 1999.
[BAR GRAPH APPEARS HERE] [BAR GRAPH APPEARS HERE] [BAR GRAPH APPEARS HERE]
Revenues Operating Income Earnings Per Share from
Dollars in Millions Dollars in Millions Continuing Operations
Dollars
1994 92.5 1994 3.8 1994 0.06
1995 111.3 1995 4.1 1995 0.06
1996 156.3 1996 8.6 1996 0.15
1997 165.4 1997 16.3 1997 0.31
1998 185.2 1998 25.6 1998 0.48
1999 Annual Report 1
<PAGE>
To Our Shareholders
Nineteen ninety-nine marks the centennial year for Hooper Holmes, and we and our
shareholders have a great deal to celebrate. During 1998, we again achieved or
exceeded almost all of our corporate goals. We increased our market share,
improved our profit margins, increased our return on equity and assets to record
levels, expanded our presence on the Internet, substantially increased our
business with direct life insurance marketers and made a strategic acquisition
that complements our core business.
The stock market certainly responded positively to these achievements. Our
total market capitalization rose 101% to $408 million at the end of 1998,
following a 72% gain in the previous year. For the second time in 18 months, we
declared a two for one stock split and increased our cash dividend payout.
[BAR GRAPH APPEARS HERE]
Return on Equity
Percenage
1994 5.8%
1995 4.2%
1996 11.5%
1997 20.3%
1998 22.9%
In 1998, we continued to execute efficiently and control costs. Profits
grew at a significantly faster pace than revenues, indicating our ability to
continue to leverage our branch network and technology infrastructure. As a
result, we were able to again dramatically expand our margins in 1998. The
prescription for profit growth that we established three years ago remains in
place: Generate material revenue growth with only minimal cost increases. Last
year, in fact, our revenue growth accelerated, as we achieved double-digit gains
in each quarter. The keys to these gains were an increase in the average number
of services performed per applicant contact and building our industry-leading
market share, which stood at approximately 27% in 1998.
We are increasing our market share for a variety of reasons, but two stand
out. As the insurance industry consolidates, companies are more inclined to
choose outsourcing partners with a national presence. In addition, new direct
marketers entering the life insurance industry rely heavily on state-of-the-art
technology. They insist on partnering with companies that are equally skilled in
using technology, which is one of Hooper Holmes' strengths. We believe our
leadership position in technology will continue to make us the preferred
outsourcing partner for most insurers, large and small.
Record Financial Results
In 1998, we reported record revenues and earnings. Operating income for the year
ended December 31, 1998 rose 57% to $25.6 million from $16.3 million in 1997,
excluding an after-tax charge in 1998 of $1.5 million from discontinued
operations. Income from continuing operations rose 62% to $14.2 million, from
$8.8 million last year. Earnings per diluted share, adjusted for a
[BAR GRAPH APPEARS HERE]
Return on Assets
Percentage
1994 2.6%
1995 1.7%
1996 5.3%
1997 13.8%
1998 16.8%
2 Hooper Holmes, Inc.
<PAGE>
two for one stock split that took effect in January 1999, increased 55% to
$0.48, excluding the discontinued operations charge, compared to the $0.31
reported last year. Our revenues grew much faster than they did in 1997, rising
12% to $185.2 million.
As a result of our continued focus on cost containment, our operating
margin showed a strong increase, rising from 9.9% to 13.8% for the year. We
expect further margin improvements in coming years, with profit growth
percentages outstripping revenue gains.
Our balance sheet improved as well. We now have nearly $30 million in cash
on hand and virtually no debt. This provides us with substantial resources to
pursue our strategies for growth, including making acquisitions that are
immediately accretive to earnings. We are actively looking for acquisition
candidates that complement our core business and provide us with an opportunity
to leverage the strong relationships we have with our customers. In addition, we
have a disciplined approach to acquisitions, and will only undertake a
transaction if the price is right and the benefits to our shareholders are
clear.
New Initiatives
Since its founding 100 years ago, Hooper Holmes has been a technology leader in
providing services to the insurance industry. Our business may have changed over
the decades, but our reliance on cutting-edge tools has not. We intend to
maintain and enhance our leadership position in providing health information by
continuing to invest in technology to improve the level of service we provide.
"Our centennial year has been marked by record financial performance and
substantial strategic progress."
[PHOTO OF JAMES M. MCNAMEE APPEARS HERE]
James M. McNamee
Chairman, President and
Chief Executive Officer
In 1998, we expanded our Portamedic / Infolink website, and it now
represents a breakthrough in our industry. Today, customers can handle several
aspects of their business with us online. They can place the order, check its
status and determine that the case is complete.
In December, we acquired a majority interest in Heritage Labs
International, a clinical reference laboratory serving life insurers. The
addition of Heritage provides long-term opportunities for us to expand our
relationships with life and health insurers nationwide, and further develop
alternative distribution channels.
The Future
The key industry trends that have helped us in recent years remain in
place. New direct marketers continue to enter the insurance business, and our
sophisticated technology has helped us gain a leading share of this market. The
traditional agent/broker business is expected to experience a rebound from
previous years, complementing the increasing direct response business. Total
potential life insurance buyers are on the rise as aging Baby Boomers enter the
prime insurance-buying years. The growth in outsourcing means insurers will be
requiring more service per applicant contact, which causes our revenue per unit
sale to rise.
In short, we are the leader in an industry that is enjoying solid growth,
which puts us in a great position to maximize future opportunities. We want to
thank all of our employees for making 1998 another outstanding year for Hooper
Holmes. We are also grateful to our customers and shareholders, and we hope to
do great things for them in the year -- and the century -- that lies ahead.
/s/ James M. McNamee
James. M. McNamee
Chairman, President, and
Chief Executive Officer
1998 Annual Report 3
<PAGE>
Review of Operations
Industry Leadership
Hooper Holmes has been a leader in the alternate-site health information
business for many years. We are one of the largest providers of outsourced
health information to life and health insurers, performing approximately 2.5
million examinations per year, or more than 10,000 examinations every business
day. The registered nurses, licensed nurse practitioners, physicians, and
medical and paramedical technicians in our Portamedic division examine and test
insurance applicants in their offices or homes, according to the desire of the
applicants. Hooper Holmes is the leading company in this expanding $750 million
industry, with a market share of approximately 27%, and the Company performs 50%
more tests than its closest competitor. These tests range from blood pressure
monitoring to much more sophisticated procedures such as electrocardiograms and
long-term care cognitive assessments. The Company has strong relationships with
48 of the top 50 life and health insurance companies in the United States, as
well as more than 800 other companies and independent insurance agents and
brokers.
Among Hooper Holmes' competitive advantages are:
. Size - In our industry, being the largest is a significant benefit. Because
Portamedic has 200 offices throughout the country and 8,700 medical examiners,
there are relatively few potential insurance applicants who are not within an
easy drive of one of our examiners.
. Speed - No one in our industry works faster than we do. Quick turnaround of
cases is always desirable, but in the insurance industry it is particularly
critical. Insurance companies and insurance agents and brokers know that the
faster an applicant can be approved, the more likely he or she is to close a
sale. The speed of our processing system helps insurance companies deliver swift
service to their customers.
. Quality - In our business, quality is as important as speed. Our customers
know that they cannot find better service or more reliable reports anywhere. We
carefully audit our examiners and laboratory facilities to make sure that we are
providing clients with the best possible service.
That is not just our opinion. Independent research reveals that Hooper
Holmes' commitment to quality is broadly recognized in the industry. Maintaining
impeccable quality standards is the only way we know how to do business; it also
happens to be an excellent formula for ensuring high levels of customer
satisfaction.
"The Company's network of 200 branch offices and state-of-the art technology
infrastructure are unmatched in the industry."
Income from Continuing Operations
Dollars in Millions
[BAR GRAPH APPEARS HERE]
1994 1.5
1995 1.7
1996 4.1
1997 8.8
1998 14.2
4 Hooper Holmes, Inc.
<PAGE>
The Early Years
1899 - 1912
On March 6, 1899, William DeMattos Hooper and Bayard P. Holmes started a company
called the National Insurance Information Bureau. It served as a clearinghouse
for the exchange of information among underwriters of Accident and Sickness
Insurance, and its main purpose was to prevent fraud by policyholders.
[GRAPHIC APPEARS HERE]
[GRAPHIC APPEARS HERE]
The firm's first offices were at 87 Nassau Street in New York City, just a block
away from Wall Street, the center of the insurance industry. In 1906, the
business was incorporated and its name changed to the Hooper Holmes Information
Bureau.
[GRAPHIC APPEARS HERE]
John J. King was in his early twenties when he drove a stagecoach out of Grand
Junction, Colorado. He later entered the insurance field as an investigator and
joined Hooper Holmes in 1912 as an assistant manager.
[GRAPHIC APPEARS HERE]
1911 - In the early years of the century, accident claims involving bicycles,
automobiles, and streetcars were common and prompted the need for Hooper Holmes'
central claim files.
1998 Annual Report 5
<PAGE>
Review of Operations
Technological Innovation
Perhaps more than anything else, it is our groundbreaking application of
technology that makes Hooper Holmes the industry leader. We have the most
automated branch network and operating system in the industry, and that provides
direct benefits to our clients and to our Company.
Our life insurance clients can use our recently expanded Portamedic Web
page, Portamedic.com, to order examinations and check information on line.
Additionally, they can track the status of each applicant electronically.
Certain results of our services are provided electronically, if requested.
Our Internet presence is not confined to our own website. For example, we
participate in Quicken's InsureMarket Web site and when a visiting consumer
elects to apply for insurance, the chances are good that we will perform the
required examination. We believe we are well positioned to grow our business as
insurance sales over the Internet increase.
Our technical capabilities are of particular value to direct marketers of
life insurance products. Many of these newer entrants operate as "virtual"
insurance companies, outsourcing almost all of their required services. This
industry segment is growing rapidly, and at Hooper Holmes this business is
rapidly expanding. In 1997, business with direct marketers accounted for 6% of
our revenues. Last year, the figure jumped to 13%, making us industry leader in
this market segment.
Our Teledex and Infolink systems provide customers with information
gathering flexibility. Typically, the systems are used when the policy amount is
insufficient to justify an in-person visit or when an underwriter determines
that additional information is required. With an Infolink request, we
electronically send clients employment information, physical and medical
histories, and attending physician statements. When Teledex is chosen, the same
information is sent, along with the highlights of a phone interview with the
applicant. Teledex and Infolink are the kind of ancillary services that reflect
Hooper Holmes' potential to leverage our extensive technological network.
All in all, our innovative application of state-of-the-art technology helps
keep a lid on our costs. And it helps us to maintain our leadership position in
financial performance. Our return on equity is 25%, almost double the 13%
average for our peer group.
Growth Opportunities
We will work hard to ensure that the Company enjoys strong growth for many years
to come. Our extensive branch network and technological infrastructure will
enable us to expand the services we provide with only
"Our technological capabilities are a key factor driving the rapid growth of our
business, including direct marketers of life insurance."
Total Assets
Dollars in Millions
[BAR GRAPH APPEARS HERE]
1994 103.2
1995 94.0
1996 61.3
1997 65.9
1998 85.0
6 Hooper Holmes, Inc.
<PAGE>
Building the Business
1912 - 1971
William Hooper died in 1912. In the same year, John King began to lead the
expansion of the inspection department, and his influence grew. He created the
branch network that now extends throughout the U.S. and Canada, and ran the
Company for 35 years. Three of Mr. King's sons would lead Hooper Holmes as well.
(Below): The Annual Inspectors Dinner in December, 1924.
[PHOTO OF JOHN J. KING APPEARS HERE]
[PHOTO OF ANNUAL INSPECTORS DINNER [PHOTO OF EDWARD KING APPEARS HERE]
APPEARS HERE] [PHOTO OF FREDERICK KING APPEARS HERE]
[PHOTO OF J. CHARLES KING APPEARS HERE]
[GRAPHIC APPEARS HERE] [GRAPHIC APPEARS HERE]
1942 - During World War II, the Company performed inspections for the U.S.
government primarily involving defense industry employment.
[PHOTO OF FREDERICK D. KING APPEARS HERE]
1950 - Hooper Holmes built new headquarters in Morristown, N.J. and opened its
doors on September 4, 1951.
[PHOTO OF HOOPER HOLMES APPEARS HERE]
[PHOTO APPEARS HERE]
1962 - Mechanized rolling files were the latest in technological innovation for
accessing the Company's Casualty Index. 1970 - Having outgrown the Morristown
offices, the Company built a larger headquarters in Basking Ridge, N.J.
1998 Annual Report 7
<PAGE>
Review of Operations
a marginal increase in costs. This ability to leverage our nationwide network
positions us to continue to grow profits at a significantly faster pace than
revenues. New initiatives and acquisitions should contribute to our growth. In
addition, many important demographic and industry trends are helping us now and
should continue to benefit us in the future.
Acquisitions. In December, Hooper Holmes acquired a majority stake in
Heritage Labs International, an Olathe, Kansas-based outsourcer of laboratory
testing services for insurance companies. The laboratory has excellent cost
controls and is a low-cost producer, which offers us a chance to increase
profits while saving money for our customers. In addition, Heritage has an
experienced management team and the capacity to absorb additional business with
only a minimal increase in costs.
This transaction also represents a longer-term opportunity for Hooper
Holmes to leverage its strong customer relationships. In the normal course of
business, we send specimens to laboratories that are designated by insurance
companies. Additionally, we plan to position Heritage Laboratory as the
laboratory of choice to meet the specific needs of the emerging life insurance
alternative distribution market. Our initial focus will be on marketing
Heritage's services to Hooper Holmes' existing customers to create a unique
one-stop advantage for insurers outsourcing these services.
The Heritage acquisition offers benefits to our customers as well,
including the ability to transmit data, including lab results, necessary to
underwrite the application. We intend to grow our laboratory business and to
service our clients more efficiently at the same time.
While the equity stake in Heritage presents opportunities for us, it is
also emblematic of the many acquisitions opportunities that exist in our
industry. We are actively looking to make strategic acquisitions that are
accretive, complement our core business and enable us to build on our
relationships with leading health and life insurance companies. We see
opportunities to expand the outsourcing services we provide in areas ranging
from the long-term care insurance industry to worker's compensation claims
support.
Demographics. The aging of the Baby-Boomer generation is already having a
positive impact on our business and should continue to do so. The prime
insurance-buying age is the late 30s to the late 50s; with a baby boomer turning
50 every eight seconds, the number of people in this prime buying group is set
to increase dramatically.
"The ability to leverage our nationwide network enables us to grow profits at a
significantly faster pace than revenues."
[BAR CHART APPEARS HERE]
=====================
Working Capital
Dollars in Millions
---------------------
1994 6.4
1995 24.8
1996 11.8
1997 20.4
1998 33.5
---------------------
8 Hooper Holmes, Inc.
<PAGE>
The Growth of Portamedic
1971 - 1984
In 1971, Frank Schwindler, then Vice President and Director of Sales and
Operations, decided to hire registered nurses to handle medical examinations for
life insurers. The previous method of using doctors exclusively had proven to be
too costly, inconvenient and frustrating, as doctors were often unavailable.
[PHOTO OF FRANK J. SCHWINDLER [PHOTO OF JAMES M. MCNAMEE
APPEARS HERE] APPEARS HERE]
[PHOTO OF A PORTAMEDIC EXAM APPEARS HERE]
In 1972, James M. McNamee, then Product Manager of New Services, played an
important role in developing this new system and gave it a name -- Portamedic.
Through aggressive expansion and acquisitions, Portamedic grew quickly. By 1984,
it accounted for nearly half of the Company's revenues.
[LOGO OF PORTAMEDIC APPEARS HERE]
[PHOTO APPEARS HERE]
Using registered nurses and a specially designed examination kit, Portamedic
became the nation's leading provider of alternate-site health information.
1977 - The Company used state-of-the-art computer technology to update the old
card files to support an expanding national network of 89 offices by 1984.
[PHOTO APPEARS HERE]
1980 - Hooper Holmes entered the health care field, offering relief personnel to
hospitals and providing registered nurses and skilled practitioners for home
health care. By 1984, Portamedic Health Care had revenues of $23.5 million.
[PHOTO APPEARS HERE]
1998 Annual Report 9
<PAGE>
Review of Operations
Larger policy amounts, lower age thresholds. The demographics combined with the
types of policies being purchased are resulting in higher policy amounts. In
many areas, the age or dollar threshold triggering a paramedical exam continues
to decrease. Clients are electing to outsource more individual services,
particularly in the markets where policies are sold on a more direct basis.
Hooper Holmes has positioned ourselves to welcome the opportunity to provide
these new services.
Industry consolidation. The insurance industry is consolidating rapidly;
the big are getting bigger. This trend clearly benefits Hooper Holmes. Because
many of acquiring insurers are large, they prefer to work with a single vendor
that can meet all their needs. Hooper Holmes, which offers a full national
network and meets their technological needs, is well positioned to be their
vendor of choice.
Outsourcing. Outsourcing is a powerful global trend, one that is particularly
strong in the insurance industry. More and more insurers are choosing to "farm
out" administrative, marketing, and underwriting functions. As pressures to
reduce administrative costs increase, we believe that even more insurers will
opt to outsource non-core functions to companies like Hooper Holmes.
Quality People, Quality Service
The best thing about Hooper Holmes is its people. The highly motivated,
service-oriented and efficient individuals who comprise our organization have
worked extremely hard to make us successful. One of our greatest competitive
advantages is the fact that our field managers are very seasoned,
extraordinarily disciplined, and maintain strong relationships with our
customers. They help ensure that the service we provide is unmatched in our
business.
We recently instituted a new way of rewarding our people for their
dedication. Since 1997, our incentive plan has included stock options for all
eligible employees throughout the entire organization. We believe that allowing
employees to share in the success of the Company is a powerful motivator,
aligning their interests with those of the Company, its customers and its
shareholders
"The Company's experienced and disciplined field managers maintain strong
relationships with their customers."
[BAR GRAPH APPEARS HERE]
====================
Stockholder's Equity
Dollars in Millions
--------------------
1994 46.5
1995 33.1
1996 37.7
1997 48.5
1998 62.3
--------------------
10 Hooper Holmes, Inc.
<PAGE>
Creating Shareholder Value
1984-1999
The Company raised $3.0 million in an initial public offering on July 28, 1984.
[GRAPHIC APPEARS HERE]
$10,000 invested in the Hooper Holmes IPO would be worth over $270,000 today.
[GRAPHIC APPEARS HERE]
1987 - The company continued to invest heavily in computers to increase its
information services capabilities. In 1988, Hooper Holmes introduced electronic
life and health reports under the name Infolink.
[GRAPHIC APPEARS HERE]
In 1992, Portamedic was the first in its industry to use a Paperless Electronic
Paramedical (PEP) system to keep information flowing smoothly and rapidly to
clients.
[GRAPHIC APPEARS HERE]
1998 - Hooper Holmes acquired a majority stake in Heritage Labs to maximize the
efficiency of blood sampling and other diagnostic capabilities. The Company
continues to look for acquisitions that will enhance share-holder value.
[GRAPHIC APPEARS HERE]
1998 - Portamedic unveiled a Web site that offers clients a full range of
information and ordering services. This was just one in a series of technology
efforts designed to expand Hooper Holmes' capabilities while keeping costs
under control.
[GRAPHIC APPEARS HERE]
1998 Annual Report 11
<PAGE>
Nationwide Network
With an extensive network of more than 200 branch offices, Hooper Holmes is
always within close proximity to potential insurance applicants throughout the
U.S. The Company is headquartered in Basking Ridge, NJ.
[MAP OF THE UNITED STATES APPEARS HERE]
<TABLE>
<S> <C> <C> <C> <C>
ALABAMA GEORGIA MINNESOTA OHIO UTAH
Birmingham Atlanta Minneapolis (2) Akron Salt Lake City
Huntsville Atlanta East Cincinnati
Mobile Columbus MISSISSIPPI Cleveland (2) VERMONT
Columbus* Jackson Columbus Burlington
ALASKA Macon Dayton
Anchorage MISSOURI Sandusky* VIRGINIA
GUAM St. Louis (2) Toledo Norfolk
ARIZONA Guam Youngstown* Richmond (2)
Phoenix MONTANA Roanoke
Tucson HAWAII Billings OKLAHOMA Washington, DC*
Honolulu Oklahoma City
ARKANSAS Honolulu* NEBRASKA Tulsa WASHINGTON
Little Rock Omaha Bellevue
IDAHO OREGON Seattle
CALIFORNIA Boise NEVADA Portland Spokane
Berkeley Las Vegas Salem Tacoma
Chico* ILLINOIS
Cypress Chicago (3) NEW HAMPSHIRE PENNSYLVANIA WEST VIRGINIA
Fresno Peoria Manchester Allentown Charleston
Los Angeles (3) Rockford Erie
Modesto Springfield NEW JERSEY Harrisburg WISCONSIN
Pasadena Clifton Philadelphia Metro Milwaukee
Riverside INDIANA East Brunswick Pittsburgh
Sacramento Ft. Wayne Ledgewood Valley Forge WYOMING
San Bernardino Indianapolis Paramus Casper
San Diego Randolph PUERTO RICO
San Francisco (2) IOWA Voorhees Puerto Nuevo* *Contractor Affiliate
Santa Ana Des Moines
Ventura NEW MEXICO RHODE ISLAND
KANSAS Albuquerque* Providence
COLORADO Kansas City (3)
Denver Wichita NEW YORK SOUTH CAROLINA
Greeley Albany Charleston
KENTUCKY Binghamton Columbia
CONNECTICUT Lexington Buffalo Greenville
Hartford Louisville Garden City, Long Island Greenville*
New Haven Hauppauge
New Haven* LOUISIANA Manhattan (2) SOUTH DAKOTA
Simsbury* New Orleans New York (Queens) Sioux Falls
Poughkeepsie
DELAWARE MAINE Rochester TENNESSEE
Wilmington Portland Scarsdale Knoxville
Staten Island Memphis
FLORIDA MARYLAND Syracuse Nashville (2)
Ft. Lauderdale Baltimore
Ft. Myers NORTH CAROLINA TEXAS
Jacksonville MASSACHUSETTS Asheville Austin
Miami Boston Charlotte Corpus Christi
Orlando (2) Springfield* Fayetteville Dallas (2)
Pensacola* Worcester Garner El Paso
Port St. Lucie Greensboro Ft. Worth
St. Petersburg MICHIGAN Raleigh Houston (2)
Tallahassee* Detroit (2) Lubbock
Tampa Grand Rapids NORTH DAKOTA McAllen
West Palm Beach Lansing Bismarck San Antonio
Tyler
Waco
</TABLE>
12 Hooper Holmes, Inc.
<PAGE>
Hooper Holmes, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
Financial Contents
Management's Discussion and Analysis 14
- --------------------------------------------------------------------------------
Consolidated Balance Sheets 17
- --------------------------------------------------------------------------------
Consolidated Statements of Income 18
- --------------------------------------------------------------------------------
Consolidated Statements of Stockholders' Equity 19
- --------------------------------------------------------------------------------
Consolidated Statements of Cash Flows 20
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements 21
- --------------------------------------------------------------------------------
Independent Auditors' Report 30
- --------------------------------------------------------------------------------
Selected Financial Data 31
- --------------------------------------------------------------------------------
Quarterly Common Stock Price Ranges and Dividends 32
- --------------------------------------------------------------------------------
Quarterly Financial Data 32
- --------------------------------------------------------------------------------
13
<PAGE>
Hooper Holmes, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
Management's Discussion and Analysis
Results of Operations
1998 Compared to 1997
Total revenues for 1998 increased 12.0% to $185.2 million from $165.4 million
for 1997. This growth results from a 9% increase in the number of paramedical
examinations performed, increases in revenues per unit of service, and is
consistent with the Company's efforts to increase market share.
The Company's cost of operations in 1998 totaled $129.3 million compared to
$119.2 million for 1997. Cost of operations as a percentage of revenues totaled
69.8% for 1998 versus 72.1% for 1997. As a percentage of revenues, the decrease
is due to ongoing efforts to control branch operating expenses, despite
increased revenue growth, and the efficiencies realized due to branch automation
initiatives.
Selling, general and administrative (SG&A) expenses were $30.4 million for 1998
compared to $29.8 million for 1997. As a percentage of revenues, SG&A expenses
decreased to 16.4% for 1998 from 18.0% for 1997, which is due to management's
continued efforts to control corporate expenses.
Accordingly, the Company's operating income for 1998 increased to $25.6 million
versus $16.3 million for 1997, and as a percentage of revenues, increased to
13.8% for 1998 compared to 9.9% for 1997.
Other income items in 1998 were primarily interest earned on invested funds, the
average balance of which was greater than in 1997.
The effective tax rate was 46% and 48% for 1998 and 1997, respectively. The
decrease is the result of increased profitability which lessened the impact of
non-tax deductible amortization of goodwill.
As a result of the foregoing, net income from continuing operations in 1998
totaled $14.2 million or $0.48 per diluted share compared to $8.8 million or
$.31 for 1997.
The net loss from discontinued operations totaled $1.5 million or $0.05 per
diluted share in 1998. The charge evolved from residual worker's compensation
charges and certain reimbursement issues associated with the divestiture of
Nurse's House Call in 1995. Net Income for 1998 totaled $12.7 million or $0.43
per diluted share compared to $8.8 million or $0.31 per diluted share. Net
income in 1998 includes a $1.5 million, or $0.05 per share charge from
discontinued operations, as previously noted.
Inflation did not have a significant effect on the Company's operations in 1998.
1997 Compared to 1996
Total revenues for 1997 increased 5.8% to $165.4 million from $156.3 million for
1996. This increase results from unit growth in the number of paramedical
examinations performed, price appreciation per unit of service, and is
consistent with the Company's efforts to increase market share.
The Company's cost of operations in 1997 totaled $119.2 million compared to
$118.0 million for 1996. Cost of operations as a percentage of revenues totaled
72.1% for 1997 versus 75.5% for 1996. As a percentage of revenues, the decrease
is due to ongoing efforts to control branch operating expenses, despite
increased revenue growth, and the efficiencies realized due to continued branch
automation initiatives.
Selling, general and administrative (SG&A) expenses were $29.8 million for 1997
compared to $29.7 million for 1996. As a percentage of revenues, SG&A expenses
decreased to 18.0% for 1997 from 19.0% for 1996, which is due to management's
efforts to control corporate expenses.
Accordingly, the Company's operating income for 1997 increased to $16.3 million
versus $8.6 million for 1996, and as a percentage of revenues, increased to 9.9%
for 1997 compared to 5.5% for 1996.
During 1997, the company reduced long-term debt by $6.3 million and therefore
interest expense decreased in 1997 to $.2 million compared to $1.4 million in
1996. Other income items in 1997 were
14
<PAGE>
primarily interest earned on invested funds and certain deferred payments
received from the sale of the Company's Direct Marketing business in 1992.
The effective tax rate for 1997 and 1996 was 48%.
As a result of the foregoing, net income in 1997 totaled $8.8 million or $0.31
per diluted share compared to $4.1 million or $0.15 per diluted share for 1996.
Inflation did not have a significant effect on the Company's operations in 1997.
Liquidity and Financial Resources
The Company's primary sources of cash are internally generated funds and the
Company's bank credit facility.
For the year ended December 31, 1998, the net cash provided by operating
activities was $21.6 million as compared to $16.6 million in 1997. The
significant sources were net income of $12.7 million, $4.7 million of
depreciation and amortization, $5.1 million increase in accounts payable and
accrued expenses which were offset by an increase in other assets of $.6 million
and an increase in deferred taxes of $2.8 million. The Company has in place a
three year $20 million revolving credit facility, which expires on January 2,
2000, and may be extended for one year at the option of the Company. The
revolver loan will accrue interest at either the bank's base rate or at LIBOR,
as adjusted, at the option of the Company. At December 31, 1998, the Company had
no borrowings against the revolver and a total of $18.5 million is available,
with $1.5 million committed to outstanding letters of credit. Capital
expenditures for 1999 are anticipated to be less than $2.0 million.
Management believes that the combination of cash and cash equivalents, other
working capital sources, and available borrowings under the Company's credit
facility, along with anticipated cash flows from continuing operations, will
provide sufficient capital resources for the foreseeable future.
On January 27, 1998, the Board of Directors approved a Stock Repurchase Program,
which authorized management to purchase shares of the Company's common stock at
prevailing market prices. During 1998, the Company purchased 97,600 shares of
its common stock at an aggregate price of $954,138.
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.
Year 2000 Computer Systems Compliance
The Company recognizes the need to insure that its operations and relationships
with its customers, suppliers and other third parties will not be adversely
impacted by the Year 2000 software issue. In January 1997, the Company formed a
"Year 2000" compliance committee. The committee has been charged with
identifying all information and non-information technology systems that could be
affected by the Year 2000 issue.
The Company has developed a phased program to address its Year 2000 issues. The
first phase consisted of identifying the Company's IT Systems and Non-IT
Systems, and identifying suppliers and customers
15
<PAGE>
whose operations could impact those of the Company. Phase one was completed on
schedule. The second phase consisted of determining whether those systems are
Year 2000 compliant, based on certifications received from suppliers and
customers, and on management's assessment of its internal systems. Many of the
Company's critical suppliers and vendors have indicated that they already are,
or will be Year 2000 compliant during 1999. The second phase was completed in
the fourth quarter 1998. Phase three, is already underway, and consists of
remediating non-compliant systems, as well as developing a worse case
contingency plan. The Company expects to complete this phase early in the second
quarter, 1999.
Since the Company's Year 2000 compliance is dependent upon key third parties
also being Year 2000 compliant on a timely basis, there can be no guarantee that
the Company's efforts will prevent a material adverse impact on its results of
operations, financial condition or cash flows. If our systems, or those of key
third parties are not fully Year 2000 functional, we estimate that up to a one
month disruption in operations could occur. Such a disruption could result in
delays in providing services and in issuing billings to customers. These
consequences could have a material adverse impact on our results of operations,
financial condition and cash flows if we are unable to substantially conduct our
business in the ordinary course. We believe that our efforts, including the
development of a contingency plan, will significantly reduce the adverse impact
that any disruption in business might have. Year 2000 costs are not expected to
exceed one quarter of a million dollars. The Company has attempted to identify
all of its Year 2000 problem areas, has communicated, and will continue to
communicate with its suppliers, customers, and other parties. Management
believes that it is taking adequate steps to insure that its systems will be
Year 2000 compliant. We believe our ongoing efforts to address the Year 2000
issue will minimize possible negative consequences to our Company.
Recently Issued Accounting Standards
In June 1998, the Financial Accounting Standards Board issued statement of
Financial Accounting Standards (SFAS) No. 133. Accounting for Derivative
Instruments and Hedging Activities, which becomes effective for our financial
statements beginning January 1, 2000. SFAS No. 133 requires a company to
recognize all derivative instruments as assets or liabilities in its balance
sheet and measure them at fair value. The Company does not expect the adoption
of this Statement to have a material impact on our consolidated financial
statements.
The American Institute of Certified Public Accountants issued Statement of
Position (SOP) 98-1, Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use and SOP 98-5, Reporting on the Costs of Start-up
Activities, which are effective in 1999. The Company does not expect adoption of
these SOPs to have a material impact on our consolidated financial statements.
16
<PAGE>
Hooper Holmes, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31,
--------------------------
1998 1997
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $29,752,361 $13,159,431
Accounts receivable 18,145,856 18,520,347
Other current assets 5,396,202 2,481,818
- ------------------------------------------------------------------------------------------------------------
Total current assets 53,294,419 34,161,596
- ------------------------------------------------------------------------------------------------------------
Property, plant and equipment 22,487,225 20,498,119
Less: Accumulated depreciation and amortization 14,166,163 12,050,903
- ------------------------------------------------------------------------------------------------------------
8,321,062 8,447,216
- ------------------------------------------------------------------------------------------------------------
Goodwill (net of accumulated amortization of
$4,243,606 in 1998 and $3,460,240 in 1997) 16,398,245 15,089,108
- ------------------------------------------------------------------------------------------------------------
Intangible assets (net of accumulated amortization of
$5,714,039 in 1998 and $4,053,440 in 1997) 6,728,112 7,647,711
- ------------------------------------------------------------------------------------------------------------
Other assets 274,547 595,486
- ------------------------------------------------------------------------------------------------------------
$85,016,385 $65,941,117
- ------------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Current liabilities:
Note payable $ 450,000 $ --
Accounts payable 6,606,518 5,577,158
Accrued expenses:
Insurance benefits 1,662,747 1,969,403
Salaries, wages and fees 2,356,582 1,935,277
Payroll and other taxes 204,893 170,152
Income taxes payable 3,315,758 610,487
Discontinued operations 2,845,007 573,970
Other 2,377,001 2,944,248
- ------------------------------------------------------------------------------------------------------------
Total current liabilities 19,818,506 13,780,695
- ------------------------------------------------------------------------------------------------------------
Deferred income taxes 2,518,487 3,641,051
Minority interest 385,441 --
- ------------------------------------------------------------------------------------------------------------
Commitments and contingencies
- ------------------------------------------------------------------------------------------------------------
Stockholders' equity:
Common stock, par value $.04 per share; authorized 80,000,000 shares,
issued 28,379,964 in 1998 and 13,939,115 in 1997 1,135,198 557,565
Additional paid-in capital 29,515,099 27,079,265
Retained earnings 32,616,294 20,901,043
- ------------------------------------------------------------------------------------------------------------
63,266,591 48,537,873
Less: Treasury stock at cost, 104,332 shares in 1998 and
6,732 shares in 1997 972,640 18,502
- ------------------------------------------------------------------------------------------------------------
Total stockholders' equity 62,293,951 48,519,371
- ------------------------------------------------------------------------------------------------------------
$85,016,385 $65,941,117
- ------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
17
<PAGE>
Hooper Holmes, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
Consolidated Statements of Income
<TABLE>
<CAPTION>
Years ended December 31,
-----------------------------------------------------------------
1998 1997 1996
<S> <C> <C> <C>
Revenues $ 185,209,776 $ 165,352,706 $ 156,253,763
Cost of operations 129,261,234 119,193,062 117,959,274
- -----------------------------------------------------------------------------------------------------------------------------------
Gross profit 55,948,542 46,159,644 38,294,489
Selling, general and administrative expenses 30,356,166 29,815,579 29,718,867
- -----------------------------------------------------------------------------------------------------------------------------------
Operating income 25,592,376 16,344,065 8,575,622
Other income (expense):
Interest expense (3,391) (168,266) (1,394,038)
Interest income 768,476 295,765 348,153
Other income, net (88,171) 419,899 328,035
- -----------------------------------------------------------------------------------------------------------------------------------
676,914 547,398 (717,850)
- -----------------------------------------------------------------------------------------------------------------------------------
Income before income taxes 26,269,290 16,891,463 7,857,772
- -----------------------------------------------------------------------------------------------------------------------------------
Income taxes 12,084,000 8,121,000 3,772,000
- -----------------------------------------------------------------------------------------------------------------------------------
Income from continuing operations 14,185,290 8,770,463 4,085,772
- -----------------------------------------------------------------------------------------------------------------------------------
Discontinued operations
Loss on disposal, net of taxes (1,485,000) -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Net income $ 12,700,290 $ 8,770,463 $ 4,085,772
- -----------------------------------------------------------------------------------------------------------------------------------
Earnings per share -- basic:
Income from continuing operations $ .50 $ .32 $ .15
Discontinued operations-- net of taxes (.05) -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Net income $ .45 $ .32 $ .15
- -----------------------------------------------------------------------------------------------------------------------------------
Earnings per share -- diluted:
Income from continuing operations $ .48 $ .31 $ .15
Discontinued operations-- net of taxes (.05) -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Net income $ .43 $ .31 $ .15
- -----------------------------------------------------------------------------------------------------------------------------------
Weighted average shares -- basic 28,120,685 27,536,668 26,910,876
Weighted average shares -- diluted 29,859,710 28,564,132 27,243,802
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Per share calculations are adjusted to reflect a two for one stock split
effective January 8, 1999.
See accompanying notes to consolidated financial statements.
18
<PAGE>
Hooper Holmes, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
Consolidated Statements of Stockholders' Equity
Years ended December 31, 1996, 1997 and 1998
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Common Stock
-------------------------- Additional
Number of Paid-in Retained Treasury
Shares Amount Capital Earnings Stock Total
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1995 6,744,422 $ 269,777 $ 24,080,988 $ 9,138,401 $ (357,153) $ 33,132,013
- -----------------------------------------------------------------------------------------------------------------------------------
Net income 4,085,772 4,085,772
Cash dividends ($.015 per share) (403,818) (403,818)
Issuance of stock award 2,405 29,470 31,875
Exercise of stock options 47,037 1,881 349,300 309,181 660,362
Exercised stock options tax benefit 213,252 213,252
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1996 6,791,459 271,658 24,645,945 12,820,355 (18,502) 37,719,456
- -----------------------------------------------------------------------------------------------------------------------------------
Net income 8,770,463 8,770,463
Cash dividends ($.026 per share) (689,775) (689,775)
Exercise of stock options 190,806 7,632 1,745,782 1,753,414
Exercised stock option tax benefit 665,569 665,569
Issuance of shares for employee
stock purchase plan 33,268 1,331 298,913 300,244
Two for one stock split effective
August 22, 1997 6,923,582 276,944 (276,944) --
- -----------------------------------------------------------------------------------------------------------------------------------
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
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Per share amounts are adjusted to reflect a two for one stock split effective
January 8, 1999.
See accompanying notes to consolidated financial statements.
19
<PAGE>
Hooper Holmes, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Years ended December 31,
-----------------------------------------------------
1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net Income $ 12,700,290 $ 8,770,463 $ 4,085,772
Adjustments to reconcile net income
to net cash provided by operating activities:
Loss on disposal 1,485,000 -- --
Depreciation and amortization 4,704,540 5,022,569 5,071,692
Provision for bad debt expense 130,000 480,000 380,000
Deferred tax expense (benefit) (2,804,000) 105,478 (467,448)
Issuance of stock awards 38,250 -- 31,875
Loss on sale of fixed assets 67,237 61,448 58,313
Change in assets and liabilities, net of effect
from acquisitions of businesses:
Accounts receivable 715,604 (869,320) 6,456,636
Other assets (566,046) 2,324,305 1,038,631
Income tax receivable -- -- 8,004,039
Accounts payable and accrued expenses 5,138,185 685,627 (8,347,222)
- -----------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 21,609,060 16,580,570 16,312,288
- -----------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Net proceeds including escrow funds from dispositions -- -- 15,000,000
Business acquisitions, net of cash acquired (2,820,352) -- (37,500)
Capital expenditures, net of disposals (1,833,818) (1,441,469) (1,103,601)
- -----------------------------------------------------------------------------------------------------------------------------
Net cash (used in) provided by investing activities (4,654,170) (1,441,469) 13,858,899
- -----------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Issuance of long-term debt -- -- 19,000,000
Principal payments on long-term debt -- (6,280,000) (47,770,000)
Proceeds from employee stock purchase plan 324,248 300,244 --
Proceeds related to the exercise of stock options 1,252,969 1,753,414 873,614
Treasury Stock acquired (954,138) -- --
Dividends paid (985,039) (689,775) (403,818)
- -----------------------------------------------------------------------------------------------------------------------------
Net cash used in financing activities (361,960) (4,916,117) (28,300,204)
- -----------------------------------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents 16,592,930 10,222,984 1,870,983
Cash and cash equivalents at beginning of year 13,159,431 2,936,447 1,065,464
- -----------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 29,752,361 $ 13,159,431 $ 2,936,447
- -----------------------------------------------------------------------------------------------------------------------------
Supplemental disclosure of cash flow information
Cash paid during the year for:
Interest $ -- $ 179,318 $ 1,668,018
Income taxes $ 11,573,729 $ 7,740,392 $ 1,955,316
=============================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
20
<PAGE>
Hooper Holmes, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements
Note 1 -- Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of Hooper Holmes,
Inc. and its majority owned subsidiaries (the "Company"). All significant
intercompany balances and transactions are eliminated in consolidation.
Description of the Business
The Company provides alternate-site health information. 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 financial statements. Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers highly liquid investments with original maturities of less
than ninety 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. The Company assesses the recoverability of
long-lived assets held and to be used based on undiscounted cash flows, and
measures the impairment, if any, using discounted cash flows.
Property, plant and equipment are carried at cost. Depreciation is computed
using the straight line method over the assets estimated useful life. 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 weighted average
common shares outstanding during the period. "Diluted" earnings per common share
equals net income divided by the sum of weighted average common shares
outstanding during the period plus
21
<PAGE>
Hooper Holmes, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
common stock equivalents. Common stock equivalents (1,739,025, 1,027,464 and
332,926 for 1998, 1997 and 1996, 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 January 8, 1999 and August 22,
1997 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
For all financial instruments, at December 31, 1998 and 1997, their carrying
value approximates fair value due to the short maturity of these instruments.
Employee Stock Options
Employee non-qualified stock options are granted with an exercise price equal to
the market price 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 $149,000, $161,000,
and $285,000 in 1998, 1997, and 1996, respectively.
Reclassification
Certain 1997 amounts were reclassified to conform with the 1998 presentation.
- --------------------------------------------------------------------------------
Note 2 -- Discontinued Operations
In 1995, the Company transferred substantially all of the assets and business of
its Nurse's House Call health care division (the "NHC division") to Olsten
Corporation, (the "NHC Transaction"), 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.
22
<PAGE>
Hooper Holmes, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
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 -- Acquisitions and Dispositions
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 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 date of purchase. The results of
operations for 1998 or 1997 would not be materially different if these
acquisitions had occurred on January 1, 1997.
- --------------------------------------------------------------------------------
Note 4 -- Accounts Receivable
Accounts receivable are net of an allowance for doubtful accounts in the amount
of $1,091,499 and $872,114 in 1998 and 1997, respectively.
- --------------------------------------------------------------------------------
Note 5 -- Property, Plant and Equipment
Property, Plant and Equipment consists of the following:
Estimated
December 31, December 31, Useful Life
1998 1997 In Years
- --------------------------------------------------------------------------------
Land and improvements $ 591,213 $ 591,213 10 - 20
- --------------------------------------------------------------------------------
Building and improvements 4,550,903 4,231,689 10 - 45
- --------------------------------------------------------------------------------
Furniture, fixtures and equipment 17,345,109 15,675,217 3 - 10
- --------------------------------------------------------------------------------
$22,487,225 $20,498,119
================================================================================
- --------------------------------------------------------------------------------
Note 6 -- Long Term Debt
The Company's revolving loan facility is a $20.0 million revolving loan which
expires on January 2, 2000, with a one year renewable Company option. The
revolving loan accrues interest at the bank's base rate minus 1/4% to 1 1/4% or
LIBOR plus 3/4% to 1 3/4%, at the election of the Company. The interest rate at
December 31, 1998 was 7.75% and the maximum available credit amount was $18.5
million. Such amounts could be withdrawn if an event of default as defined
occurs. Also, commitment fees of 1/4% of the unused credit are charged and the
loan is unse-
23
<PAGE>
Hooper Holmes, Inc. and Subsidiaries
cured. Dividend payments are limited to maximum quarterly amounts of
30% to 40% of average quarterly net incomes. As of December 31, 1998, there were
no borrowings against the revolver loan.
The Company has entered into a one year renewable Letter of Credit to the
benefit of an insurance company relating to workers' compensation insurance. At
December 31, 1998, the amount was $1.5 million.
The note payable of $450,000 is an obligation of our majority owned
subsidiary. The interest rate at December 31, 1998 was 8.75%. The note matures
on January 1, 2003 and monthly principal payments start February 2000.
- --------------------------------------------------------------------------------
Note 7 -- Commitments and Contingencies
The Company leases branch field offices under a number of operating leases which
expire in various years through 2003. 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
2002. 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, 1998:
Year Ending December 31,
1999 $ 7,345,267
2000 5,711,096
2001 3,071,076
2002 73,944
2003 10,160
- --------------------------------------------------------------------------------
Total minimum lease payments $16,211,543
- --------------------------------------------------------------------------------
Rental expenses under operating leases were $6,498,217, $5,789,786 and
$6,053,129 in 1998, 1997 and 1996, 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 -- Litigation
The Company is a party to a number of legal actions arising in the ordinary
course of its business. In the opinion of management, the Company has adequate
legal defense and/or insurance coverage respecting each of these actions and
does not believe their ultimate disposition will materially affect the Company's
consolidated results of operations or financial position.
24
<PAGE>
Hooper Holmes, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Note 9 -- Income Taxes
Income tax expense is comprised of the following:
(in thousands) 1998 1997 1996
- --------------------------------------------------------------------------------
Federal:
Current $ 11,693 $ 6,741 $ 2,948
Deferred (1,277) (380) (354)
- --------------------------------------------------------------------------------
State and local:
Current 1,930 1,275 1,292
Deferred (262) 485 (114)
- --------------------------------------------------------------------------------
$ 12,084 $ 8,121 3,772
================================================================================
The following reconciles the "statutory" federal income tax rates to the
effective income tax rates:
1998 1997 1996
- --------------------------------------------------------------------------------
Computed "expected" tax expense 35% 35% 34%
- --------------------------------------------------------------------------------
Increase (reduction) in tax expense resulting from:
State tax, net of federal benefit 8 7 5
Non-tax deductible amortization of goodwill 1 5 10
Other 2 1 (1)
- --------------------------------------------------------------------------------
Effective income tax rates 46% 48% 48%
================================================================================
The tax effects of temporary differences that give rise to the deferred tax
assets and liabilities at December 31, 1998 and 1997 are as follows:
(in thousands) 1998 1997
- --------------------------------------------------------------------------------
Deferred tax assets:
Discontinued operation accruals $ 1,227 $ 241
Receivable allowance 471 366
Intangible assets 219 207
Insurance benefits 717 754
Other 735 119
- --------------------------------------------------------------------------------
3,369 1,687
- --------------------------------------------------------------------------------
Deferred tax liabilities:
Accumulated depreciation (637) (973)
Acquisition bases adjustment
primarily intangibles (2,556) (3,342)
- --------------------------------------------------------------------------------
(3,193) (4,315)
- --------------------------------------------------------------------------------
Net deferred tax asset (liability): $ 176 $(2,628)
================================================================================
Deferred tax assets (liabilities) are reflected in the consolidated
balance sheets at December 31, 1998 as follows: other current assets $2,694,000
and deferred income taxes (noncurrent) $(2,518,000) and at December 31, 1997,
other current assets $1,013,000 and deferred income taxes (noncurrent)
$(3,641,000).
25
<PAGE>
Hooper Holmes, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
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 1998 and 1997
include differences between financial and tax reporting for depreciation and
amortization.
- --------------------------------------------------------------------------------
Note 10 -- Capital Stock
Stock Split and Authorized Shares -- Effective August 22, 1997 and January 8,
1999, the Company declared two for one stock splits in the form of 100% stock
dividends to all stockholders, which were distributed on September 5, 1997, and
January 29, 1999, respectively. The stock splits resulted in additional shares
of 6,923,582 shares and 14,189,982 shares of common stock, respectively, of
which, 1,683 shares and 52,166 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 million to 80 million.
Stock Repurchase Program -- On January 27, 1998, the Board of Directors approved
a Stock Repurchase Program, which authorized management to purchase shares of
the Company's common stock at prevailing market prices. During 1998, the Company
purchased 97,600 shares of its common stock at an aggregate price of $954,138.
Stockholder Rights Plan -- On January 23, 1990, the Board of Directors adopted a
Stockholder Rights Plan, which was amended and restated on May 10, 1991 and
further amended on July 12, 1995. The Board declared a dividend of one Common
Share Right for each outstanding share of Common Stock distributable on April 2,
1990. Such rights only become exercisable ten business days after (a) the
Company or a person or group announces that such person or group (other than
certain specified persons, such as the Company, any wholly-owned subsidiary,
employee benefit plans of the Company and persons who held at least 20% of the
Common Stock when the Rights Plan was adopted, until the occurrence of certain
events, or as the result of an acquisition of shares by the Company) has
acquired beneficial ownership of 20% or more of the Company's Common Stock or
(b) the commencement of a tender offer by a person or group to acquire 30% or
more of the Company's Common Stock (such date, the "Separation Date"). Upon the
Separation Date, each right shall constitute the right to purchase one share of
Common Stock of the Company for $6.00, subject to adjustment. After (x) the
announcement of the acquisition by a person or group of 20% or more of the
Company's Common Stock (other than in a tender offer for all shares which has
been approved by the Board of Directors), or (y) the Company enters into or
consummates a merger or other similar business transaction, or a sale of more
than 50% of the assets or earning power, each right shall be adjusted to
constitute the right to purchase that number of shares of Common Stock of the
Company or capital stock of the acquiring company, as the case may be, having an
aggregate market price on the date of such announcement of the acquisition or
such consummation or occurrence of the transaction equal to twice the exercise
price of $6.00, also subject to adjustment. The rights may be redeemed for $0.05
per right at any time until the tenth day following public announcement that a
20% position has been acquired. The rights will expire on March 16, 2000, unless
sooner redeemed
26
<PAGE>
Hooper Holmes, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
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 1,000,000 shares. This plan terminated
on December 31, 1998. 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. An employee
can cancel their purchase any time during the year, without penalty. The
purchase price was 95% of the closing common stock price on the grant date. In
April 1997 and April 1998, the Company distributed 66,536 shares, and 80,904
shares, respectively, under the April 1996 and April 1997 grants, and the
aggregate purchase price was $300,244, and $324,248, respectively. In April
1998, the Company made a grant of approximately 71,000 shares, and the aggregate
purchase price is approximately $579,000.
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, 1998, 1997 and 1996, awards of
5,000, 4,000 and 10,000 shares, respectively, have been granted.
Stock Option Plan -- The Company's stockholders approved stock option plans
totaling 1,200,000 and 2,000,000 shares in 1988 and 1992, respectively, and
2,000,000 and 1,200,000 shares in 1994 and 1997, respectively, 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 600,000 shares, which provides 100,000 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 acquire 400,000 shares to the Chief
Executive Officer, at an exercise price equal to the fair value at the date of
grant. The options vest 80,000 shares annually for five years. Any unvested
options will become immediately exercisable in 1999, if two performance related
conditions are met: (a) the Company's earnings per share are at least $.35 for
the year ended December 31, 1998, and (b) the Company's closing stock price is
at least $7.50 per share for any consecutive 30 day period during the six months
ended June 30, 1999. These conditions have been met.
27
<PAGE>
Hooper Holmes, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
The following table summarizes stock option activity:
Under Option
- --------------------------------------------------------------------------------
Shares Weighted
Available for Average Exercise
Grant Shares Price Per Share
- --------------------------------------------------------------------------------
Balance January 1, 1996 1,365,004 3,652,000 $ 2.72
Granted -- -- --
Exercised -- (300,648) 2.20
Cancelled 28,200 (28,200) 2.50
- --------------------------------------------------------------------------------
Balance December 31, 1996 1,393,204 3,323,152 2.77
Authorized 2,200,000 -- --
Granted (1,596,000) 1,596,000 4.17
Exercised -- (579,322) 3.03
- --------------------------------------------------------------------------------
Balance December 31, 1997 1,997,204 4,339,830 3.25
Granted (1,210,800) 1,210,800 10.47
Exercised -- (416,830) 3.01
Cancelled 28,850 (28,850) 5.04
- --------------------------------------------------------------------------------
Balance December 31, 1998 815,254 5,104,950 $ 4.97
================================================================================
The weighted average fair value per stock option granted was $5.96 for the 1998
options, $2.36 for the 1997 options, and no options were granted in 1996. The
Company estimated the fair values using the Black-Scholes option pricing model,
modified for dividends and using the following assumptions:
1998 1997 1996
- --------------------------------------------------------------------------------
Expected dividend yield .34% .37% --
Risk-free interest rate 4.75% 6.13% --
Expected stock price volatility 41.90% 39.01% --
Expected term until exercise (years) 9 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 the 1998, 1997, and 1996 option grants:
(thousands of dollars, except per share data) 1998 1997 1996
- --------------------------------------------------------------------------------
Net income:
As reported $12,700 $8,770 $4,086
Pro forma 11,552 8,066 3,864
Basic earnings per share:
As reported $ .45 $ .32 $ .15
Pro forma .41 .29 .14
Diluted earnings per share:
As reported $ .43 $ .31 $ .15
Pro forma .39 .28 .14
================================================================================
28
<PAGE>
Hooper Holmes, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
The pro forma effects on net income and earnings per share for 1998, 1997,
and 1996 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, 1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
----------------------------------------------------------- ------------------------
Weighted
Average Weighted Weighted
Number Remaining Average Number Average
Range of Outstanding Contractual Exercise Exercisable Exercise
Exercise Prices at 12/31/98 Term (Years) Price at 12/31/98 Price
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$1.94 - $3.50 1,999,250 4.9 $ 2.49 1,272,300 $2.69
4.06 - 4.22 1,913,500 7.4 4.09 317,500 3.74
6.44 - 13.38 1,192,200 9.6 10.53 0 0
=========================================================================================
</TABLE>
- --------------------------------------------------------------------------------
Note 11 -- This plan is available to all employees with at least one
401K Savings and year of service of greater than 1,000 hours of employment,
Retirement Plan and is administered by Merrill Lynch. The Company matches
up to 25% of the first 10% of employee salary
contributions. The Company's payments for 1998, 1997, and
1996, were $300,000, $251,000, and $228,000, respectively.
29
<PAGE>
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, 1998 and 1997, 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, 1998. 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 generally accepted auditing
standards. 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, 1998 and 1997, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1998 in conformity with generally accepted accounting
principles.
KPMG LLP
Short Hills, New Jersey
February 18, 1999
30
<PAGE>
Hooper Holmes, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
Selected Financial Data
<TABLE>
<CAPTION>
For the years ended December 31,
----------------------------------------------------------------------------
(dollars in thousands except per share data) 1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Statement of Income Data:
Revenues $ 185,210 $ 165,353 $ 156,254 $ 111,313 $ 92,534
Operating income 25,592 16,344 8,576 4,059 3,803
Interest expense 3 168 1,394 1,674 994
Income from continuing operations 14,185 8,770 4,086 1,667 1,480
Income (loss) from discontinued operations/(1)/ (1,485) -- -- (14,716) 1,184
Net income (loss) 12,700 8,770 4,086 (13,049) 2,664
Earnings per share -- basic:
Income from continuing operations .50 .32 0.15 0.06 0.06
Discontinued operations/(1)/ (.05) -- -- (.55) 0.04
Net income (loss) .45 .32 0.15 (.49) 0.10
Earnings per share -- diluted:
Income from continuing operations .48 .31 0.15 0.06 0.06
Discontinued operations/(1)/ (.05) -- -- (.55) 0.04
Net income (loss) $ .43 $ .31 $ 0.15 $ (.49) $ 0.10
- ------------------------------------------------------------------------------------------------------------------------------------
Cash dividends per share $ .036 $ 0.026 $ 0.015 $ 0.015 $ 0.075
- ------------------------------------------------------------------------------------------------------------------------------------
Weighted average shares -- basic 28,120,685 27,536,668 26,910,876 26,828,512 26,826,852
Weighted average shares -- diluted 29,859,710 28,564,132 27,243,802 26,904,714 26,915,582
- ------------------------------------------------------------------------------------------------------------------------------------
Balance Sheet Data (as of December 31):
Working capital $ 33,476 $ 20,381 $ 11,807 $ 24,786 $ 6,407
Total assets 85,016 65,941 61,296 93,997 103,172
Current maturities of long-term debt 450 -- 1,030 8,800 2,150
Long-term debt, less current maturities -- -- 5,250 26,250 46,327
Total long-term debt 450 -- 6,280 35,050 48,477
Stockholders' equity $ 62,294 $ 48,519 $ 37,719 $ 33,132 $ 46,502
====================================================================================================================================
</TABLE>
Per share calculations are adjusted to reflect a two for one stock split
effective January 8, 1999.
/(1)/ See Note 2 to the consolidated financial statements.
31
<PAGE>
Hooper Holmes, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
Quarterly Common Stock Price Ranges and Dividends
1998 1997
------------------------------ -----------------------------
Quarter High Low Dividend High Low Dividend
-------------------------------------------------------------------------
First 10 11/16 6 7/16 .008 4 13/32 3 7/8 .005
Second 12 29/32 10 3/32 .008 5 13/16 4 3/32 .005
Third 11 15/16 8 .01 6 27/32 5 17/32 .008
Fourth 14 15/16 9 3/8 .01 7 15/16 6 13/32 .008
-------------------------------------------------------------------------
Adjusted to reflect a two for one stock split effective January 8, 1999.
Quarterly Financial Data (Unaudited)
(dollars in thousands except per share data)
<TABLE>
<CAPTION>
Per Share of Common Stock
Income from Net Income
Gross Continuing -------------------------------
Quarter Revenues profit Operations Net Income Basic Diluted
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1998
Fourth $ 48,147 $ 14,078 $ 4,068 $ 2,583/(1)/ $ 0.09/(1)/ $ 0.09/(1)/
Third 45,383 13,623 3,538 3,538 0.13 0.12
Second 45,569 13,750 3,390 3,390 0.12 0.11
First 46,111 14,498 3,189 3,189 0.11 0.11
- -------------------------------------------------------------------------------------------------------------------------------
Total $185,210 $ 55,949 $ 14,185 $ 12,700 $ 0.45 $ 0.43
- -------------------------------------------------------------------------------------------------------------------------------
1997
Fourth $ 42,539 $ 11,883 $ 2,851 $ 2,851 $ 0.10 $ 0.10
Third 40,701 11,544 2,280 2,280 0.08 0.08
Second 41,399 11,666 2,115 2,115 0.08 0.08
First 40,714 11,067 1,524 1,524 0.06 0.05
- -------------------------------------------------------------------------------------------------------------------------------
Total $165,353 $ 46,160 $ 8,770 $ 8,770 $ 0.32 $ 0.31
===============================================================================================================================
</TABLE>
Per share calculations are adjusted to reflect a two for one stock split
effective January 8, 1999.
/(1)/ Net income and earnings per share include a charge for discontinued
operations, net of tax of $1.5 million or $.05 per share. See note 2 to the
Consolidated Financial Statements.
32
<PAGE>
Directors and Officers
Directors
Benjamin A. Currier
Retired. Formerly
Senior Vice President,
Security Life of Denver Ins. Co. --
ING/Barings
Quentin J. Kennedy
Retired. Formerly
Executive Vice President,
Secretary and Director
Federal Paper Board Company
Elaine L. Rigolosi
Professor of Education
Department of Organization and
Leadership Teachers College Columbia
University
James M. McNamee
Chairman, President and
Chief Executive Officer
John E. Nolan
Partner
Steptoe & Johnson
Kenneth R. Rossano
Senior Vice President
Cassidy & Associates
G. Earle Wight
Senior Vice President
Officers
James M. McNamee
Chairman, President and
Chief Executive Officer
Paul W. Kolacki
Executive Vice President and
Chief Operating Officer
Robert William Jewett
Senior Vice President,
General Counsel and Secretary
Fred Lash
Senior Vice President,
Chief Financial Officer
and Treasurer
G. Earle Wight
Senior Vice President
Francis A. Stiner
Vice President
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 25, 1999
at the Company's Corporate Headquarters
Basking Ridge, NJ
<PAGE>
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
-----------------------------
The Board of Directors
Hooper Holmes, Inc.
We consent to incorporation by reference in the registration statements (No.
333-57771, No. 33-53086 and No. 333-04785) on Form S-8 of Hooper Holmes, Inc. of
our report dated February 18, 1999, relating to the consolidated balance sheets
of Hooper Holmes, Inc. and subsidiaries as of December 31, 1998 and 1997 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, 1998, which
report appears in the December 31, 1998, annual report on Form 10-K of Hooper
Holmes, Inc.
/s/ KPMG LLP
Short Hills, New Jersey
March 30, 1999
<PAGE>
POWER OF ATTORNEY
-----------------
The undersigned Director of Hooper Holmes, Inc., a New York corporation (the
"Company"), which proposes to file a Form 10-K Annual Report pursuant to Section
13 or 15 (d) of the Securities Exchange Act of 1934, for the fiscal year ended
December 31, 1998, hereby appoints James M. McNamee and Robert William Jewett,
or either of them, his attorneys in fact, and hereby grants to him, for him and
in his name as such Director, full power and authority as his agent or agents
and in his place and stead:
1. to sign such Annual Report on Form 10-K and any subsequent amendment
thereto, and any and all other amendments or documents related thereto
which any of said attorneys in fact, in his discretion, may deem
necessary or proper; and
2. to perform every other act which any of said attorneys in fact, in his
discretion, may deem necessary or appropriate in connection with such
Annual Report or any amendments thereto.
DATED: March 30, 1999
/s/ Benjamin A. Currier
------------------------------------
Benjamin A. Currier
<PAGE>
POWER OF ATTORNEY
-----------------
The undersigned Director of Hooper Holmes, Inc., a New York corporation (the
"Company"), which proposes to file a Form 10-K Annual Report pursuant to Section
13 or 15 (d) of the Securities Exchange Act of 1934, for the fiscal year ended
December 31, 1998, hereby appoints James M. McNamee and Robert William Jewett,
or either of them, his attorneys in fact, and hereby grants to him, for him and
in his name as such Director, full power and authority as his agent or agents
and in his place and stead:
1. to sign such Annual Report on Form 10-K and any subsequent amendment
thereto, and any and all other amendments or documents related thereto
which any of said attorneys in fact, in his discretion, may deem
necessary or proper; and
2. to perform every other act which any of said attorneys in fact, in his
discretion, may deem necessary or appropriate in connection with such
Annual Report or any amendments thereto.
DATED: March 30, 1999
/s/ Quentin J. Kennedy
------------------------------------
Quentin J. Kennedy
<PAGE>
POWER OF ATTORNEY
-----------------
The undersigned Director of Hooper Holmes, Inc., a New York corporation (the
"Company"), which proposes to file a Form 10-K Annual Report pursuant to Section
13 or 15 (d) of the Securities Exchange Act of 1934, for the fiscal year ended
December 31, 1998, hereby appoints James M. McNamee and Robert William Jewett,
or either of them, his attorneys in fact, and hereby grants to him, for him and
in his name as such Director, full power and authority as his agent or agents
and in his place and stead:
1. to sign such Annual Report on Form 10-K and any subsequent amendment
thereto, and any and all other amendments or documents related thereto
which any of said attorneys in fact, in his discretion, may deem
necessary or proper; and
2. to perform every other act which any of said attorneys in fact, in his
discretion, may deem necessary or appropriate in connection with such
Annual Report or any amendments thereto.
DATED: March 30, 1999
/s/ John E. Nolan
------------------------------------
John E. Nolan
<PAGE>
POWER OF ATTORNEY
-----------------
The undersigned Director of Hooper Holmes, Inc., a New York corporation (the
"Company"), which proposes to file a Form 10-K Annual Report pursuant to Section
13 or 15 (d) of the Securities Exchange Act of 1934, for the fiscal year ended
December 31, 1998, hereby appoints James M. McNamee and Robert William Jewett,
or either of them, his attorneys in fact, and hereby grants to him, for him and
in his name as such Director, full power and authority as his agent or agents
and in his place and stead:
1. to sign such Annual Report on Form 10-K and any subsequent amendment
thereto, and any and all other amendments or documents related thereto
which any of said attorneys in fact, in his discretion, may deem
necessary or proper; and
2. to perform every other act which any of said attorneys in fact, in his
discretion, may deem necessary or appropriate in connection with such
Annual Report or any amendments thereto.
DATED: March 30, 1999
/s/ G. Earle Wight
------------------------------------
G. Earle Wight
<PAGE>
POWER OF ATTORNEY
-----------------
The undersigned Director of Hooper Holmes, Inc., a New York corporation (the
"Company"), which proposes to file a Form 10-K Annual Report pursuant to Section
13 or 15 (d) of the Securities Exchange Act of 1934, for the fiscal year ended
December 31, 1998, hereby appoints James M. McNamee and Robert William Jewett,
or either of them, his attorneys in fact, and hereby grants to him, for him and
in his name as such Director, full power and authority as his agent or agents
and in his place and stead:
1. to sign such Annual Report on Form 10-K and any subsequent amendment
thereto, and any and all other amendments or documents related thereto
which any of said attorneys in fact, in his discretion, may deem
necessary or proper; and
2. to perform every other act which any of said attorneys in fact, in his
discretion, may deem necessary or appropriate in connection with such
Annual Report or any amendments thereto.
DATED: March 30, 1999
/s/ Kenneth R. Rossano
------------------------------------
Kenneth R. Rossano
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET OF HOOPER HOLMES, INC. AND SUBSIDIARIES AS OF
DECEMBER 31, 1998 AND THE RELATED CONSOLIDATED STATEMENTS OF INCOME AND CASH
FLOWS FOR THE PERIOD ENDED DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 29,752,361
<SECURITIES> 0
<RECEIVABLES> 19,262,150
<ALLOWANCES> 1,116,294
<INVENTORY> 340,503
<CURRENT-ASSETS> 53,294,419
<PP&E> 22,487,225
<DEPRECIATION> 14,166,163
<TOTAL-ASSETS> 85,016,385
<CURRENT-LIABILITIES> 19,818,506
<BONDS> 0
0
0
<COMMON> 1,135,198
<OTHER-SE> 61,158,753
<TOTAL-LIABILITY-AND-EQUITY> 85,016,385
<SALES> 185,209,776
<TOTAL-REVENUES> 185,209,776
<CGS> 129,261,234
<TOTAL-COSTS> 129,261,234
<OTHER-EXPENSES> 30,356,166
<LOSS-PROVISION> 130,000
<INTEREST-EXPENSE> 3,391
<INCOME-PRETAX> 26,269,290
<INCOME-TAX> 12,084,000
<INCOME-CONTINUING> 14,185,290
<DISCONTINUED> 1,485,000
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,700,290
<EPS-PRIMARY> .45
<EPS-DILUTED> .43
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET OF HOOPER HOLMES, INC. AND SUBSIDIARIES AS OF
DECEMBER 31, 1997 AND THE RELATED CONSOLIDATED STATEMENTS OF INCOME AND CASH
FLOWS FOR THE PERIOD ENDED DECEMBER 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 13,159,431
<SECURITIES> 0
<RECEIVABLES> 19,392,461
<ALLOWANCES> 872,114
<INVENTORY> 0
<CURRENT-ASSETS> 34,161,596
<PP&E> 20,498,119
<DEPRECIATION> 12,050,903
<TOTAL-ASSETS> 65,941,117
<CURRENT-LIABILITIES> 13,780,695
<BONDS> 0
0
0
<COMMON> 557,565
<OTHER-SE> 47,961,806
<TOTAL-LIABILITY-AND-EQUITY> 65,941,117
<SALES> 165,352,706
<TOTAL-REVENUES> 165,352,706
<CGS> 119,193,062
<TOTAL-COSTS> 119,193,062
<OTHER-EXPENSES> 29,815,579
<LOSS-PROVISION> 480,000
<INTEREST-EXPENSE> 168,266
<INCOME-PRETAX> 16,891,463
<INCOME-TAX> 8,121,000
<INCOME-CONTINUING> 8,770,463
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,770,463
<EPS-PRIMARY> .32<F1>
<EPS-DILUTED> .31<F1>
<FN>
<F1>ADJUSTED TO REFLECT A TWO-FOR-ONE STOCK SPLIT EFFECTIVE JANUARY 8, 1999
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET OF HOOPER HOLMES, INC. AND SUBSIDIARIES AS OF
DECEMBER 31, 1996 AND THE RELATED CONSOLIDATED STATEMENTS OF INCOME AND CASH
FLOWS FOR THE PERIOD ENDED DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 2,936,447
<SECURITIES> 0
<RECEIVABLES> 17,769,052
<ALLOWANCES> 733,797
<INVENTORY> 0
<CURRENT-ASSETS> 25,771,898
<PP&E> 19,196,013
<DEPRECIATION> 9,712,650
<TOTAL-ASSETS> 61,295,666
<CURRENT-LIABILITIES> 13,965,161
<BONDS> 5,250,000
0
0
<COMMON> 271,658
<OTHER-SE> 37,447,798
<TOTAL-LIABILITY-AND-EQUITY> 61,295,666
<SALES> 156,253,763
<TOTAL-REVENUES> 156,253,763
<CGS> 117,959,274
<TOTAL-COSTS> 117,959,274
<OTHER-EXPENSES> 29,718,867
<LOSS-PROVISION> 380,000
<INTEREST-EXPENSE> 1,394,038
<INCOME-PRETAX> 7,857,772
<INCOME-TAX> 3,772,000
<INCOME-CONTINUING> 4,085,772
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,085,772
<EPS-PRIMARY> .15<F1>
<EPS-DILUTED> .15<F1>
<FN>
<F1>ADJUSTED TO REFLECT A TWO-FOR-ONE STOCK SPLIT EFFECTIVE JANUARY 8, 1999.
</FN>
</TABLE>
