10-Q 1 d10q.txt FORM 10-Q FORM 10Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) SECURITIES EXCHANGE ACT OF 1934 For Quarter Ended September 30, 2001 Commission File No. 1-9972 Hooper Holmes, Inc. -------------------------------------------------- (Exact name of registrant as specified in its charter) New York 22-1659359 -------------------------------- ----------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 170 Mt. Airy Rd., Basking Ridge, NJ 07920 --------------------------------------- ----------------------------- (Address of principal executive office) (Zip Code) Registrant's telephone number, including area code: (908) 766-5000 None -------------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ------- ------ Indicate the number of shares outstanding of each of the issuer's classes of common stock as of the latest practicable date. Class Outstanding at September 30, 2001 ----------------------------- --------------------------------------- Common stock, $.04 par value 64,610,615 HOOPER HOLMES, INC. AND SUBSIDIARIES INDEX Page No. -------- PART I - Financial Information ITEM 1 - Financial Statements Consolidated Balance Sheets 1 as of September 30, 2001 and December 31, 2000 Consolidated Statements of Income 2 for the Three and Nine Months Ended September 30, 2001 and 2000 Consolidated Statements of Cash Flows 3 for the Nine Months Ended September 30, 2001 and 2000 Notes to Consolidated Financial Statements 4-6 ITEM 2 - Management's Discussion and Analysis 7-11 of Financial Condition and Results of Operations ITEM 3 - Quantitative and Qualitative Disclosures 12 About Market Risk Hooper Holmes, Inc. Consolidated Balance Sheets (unaudited)
09/30/01 12/31/00 --------------------- ---------------- ASSETS Current Assets: Cash and cash equivalents $ 43,802,153 $ 45,680,471 Marketable securities 29,736,932 29,188,309 Accounts receivable, net 27,678,045 28,870,624 Other current assets 4,651,544 4,539,330 --------------------- -------------------- Total current assets 105,868,674 108,278,734 Property, plant and equipment: Land and land improvements 618,972 618,972 Building 4,613,750 4,554,105 Furniture, fixtures and equipment 22,261,694 21,830,027 Leasehold improvements 414,719 379,376 --------------------- -------------------- Total property, plant and equipment 27,909,135 27,382,480 Less: Accumulated depreciation and amortization 19,820,877 18,058,073 --------------------- -------------------- Property, plant and equipment, net 8,088,258 9,324,407 Goodwill, net 81,516,277 78,815,845 Intangible assets, net 12,515,074 13,865,768 Investment 5,000,000 0 Other assets 767,608 751,128 --------------------- -------------------- Total assets $ 213,755,891 $ 211,035,882 ===================== ==================== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current maturities of long-term debt $ 212,338 $ 196,836 Accounts payable 7,228,932 7,402,862 Accrued expenses: Insurance benefits 332,613 291,408 Salaries, wages and fees 2,071,517 2,585,457 Payroll and other taxes 258,774 232,348 Income taxes payable 1,842,225 902,721 Other 3,128,594 3,362,025 --------------------- -------------------- Total current liabilities 15,074,993 14,973,657 Long term debt, less current maturities 3,336,997 3,195,295 Deferred income taxes 1,544,578 1,708,954 Minority interest 177,160 81,355 Stockholders' equity: Common stock, par value $.04 per share; authorized 240,000,000 2,699,963 2,698,167 shares, issued 67,499,074 in 2001 and 67,454,174 in 2000. Additional paid-in capital 134,808,731 135,419,195 Accumulated other comprehensive income 240,514 0 Retained earnings 80,962,515 71,009,995 --------------------- -------------------- 218,711,723 209,127,357 Less: Treasury stock at cost (2,888,459 and 1,993,564 shares) 25,089,560 18,050,736 --------------------- -------------------- Total stockholders' equity 193,622,163 191,076,621 --------------------- -------------------- Total liabilities and stockholders' equity $ 213,755,891 $ 211,035,882 ===================== ====================
See accompanying notes to unaudited consolidated financial statements. -1- Hooper Holmes, Inc. Consolidated Statements Of Income (unaudited)
Three months ended Nine months ended September 30, September 30, ---------------------------------------------------------------------------------- 2001 2000 2001 2000 ------------------ ----------------- ----------------- ------------------ Revenues $ 57,238,204 $ 61,270,178 $ 181,594,886 $ 214,624,137 Cost of operations 41,481,906 44,699,923 130,085,818 153,532,920 ------------------ ----------------- ----------------- ------------------ Gross profit 15,756,298 16,570,255 51,509,068 61,091,217 Selling, general and administrative expenses 10,913,321 10,881,505 34,211,827 34,491,723 ------------------ ----------------- ----------------- ------------------ Operating income 4,842,977 5,688,750 17,297,241 26,599,494 Other income (expense): Interest expense -46,360 -68,893 -165,496 -1,221,642 Interest income 856,269 1,189,409 2,691,722 3,038,792 Other (expense) Income, net -59,335 -6,872 -217,973 373,682 ------------------ ----------------- ----------------- ------------------ 750,574 1,113,644 2,308,253 2,190,832 ------------------ ----------------- ----------------- ------------------ Income before income taxes 5,593,551 6,802,394 19,605,494 28,790,326 ------------------ ----------------- ----------------- ------------------ Income taxes 2,348,000 2,915,000 8,189,000 12,341,000 ------------------ ----------------- ----------------- ------------------ Net income $ 3,245,551 $ 3,887,394 $ 11,416,494 $ 16,449,326 ================== ================= ================= ================== Earnings per share: Basic $ 0.05 $ 0.06 $ 0.18 $ 0.25 Diluted $ 0.05 $ 0.06 $ 0.17 $ 0.24 ================== ================= ================= ================== Weighted average number of shares: (1) Basic 64,944,481 66,120,725 65,027,607 64,526,766 Diluted 67,306,045 69,425,058 67,820,431 68,234,937 ================== ================= ================= ==================
(1) Adjusted to reflect a two for one stock split effective April 12, 2000. See accompanying notes to unaudited consolidated financial statements. -2- Hooper Holmes, Inc. Consolidated Statements of Cash Flows (unaudited)
Nine months ended September 30, ------------------------------------------------ 2001 2000 ---------------------- -------------------- Cash flows from operating activities: Net income $ 11,416,494 $ 16,449,326 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 6,996,454 6,799,556 Provision for bad debt expense 225,000 0 Deferred tax benefit -164,375 -472,135 Issuance of stock awards 5,689 153,750 Loss on sale of fixed assets 20,854 33,137 Change in assets and liabilities: Accounts receivable 967,579 6,663,251 Other current assets -128,695 -500,640 Accounts payable and accrued expenses 1,203,640 -8,427,273 ---------------------- -------------------- Net cash provided by operating activities 20,542,640 20,698,972 ---------------------- -------------------- Cash flows from investing activities: Purchases of marketable securities -22,172,041 0 Redemptions of marketable securities 21,863,932 0 Business acquisition, net of cash acquired -6,066,957 0 Investment in e-nable -5,000,000 0 Capital expenditures -563,940 -1,289,953 ---------------------- -------------------- Net cash used in investing activities -11,939,006 -1,289,953 ---------------------- -------------------- Cash flows from financing activities: Issuance of long term debt 250,000 100,000 Principal payments on long term debt -92,797 -62,117,507 Proceeds from issuance of common stock, net 0 86,828,696 Proceeds from employee stock purhcase plan 0 680,738 Proceeds related to the exercise of stock options 906,986 4,508,180 Treasury stock acquired -10,082,167 -11,015,351 Dividends paid -1,463,974 -1,431,681 ---------------------- -------------------- Net cash (used in) provided by financing activities -10,481,952 17,553,075 ---------------------- -------------------- Net (decrease) increase in cash and cash equivalents -1,878,318 36,962,094 Cash and cash equivalents at beginning of year 45,680,471 41,363,019 ---------------------- -------------------- Cash and cash equivalents at end of period $ 43,802,153 $ 78,325,113 ====================== ==================== Supplemental disclosure of non-cash investing activity Change in net unrealized gain on marketable securities available for sale $ 240,514 $ 0 Supplemental disclosure of cash flow information Cash paid during the year for: Interest $ 175,072 $ 2,042,886 Income taxes $ 6,344,366 $ 10,303,575
See accompanying notes to unaudited consolidated financial statements. -3- HOOPER HOLMES, INC. Notes to Unaudited Consolidated Financial Statements September 30, 2001 Note 1: Basis of Presentation The financial information included herein is unaudited unless otherwise indicated; however, such information reflects all adjustments (consisting solely of normal recurring adjustments) which are, in the opinion of management, necessary for a fair statement of results for the interim periods. The interim financial statements should be read in conjunction with the financial statements and notes thereto included in the Company's annual report on Form 10-K. The results of operations for the three month and nine month periods ended September 30, 2001 are not necessarily indicative of the results to be expected for the full year. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" for additional information. On January 31, 2001, the Company entered into a marketing and equity investment agreement with e-Nable, at a total cost of $5.0 million. The Company's investment is being accounted for under the cost method of investments, as it owns less than 20% of e-Nable. Note 2: Earnings Per Share Basic earnings per share equals net income divided by weighted average common shares outstanding during the period. Diluted earnings per share equals net income divided by the sum of weighted average common shares outstanding during the period plus common stock equivalents. Common stock equivalents (2,361,564 and 3,304,333 for the three months ended and 2,792,824 and 3,708,171 for the nine months ended September 30, 2001 and 2000, respectively) are shares assumed to be issued if outstanding stock options were exercised. All appropriate share and per share amounts have been restated for the April 12, 2000 two for one stock split. - 4 - Note 3: Comprehensive Income Comprehensive income includes net income and other comprehensive income which refers to those revenues, expenses, gains and losses which are excluded from net income. Other comprehensive income includes unrealized gains and losses on marketable securities classified as available-for-sale.
Nine Month Period Ended September 30, 2001 September 30, 2000 ------------------ ------------------ Net income $ 11,416,494 $ 16,449,326 Other comprehensive income: Unrealized holding gains arising during period 442,248 - Less: reclassification adjustment for gains included in net income (201,734) - ------------ ------------- Net unrealized gains on securities 240,514 - ------------ ------------- Total comprehensive income $ 11,657,008 $ 16,449,326 ============ ============= Three Month Period Ended September 30, 2001 September 30, 2000 ------------------ ------------------ Net income $ 3,245,551 $ 3,887,394 Other comprehensive income: Unrealized holding gains arising during period 214,863 - Less: reclassification adjustment for gains included in net income (67,534) - ------------ ------------- Net unrealized gains on securities 147,329 - ------------ ------------- Total comprehensive income $ 3,392,880 $ 3,887,394 ============ =============
-5- Note 4: Marketable Securities The amortized cost, gross unrealized holding gains, gross unrealized holding losses and fair value of available for sale securities by major security type at September 30, 2001 were as follows:
Gross Gross Estimated Amortized Unrealized Unrealized Fair Cost Gain Loss Value Government Agencies $ 767,424 $ 4,470 $ 0 $ 771,894 Government Bonds & Notes 4,210,448 15,463 (1,899) 4,224,012 Corporate debt securities 24,518,546 222,850 (370) 24,741,026 ----------- -------- ------- ----------- Total $29,496,418 $242,783 $(2,269) $29,736,932 =========== ======== ======= ===========
The proceeds from the sale of available-for-sale securities and gross realized gains were $21,863,932 and $240,514, respectively for the period ending September 30, 2001. Realized gains from the sale of available-for-sale securities are determined on a specific identification basis. Maturities of availabe-for-sale securities were as follows at September 30, 2001: Amortized Estimated Cost Fair Value Due within 1 year $ 5,765,118 $ 5,802,580 Due within 1-5 years 21,169,183 21,357,987 Due within 5-10 years 2,562,117 2,576,365 ----------- ----------- Total $29,496,418 $29,736,932 =========== =========== Note 5: Capital Stock The Company declared a two for one stock split effective April 12, 2000. The net tax benefit derived from the exercise of stock options was $ 1.0 million for the nine months ended September 30, 2001. Options exercised for the nine months ended September 30, 2001 were 317,600 shares, of which 272,700 shares were issued from Treasury Stock. Additionally, 5,000 shares of Treasury Stock were used for employee stock awards, and 49,505 shares of Treasury Stock were issued as part of a second quarter acquisition. On May 30, 2000, the Board of Directors authorized the repurchase of 2.5 million shares of the Company's common stock during the calendar year 2001 for an aggregate purchase price not to exceed $ 25 million. For the nine months ended September 30, 2001, the Company purchased 1,222,100 shares at a total cost of $ 10.1 million. Note 6: Legal Matters The Company is a party to a number of legal actions arising in the ordinary course of its business. The Company is a defendant in an action arising out of the Company's resale of a drug screening business it acquired and subsequently sold in 1995. The plaintiff claims to have suffered damages from the Company's alleged failure to comply with the terms of a non-competition agreement and a first right of refusal, as well as incomplete disclosure about the transaction. The Company believes that the plaintiff suffered no damages and will vigorously defend this action in court. In the opinion of management, the Company has substantial legal defenses and/or insurance coverage with respect to all of its pending legal actions; accordingly, none of these actions is expected to have a material adverse effect on the Company, its consolidated results of operations or its consolidated financial position. -6- Item 2 HOOPER HOLMES, INC. Management's Discussion and Analysis of Financial Condition and Results of Operation Results of Operation - Three months ended September 30, 2001 compared to Three months ended September 30, 2000 Revenues for the third quarter of 2001 decreased 6.6% to $57.2 million from $61.3 million for the third quarter of 2000. The number of paramedical examinations performed decreased to 689,000 from 767,000. The decrease in the number of paramedical examinations is the result of a slower than expected recovery in the life insurance industry, an increasingly difficult economic environment, and certain competitive issues. The volume decrease in paramedical examinations performed was partially offset by an increase in the average revenue per unit of service of approximately .4% for the third quarter of 2001, compared to the third quarter of 2000. This percentage increase is the result of an increase in services performed per examination. The number of Infolink reports decreased to 95,000 from 102,000. The decrease in the number of Infolink reports is the result of decreased volume resulting from a slower than expected recovery in the life insurance industry and an increasingly difficult economic environment. Additionally, the average price per unit of service decreased approximately 10%, as lower priced reports from one major client represented a greater percentage of the total Infolink reports provided. The Company's cost of operations for the third quarter of 2001 totaled $41.5 million compared to $44.7 million for the third quarter of 2000. Cost of operations as a percentage of revenues improved to 72.5% for the third quarter 2001, compared to the 73.0% for the third quarter 2000. The reduction, as a percentage of revenues, is due to the Company's ability to manage its field expenses, despite a reduction in revenue. Selling, general and administrative expenses totaled $ 10.9 million for the third quarter of 2001 and the third quarter of 2000, and as a percentage of revenue totaled 19.1% compared to 17.8%, respectively. The increase, as a percentage of revenues, is due to lower revenue levels in the third quarter of 2001. Accordingly, the Company's operating income decreased to $4.8 million from $5.7 million and as a percentage of revenues, decreased to 8.5% from 9.3% for the third quarter of 2001 compared to the third quarter of 2000. Interest expense decreased to $.05 million for the third quarter of 2001 from $ .07 million for the third quarter 2000, due to lower interest rates on borrowed funds. Interest income decreased to $ .9 million for the third quarter of 2001 from $ 1.2 million for the third quarter 2000, due to lower levels of invested funds. The effective tax rate was 42% and 43% for the quarters ended September 30, 2001 and 2000, respectively. Net income and earnings per diluted share for the third quarter of 2001 were $3.2 million or $.05 per diluted share versus $3.9 million or $.06 per diluted share for the third quarter of 2000. Average diluted shares for the respective periods were 67,306,045 and 69,425,058. - 7 - HOOPER HOLMES, INC. Management's Discussion and Analysis of Financial Condition and Results of Operation Results of Operation - Nine months ended September 30, 2001 compared to Nine months ended September 30, 2000 Revenues for the nine months ended September 30, 2001 decreased 15.4% to $181.6 million from $214.6 million for the nine months ended September 30, 2000. The number of paramedical examinations performed decreased to 2,193,000 from 2,650,000. The decrease in the number of paramedical examinations is the result of a slower than expected recovery in the life insurance industry, an increasingly difficult economic environment, and certain competitive issues. The volume decrease in paramedical examinations performed was partially offset by an increase in the average revenue per unit of service of approximately .9% for the nine months ended September 30, 2001 compared to the nine months ended September 30, 2000. This percentage increase is the result of an increase in services performed per examination. The number of Infolink reports increased slightly to 308,000 from 307,000. The increase in the number of Infolink reports is due to increased volume of lower priced reports from one major Infolink client. The average price per Infolink report decreased by approximately 20%, and is due to an increase in lower priced reports from one major client which represents a greater percentage of the total Infolink reports provided. The Company's cost of operations for the nine month's ended September 30, 2001 totaled $130.1 million compared to $153.5 million for the nine months ended September 30, 2000. Cost of operations as a percentage of revenues increased to 71.6% for the nine months ended September 30, 2001 from 71.5% for the nine months ended September 30, 2000. Branch operating expenses for the nine months ended September 30, 2001, are down approximately 9.0% compared to the nine months ended September 30, 2000, however, they remain slightly higher as a percentage of revenues, thus contributing to the modest percentage increase in cost of sales. Selling, general and administrative expenses totaled $34.2 million for the nine months ended September 30, 2001 compared to $ 34.5 million for the nine months ended September 30, 2000, and as a percentage of revenue totaled 18.8% compared to 16.1%, respectively. The increase, as a percentage of revenues, is due to lower revenue levels for the nine months ended September 30, 2001. Accordingly, the Company's operating income decreased to $17.3 million from $26.6 million and as a percentage of revenues, decreased to 9.5% from 12.4% for the nine months ended September 30, 2001 compared to the nine months ended September 30, 2000. The effective tax rate was 42% and 43% for the nine months ended September 30, 2001 and 2000, respectively. Interest expense decreased to $ .2 million for the nine months ended September 30, 2001, from $ 1.2 million for the nine months ended September 30, 2000, due to lower interest rates on borrowed funds. Interest income decreased to $ 2.7 million for the nine months ended September 30, 2001, compared to $ 3.0 million for the nine months ended September 30, 2000. - 8 - The decrease in Other (expense) income, net, for the nine months ended September 30, 2001, as compared to September 30, 2000, is due to a one time pre-tax gain realized in the second quarter 2000, from the sale of securities owned by the Company of $.4 million. Net income and earnings per diluted share for the nine months ended September 30, 2001 were $11.4 million or $.17 per diluted share versus $16.4 million or $.24 per diluted share for the nine months ended September 30, 2000. Average diluted shares for the respective periods were 67,820,431 and 68,234,937. Liquidity and Financial Resources The Company's primary sources of cash are internally generated funds, cash equivalents, and marketable securities, as well as the Company's bank credit facility. On January 31, 2001, the Company entered into a marketing and equity investment agreement with e-Nable, at a total cost of $ 5.0 million. e-Nable provides an Internet-based business processing solutions that allow integration of data sources, underwriting intelligence, distribution channels and insurance products. In August 2001, the Company executed a convertible promissory note agreement with e-Nable, to provide additional financing for up to $ 1.75 million. As of September 30, 2001, there has been no additional financing provided to e-Nable. Net cash provided by operating activities for the nine months ended September 30, 2001 was $20.6 million compared to $20.7 million for the nine month's ended September 30, 2000. The significant sources were net income of $ 11.4 million, $7.0 million of depreciation and amortization, and a $1.2 million increase in accounts payable and accrued expenses. Days Sales Outstanding (DSO) for the nine months ended September 30, 2001 was 39.0 days, compared to 38.5 days for the year ended December 31, 2000, and 40.0 days at September 30, 2000. As of September 30, 2001, the Company has outstanding borrowings against the term loan in the amount of $ 3 million, and has no borrowings against the $ 35 million revolving loan. The Company's current ratio at September 30, 2001 stood at 7.0:1 as compared to 7.2:1 at December 31, 2000. Inflation has not, nor is it expected to have a material impact on the Company's financial results in 2001 and there have been no material commitments for capital expenditures. On May 30, 2000, the Board of Directors authorized the repurchase of 2.5 million shares of the Company's common stock during this calendar year for an aggregate purchase price not to exceed $ 25 million. For the period ended September 30, 2001, the Company purchased 1,222,100 shares for a total cost of $ 10.1 million. Dividends paid in February, May and August 2001 were $.0075 per share. At its board meeting on October 24, 2001, the Company declared a quarterly dividend of $.0075 per share. - 9 - Management believes that the combination of cash and cash equivalents, other working capital sources, and borrowings under the Company's credit facility along with the anticipated cash flows from operations, will provide sufficient capital resources for the foreseeable future. Recently Issued Accounting Standards In July 2001, the FASB issued Statement No. 141, Business Combinations, and Statement No. 142, Goodwill and Other Intangible Assets. Statement 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001 as well as all purchase method business combinations completed after June 30, 2001. Statement 141 also specifies criteria that intangible assets acquired in a purchase method business combination must meet to be recognized and reported apart from goodwill, noting that any purchase price allocable to an assembled workforce may not be accounted for separately. Statement 142 will require that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead be tested for impairment at least annually in accordance with the provisions of Statement 142. Statement 142 will also require that intangible assets with definite useful lives be amortized over their respective estimated useful lives to their estimated residual values, and reviewed for impairment in accordance with SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. The Company is required to adopt the provisions of Statement 141 immediately, and Statement 142 effective January 1, 2002. Furthermore, any goodwill and any intangible asset determined to have an indefinite useful life that are acquired in a purchase business combination completed after June 30, 2001 will not be amortized, but will continue to be evaluated for impairment in accordance with the appropriate pre-Statement 142 accounting literature. Goodwill and intangible assets acquired in business combinations completed before July 1, 2001 will continue to be amortized prior to the Company's adoption of Statement 142. Statement 141 will require upon adoption of Statement 142, that the Company evaluate its existing intangible assets and goodwill that were acquired in a prior purchase business combination, and to make any necessary reclassifications in order to conform with the new criteria in Statement 141 for recognition apart from goodwill. Upon adoption of Statement 142, the Company will be required to reassess the useful lives and residual values of all intangible assets acquired in purchase business combinations, and make any necessary amortization period adjustments by the end of the first interim period after adoption. In addition, to the extent an intangible asset is identified as having an indefinite useful life, the Company will be required to test the intangible asset for impairment in accordance with the provisions of Statement 142 within the first interim period. Any impairment loss will be measured as of the date of adoption and recognized as the cumulative effect of a change in accounting principle in the first interim period. In connection with the transitional goodwill impairment evaluation, Statement 142 will require the Company to perform an assessment of whether there is an indication that goodwill is impaired as of the date of adoption. To accomplish this the Company must identify its reporting units and determine the carrying value of each reporting unit by assigning the assets and liabilities, including the existing goodwill and intangible assets, to those reporting units as of the date of adoption. The Company will then have up to six months from the date of adoption to - 10 - determine the fair value of each reporting unit and compare it to the reporting unit's carrying amount. To the extent a reporting unit's carrying amount exceeds its fair value, an indication exists that the reporting unit's goodwill may be impaired and the Company must perform the second step of the transitional impairment test. In the second step, the Company must compare the implied fair value of the reporting unit's goodwill, determined by allocating the reporting unit's fair value to all of its assets (recognized and unrecognized) and liabilities in a manner similar to a purchase price allocation in accordance with Statement 141, to its carrying amount, both of which would be measured as of the date of adoption. This second step is required to be completed as soon as possible, but no later than the end of the year of adoption. Any transitional impairment loss will be recognized as the cumulative effect of a change in accounting principle in the Company's consolidated statement of earnings. As of September 30, 2001, the Company has unamortized goodwill in the amount of $81.5 million and unamortized identifiable intangible assets in the amount of $12.5 million, all of which will be subject to the transition provisions of Statements 141 and 142. Amortization expense related to goodwill was $ 3.2 million and $ 2.8 million for the year ended December 31, 2000 and the nine months ended September 30, 2001, respectively. Because of the extensive effort needed to comply with adopting Statements 141 and 142, it is not practicable to reasonably estimate the impact of adopting these Statements on the Company's consolidated financial statements at the date of this report, including whether any transitional impairment losses will be required to be recognized as the cumulative effect of a change in accounting principle. - 11 - Item 3. Quantitative and Qualitative Disclosures About Market Risk Market Risk. The Company's exposure to market risk for changes in interest rates relates primarily to the Company's investment portfolio. The Company places its investments with high quality issuers and, by policy, limits the amount of credit exposure to any one issuer. The Company does not invest in portfolio equity securities or commodities or use financial derivatives for trading purposes. The Company's debt security portfolio represents funds held temporarily pending use in our business and operations. The Company mitigates their risk by investing in only high credit quality securities that it believes to be low risk and by positioning its portfolio to respond to a significant reduction in a credit rating of any investment issuer or guarantor. The portfolio includes only marketable securities with active secondary or resale markets to ensure portfolio liquidity. The table below presents the principal amounts and related weighted average interest rates by year of maturity for our investment portfolio as of September 30, 2001.
2006 & Estimated 2001 2002 2003 2004 2005 thereafter Total Fair Value ---- ---- ---- ---- ---- ---------- ------- ---------- (in Thousands $) Fixed Rate Investments $1,000 $5,202 $7,061 $6,525 $6,223 $3,212 $29,223 $29,737 Average Interest Rates 5.23% 5.78% 5.76% 6.35% 6.07% 5.58% 5.92%
- 12 - SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Hooper Holmes, Inc. Dated: November 14, 2001 BY: /s/ James M. McNamee ------------------------------------ James M. McNamee Chairman, President and Chief Executive Officer BY: /s/ Fred Lash ------------------------------------ Fred Lash Senior Vice President Chief Financial Officer & Treasurer